For the past year, the on-going US-China trade war has dominated headlines and caused increasing unrest in the global community. The tensions have escalated to a point where by the end of 2019, it is likely that the US and China will have tariffs covering nearly 100 per cent of imports from each other. Along with such expansive protectionist policies will come significant impacts on the US, China, and the rest of the world. There have been numerous studies over the years on the trade wars and their effectiveness as a protectionist measure. In general, studies have found that all countries lose in terms of welfare from a global trade war, not just those directly involved. Due to these results and deepening global integration, large-scale trade conflicts have been extremely rare, until the current conflict. The US has justified their initiation of the conflict with four central reasons, those being concern over the bilateral trade deficit with China, China’s incomplete free market transition, currency manipulation by China, and concerns over the World Trade Organization’s ability to address these concerns. These four concerns have varying degrees of legitimacy, with China’s stalled market transition being the most valid, as it is significant for both the US and the larger global trading community. On the other hand, concerns over a bilateral trade deficit and the specific accusation of currency manipulation present little to no legitimacy as a reason to justify a trade war. Backed with these four central reasons, legitimate or not, the US led the way into the trade war with the goals to reduce the bilateral deficit and to suppress China’s anticompetitive behaviour. While endeavouring to alter the bilateral deficit will only decrease US overall welfare, attempting to suppress anticompetitive behaviour is a worthy goal. However, doing so through tariffs has proved both costly and ineffective thus far. US President Donald Trump has claimed that his tariff policies will have no impact on US consumers and that the tariff will be exclusively paid by foreign entities. Despite the President’s assertions, the claims appear to be false. To illustrate this point, this analysis conducted a case study to model the impact of the tariff policy on the US steel industry. The study indicated that US steel users will lose around US$6 billion in welfare, resulting a net loss of over US$900 million. In addition to any domestic costs, the trade war will have severe impacts on the larger global trading community. These impacts can be broadly categorized into global economic, diplomatic, and system impacts. All evidence points to the international community being negatively impacted by the trade war. Most notably, global value chain disruption, breakdown of global connections, increasing uncertainty and rising tension between nations are likely outcomes of the protectionist policies. The most long lasting and damaging outcome of the US-China trade war may be the impact that it has on the WTO, as the conflict is adding to existing concerns over the effectiveness of the organization. The trade war is facilitating further breakdown of the norms and rules of the multilateral system as well as deteriorating the reputation of the US and China within it. When all costs and consequences are considered, it is easy to see that trade wars are in fact not good and not easy to win, as has been claimed by the US president.
Hides, T. (2019). The True Costs of Trade Wars: An Analysis of the US-China Trade War (Unpublished master's project). University of Calgary, Calgary, AB.