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1.Introduction
The current seemingly stable world has been in a state of perpetual conflict for resources, affiliation, recognition, and even belonging. Earth’s history is a history of conflict and change, conflict could be seen through wars, and change reflected through the inculcation of new forms of being and new methods of exchange, of communication. These dynamic modes of exchange, reciprocity, knowledge as well as resource transfers have shaped the current developmental discourses around the globe. Eventually, the world has moved away from conflict for land towards conflict for resources and recognition. Herein lies the complexity and nuance of the intermingling of the phenomenon of trade and war.
Let's understand and contextualize this phenomenon through the lens of the prevalent US-China trade war.
1.1Background
The US-China trade war offset its global footprint from the late 1970s when the diplomatic ties between US and China were established, and China even came to prominence as one of the biggest trade partners of the US. However, in the 2000s China started to capitalize on its vast proportion of both geographical and human resources and began to emerge as a major power in the world. Thus, the sparks of conflict were lit between the superpower and the newly emerging contender.
1.2Key Events and Developments in US-China Relations
During the late 1970s, China embarked on a series of economic reforms under the guidance of Deng Xiaoping. The reforms reshaped the Chinese economy from a centrally planned model to an export-oriented system. Thus, using its human resource along with its manufacturing capabilities, China was able to effectively channel the export-oriented model towards becoming the second largest economy in the world.
Trade Imbalances:
The US began to experience an increasing volume of trade deficit with China. China was able to cash in on its ever-growing economic expansion and became an attractive location for foreign direct investment. The US had become reliant on China for its apparel, electronics, and machinery. The US import of Chinese goods was ever-expanding while the Chinese import of US goods was dwindling significantly compared to the excess export to the US.
The rapid rise of China as a contender raised uncertainty and suspicion in the US as it accused China of adopting unfair trade practices such as currency manipulation, imposition of high tariffs on imports, subsidizing domestic industries as well as intellectual property theft.
Intellectual Property Theft Concerns:
The US accused China of forced technology transfers from foreign companies to Chinese partners in return for access to the Chinese market.
China even joined the global trade watchdog WTO in 2001. This led to a series of talks and debates between the US and China. However, these negotiations remained fruitless as they were unable to drive a mutually beneficial solution.
Thus, these events lit the sparks that eventually fanned the flames of the US-China trade war from 2018 onwards.
Section 301 Investigation:
In March 2018, the United States Trade Representative initiated the Section 301 investigation which investigated China’s unfair trade practices. As a result of this investigation, the US imposed sanctions worth 50 billion dollars on various segments of Chinese goods such as cars, hard disks, steel products, electronic machinery, etc.
China responded to this by imposing sanctions worth similar value on US goods across sectors of agriculture, automobile, and manufacturing.
1.3Tipping Point of Trade War
In July 2018, the US imposed 10% taxes on an additional 200 billion Dollar worth of Chinese goods. China responded to this by imposing customs duties on 60 billion dollars’ worth of US goods.
Seeing the severity of the situation, US and China agreed upon a 90-day trade truce to allow for further talks. However, the negotiations broke down and the US increased tariffs from 10% to 25% on the 200-billion-dollar worth of Chinese goods. China responded to this by increasing tariffs on US goods worth 60 billion dollars.
Phase 1 deal:
In January 2020, China agreed to increase the purchase of US goods as well as tighten its intellectual property protections. The US also agreed to loosen the restrictions and tariffs imposed by it.
Impact of Covid-19:
The outbreak of Covid-19 led to the US questioning China for mishandling of the phenomena and untransparent system. This resulted in a new dimension of conflict as both countries engaged in a war of words that acted as a catalyst to further fan the flames of the ongoing trade war.
The trade war went on to engulf the domains of intellectual property rights and cybersecurity. The US took measures to restrict access of Chinese companies such as Huawei to US technologies.
The Biden administration has also emphasized cooperation wherever possible yet maintained a firm stance on its approach to trade practices with China and the trade war continues to yet persist with an undetermined and unfathomable prospective future.
1.4Triggers of Trade War
1.4.1Primary Triggers:
Tariffs and Trade Barriers:
The trade war between the United States and China, initiated in 2018, was primarily triggered by the imposition of tariffs on each other's goods. The U.S. implemented tariffs on a wide range of Chinese products, alleging unfair trade practices and intellectual property theft. For example, the U.S. imposed tariffs on $34 billion worth of Chinese goods in July 2018 and subsequently escalated to tariffs on hundreds of billions of dollars’ worth of goods.
1.4.2Secondary Triggers:
1.Retaliation:
In response to the U.S. tariffs on Chinese goods, China retaliated by imposing tariffs on various American products, including agricultural goods like soybeans and automobiles. For instance, China imposed tariffs on $50 billion worth of U.S. goods in 2018, which led to further rounds of retaliatory measures from both sides.
2.Protection of Strategic Industries:
The trade conflict between the United States and China also involves concerns over strategic industries. The U.S. has raised issues related to technology transfer, intellectual property theft, and national security risks. This has resulted in measures such as restrictions on Chinese telecommunications company Huawei and the inclusion of certain Chinese tech firms on export control lists.
1.4.3Tertiary Triggers:
1.Political Factors:
The trade war between the United States and China has been influenced by political factors. The U.S. government has emphasized the need to address trade imbalances, protect American industries and jobs, and ensure fair competition. These factors have played a role in shaping the U.S. administration's trade policy toward China.
2.Intellectual Property Rights (IPR) Disputes:
Intellectual property rights disputes have been a significant component of the U.S.- China trade war. The U.S. has accused China of intellectual property theft and forced technology transfer. These concerns have contributed to the imposition of tariffs and trade restrictions by the U.S. government.
2.Global Impact of US-China Trade War
The U.S.-China trade war, which began in 2018, has had significant social, economic, and political impacts. Here are some examples of these impacts:
2.1Social Impact
Consumer Price Increase:
Tariffs imposed by both countries have led to higher prices for imported goods, such as electronics, clothing, and household items. This has affected consumers' purchasing power and increased the cost of living. b. Job Losses and Employment Concerns. The U.S.-China trade war, which began in 2018, has had significant social, economic, and political impacts. Here are some examples of these impacts.
Industries directly affected by the trade war, such as manufacturing and agriculture, have experienced job losses and employment concerns. Workers in these industries may face unemployment or reduced work hours, leading to economic hardships for individuals and communities.
Disruption of Supply Chains:
The trade war has disrupted global supply chains, affecting businesses that rely on imported components or raw materials. This has led to production delays, increased costs, and potential job losses in industries dependent on global value chains.
2.2Economic Impact
Reduced Economic Growth:
The trade war has had a negative impact on economic growth for both the U.S. and China. The uncertainty caused by escalating tariffs and trade tensions has dampened business investment and consumer confidence, leading to slower economic growth. b. Decline in Trade Volume: Bilateral trade between the U.S. and China has decreased as a result of the trade war. Both countries have imposed tariffs on a wide range of goods, leading to reduced export-import activities and declining trade volumes.
Market Volatility:
Trade tensions between the two largest economies have contributed to increased market volatility, particularly in stock markets and currency exchange rates. Investors sentiment and market confidence have been affected by uncertainties surrounding trade policy decisions.
Global Economic Spillover:
The U.S.-China trade war has had spillover effects on other countries and regions. As global supply chains are interconnected, disruptions caused by the trade war have impacted businesses and economies around the world.
2.3Political Impact
Strained Diplomatic Relations:
The trade war has strained diplomatic relations between the U.S. and China. Tariff escalations and retaliatory measures have created tensions and hampered diplomatic efforts on other important issues, such as climate change or regional security.
Nationalistic Sentiments and Populism:
The trade war has fueled nationalistic sentiments and populist rhetoric in both countries. This has influenced domestic politics, policy decisions, and public opinion, potentially impacting bilateral cooperation and international relations.
Geopolitical Realignment:
The trade war has prompted a geopolitical realignment as countries reassess their economic and political relationships. Some countries have sought to strengthen ties with either the U.S. or China, potentially leading to shifts in regional alliances and global power dynamics.
Technological Competition:
The trade war has also become intertwined with technological competition, particularly in areas such as 5G, artificial intelligence, and cybersecurity. Concerns over technology transfer, intellectual property theft, and national security have further complicated the political dynamics of the trade war.
2.4The Trade War and Future of Technology Transfers and Innovation
As we have already established the significance of technology and its role in innovation, we can certainly speculate upon the impact that the trade war between two giants is having upon the discourse of innovation, of development.
A Slowdown of Global Innovation:
In a world as globalized as ours, the techno-war between the two giants has the potential to disrupt the transfer of knowledge across the world. This can lead to blockage of knowledge transfers and act as an impediment to innovation across different markets.
Regionalization of Tech Ecosystems:
Stringent restrictions on technology and intellectual rights can create an unconducive environment for innovation. This could lead to increasing skepticism across global markets and disrupt the trust between nations. Thus, leading to a preference for the regionalization of tech ecosystems.
Uncertain Investment Environment:
The increased skepticism and restrictions can impair the aspect of innovation in different regions. Capital acting upon its impulse would certainly avoid such regions as hotspots for investment. Thus, creating a fear of stagnation and inculcating uncertainty.
Therefore, the trade war between US and China can create lasting and disastrous negative externalities for different countries and industries that will most likely get caught in the midst of the trade war.
These examples highlight the wide-ranging social, economic, and political consequences of the U.S.-China trade war. The impacts extend beyond the two countries involved, affecting global trade, investment, and geopolitical relationships. The U.S.-China trade war refers to an ongoing economic conflict between the United States and China, characterized by the imposition of tariffs and trade barriers on each other's goods. The trade war started in 2018 when the U.S. imposed tariffs on Chinese imports, citing concerns over unfair trade practices and intellectual property theft. China responded with retaliatory tariffs on U.S. goods, escalating tensions between the two countries.
3.Impact of US-China trade war on India
The trade war between the US and China, the world’s two biggest giants, slows down the world economies at a larger scale.
The United States' former President Mr. Donald Trump sees China as a major enemy, a hurdle in the growth and economic rivalry in front of the US economy. In the interview, he stated that because it is an economic enemy, China has taken advantage of the US like nobody in history.
The US has had a huge trade deficit with China for a long time. The effect of a trade war is much more than a deficit because it is a battle of power and economic dominance among the top two countries.
The trade tensions between the US and China have resulted in some opportunities for Southeast Asian nations. The Indian economy is a major beneficiary. This trade war will help India to tap into the international market very easily.
● India could increase its trade particularly on which the US has imposed heavy tariffs on Chinese goods and services.
● The United States and China are major trade partners of India in international business and can fulfill the huge gap of trade deficit through export.
● Diversification of investment flows in automobile, agriculture, equipment, healthcare, electronics & garments manufacturers to seek India as one of the sound alternative manufacturing destinations.
● India needs to fast-track innovative governance policies and infrastructural facilities to attract foreign investors.
● India is the only country in the world that can match the scale of operations after China and can meet the market requirements on time.
● India can seek more opportunities in the enhancement of information and communication technology, eCommerce, the chemical industry, outsourcing, and the automotive sector.
● China is more willing than ever before to provide market access to Indian exporters and Indian exporters have all the capabilities and potentials to fulfill international demands.
Indian economy is the 5th largest economy in the world. Indian businesses or exporters have significant strengths and capabilities to deal with international markets.
Some of the key facts of the Indian economy are emerging economy, highly skilled manpower, mixed economy, eCommerce, strong agricultural background, huge market, potential customers, fast-growing economy, huge size market, business outsourcing, the contribution of the service sector is highly visible, stability in the growth, good GDP contribution, etc.
Indian Government has sound international relations with other countries. The United States is one of India's biggest military partners and on the other hand, China is one of its biggest economic partners. India has developed and maintained a good rapport with international organizations.
The Indian government has introduced various schemes to promote new start-ups or businesses like Make in India, start-up India, stand up India, skill India, digital India, and self-reliant India, etc.
India is one of the highly admired destinations or hubs for investment and businesses. The studies stated that the entire world is looking towards India as a path maker or path shower to the rest of the world. The Indian economy is marching towards the same and the years are not far from being a world superpower.
The great saint of India, Swami Vivekananda once told a group of journalists at Michigan University,
“This is your century right now, but the twenty-first century will be the century of my mother India”.
4.De-Escalation Measures Taken
During the U.S.-China trade war, efforts were made by both countries to de-escalate tensions and find resolutions. Some of the de-escalation measures taken include:
1.Phase One Trade Agreement:
In January 2020, the U.S. and China signed a Phase One trade agreement. This agreement aimed to address certain trade issues and ease tensions between the two countries. It included commitments from China to increase purchases of U.S. goods, strengthen intellectual property protection, and address issues related to forced technology transfer. In return, the U.S. agreed to reduce some tariffs on Chinese imports.
2.Tariff Reductions and Suspensions:
As part of the trade negotiations, both countries agreed to reduce or suspend tariffs on certain goods. For example, in February 2020, the U.S. announced tariff reductions on Chinese imports worth billions of dollars. Similarly, China announced tariff exemptions or reductions on a range of U.S. goods, including agricultural products.
3.Trade Talks and Negotiations:
Throughout the trade war, multiple rounds of negotiations were held between the U.S. and China to find common ground and resolve trade disputes. High-level officials from both countries engaged in discussions to address various issues, including intellectual property rights, technology transfer, and market access.
4.Postponement of Tariff Increases:
Both countries have at times postponed or delayed implementing planned tariff increases. This provided temporary relief and allowed for further negotiations to take place.
5.Diplomatic Engagements:
Diplomatic efforts were made to improve bilateral relations and de-escalate tensions. Meetings between leaders, such as the G20 summits, provided opportunities for discussions and negotiations between the U.S. and China on trade-related matters.
6.Temporary Truces:
Temporary truces were announced during certain periods of the trade war. For example, in December 2018, the U.S. and China declared a 90-day ceasefire, during which they agreed to halt further tariff escalations and engage in negotiations.
It is important to note that while these de-escalation measures aimed to ease tensions and find common ground, the trade war is an ongoing and complex issue. Many unresolved issues remain, and the overall relationship between the U.S. and China continues to be influenced by a range of economic, political, and security considerations. The path to a comprehensive and lasting resolution is still a subject of ongoing negotiations and diplomatic efforts.
5.Are Trade Wars Avoidable?
Trade wars are not inherently unavoidable, but they can be triggered by a combination of factors and circumstances. While countries may have legitimate disagreements or disputes over trade practices, the escalation into a full-blown trade war can often be prevented through diplomatic efforts and international cooperation. Here are some key factors that can contribute to avoiding trade wars:
1.Diplomacy and Negotiation:
Diplomatic channels provide opportunities for countries to engage in dialogue, address grievances, and find mutually beneficial solutions to trade disputes. Negotiations can lead to compromises and agreements that avoid the need for retaliatory trade actions.
2.Rules-Based International Trade System:
An established rules-based international trade system, as seen in organizations like the World Trade Organization (WTO), provides a framework for resolving trade disputes through formal mechanisms. Adherence to these rules can help prevent unilateral trade actions that may escalate into trade wars.
3.Trade Agreements and Treaties:
Bilateral or multilateral trade agreements and treaties can set out clear terms for trade relations between countries. These agreements help provide predictability and stability in trade interactions, reducing the likelihood of trade conflicts.
4.Conflict Resolution Mechanisms:
Including specific mechanisms for resolving trade disputes within trade agreements or international organizations can provide a structured approach to address trade disagreements before they escalate into full-blown trade wars.
5.Economic Interdependence:
Countries with strong economic ties and interdependence have more incentives to resolve disputes through negotiations rather than resorting to trade wars. Disruptions to trade can have significant negative impacts on both parties involved.
6.Understanding Comparative Advantage:
Recognizing and understanding the principles of comparative advantage can foster cooperation between countries. Each country can focus on producing goods and services in which they have a comparative advantage and then trade for other goods, benefiting both economies.
7.Transparency and Information Sharing:
Transparency in trade policies and practices can reduce uncertainty and mistrust between countries. Open communication and information sharing can help identify and resolve potential trade issues before they escalate.
While trade wars can be avoided, it requires a willingness from all parties involved to engage in dialogue and find common ground. However, geopolitical tensions, political considerations, and protectionist sentiments can complicate efforts to prevent or resolve trade disputes peacefully. Building and maintaining stable trade relations require continuous efforts and a commitment to upholding the principles of open, fair, and rules-based international trade.
6.Recommendations
Let’s understand the recommendations through the dynamic response of India to the trade war rather than having a bunch of static and desolate recommendations.
India’s Response to The Trade War:
1.Diversification of Trade Partnerships:
In response to trade wars, India has actively pursued diversification of its trade partnerships. The country has engaged in negotiations with various regions and countries, such as the Association of Southeast Asian Nations (ASEAN), the European Union (EU), and Latin American nations, to strengthen existing trade ties and explore new avenues.
2.Enhanced Regional Integration:
India has placed greater emphasis on regional integration initiatives like the South Asian Free Trade Area (SAFTA) and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC). By strengthening regional trade cooperation, India aims to reduce its reliance on specific markets and enhance economic resilience.
3.Promotion of Domestic Industries:
India has focused on promoting domestic industries through initiatives like the "Make in India" campaign. By encouraging local manufacturing, the country aims to reduce dependence on imports, enhance self-sufficiency, and boost export capabilities.
4.Reforming Trade Policies:
India has undertaken reforms in trade policies and procedures to improve the ease of doing business and attract foreign investments. This includes streamlining customs procedures, reducing bureaucratic red tape, and introducing policies to enhance trade facilitation and logistics infrastructure.
5.Strengthening Bilateral Relations:
India has actively sought to strengthen bilateral relations with key trading partners, such as the United States, the UK, and countries in the European Union. By engaging in dialogues and negotiations, India aims to resolve trade disputes and create more favorable trade environments.
Meet The Thought Leader
Akshar Madhavaram, an IIT-Delhi graduate, is a seasoned professional with expertise in education consulting, product management, and entrepreneurship. Co-founder of web3 startup TIAR, he's passionate about technology and education reform.
Meet The Authors (GGI Fellows)
Aneesh has recently completed his Bachelors in Sociology from Fergusson College, Pune. Being a firm believer in the power of social sciences, he aims to channelize his individual efforts towards creating a sustainable and equitable society. He is currently pursuing his masters in Development Studies from Azim Premji University in Bengaluru. His brief experiences with various NGOs and Think tanks has led him to develop an interest in urban development. Ultimately he wishes to embark on a passionate pursuit of development that brings positive change not only in the social landscape but also within himself.
Gaurav is a strong product & commercial leader with 10+ years of diverse experience over Product Management, Channel Sales/B2B Sales/B2C sales across Hospital & Healthcare, Education and Banking Industry. Have a rich experience of working with people from various backgrounds across different geographies. Highly competitive & performance oriented person known for establishing new product markets, sourcing business, farming accounts, pursuing C-suit clientele, relationship building & leading sales team to success. He is an MBA & Engineer by education and is a passionate adventurer.
Neha holds a mechanical engineering degree from Delhi Technological University. She started her professional career with the Engine R&D department at Mahindra and Mahindra automobiles Ltd, where she was working on designing breakthrough technologies to optimize exhaust emissions. With an inclination to do socially impactful work, she later joined a social start-up, Persapien Innovations, founded with a vision of impacting the life of every human being. At Persapien, she worked in the space of air-pollution and disinfection. In her tenure at Persapien Innovations, she worked in various roles ranging from engineering designs to leading Volvo’s pan –India Breathe free campaign to raise awareness against air-pollution. Added to this, she managed the entire supply chain operations for two innovative products of the start- up - Car Air Sanitizer and Masks with a view of making these products available to needy people. To promulgate the innovation, she conceptualized the working prototype and trained the manpower to demonstrate the same, leading to better adoption of the products and hence increased reach. Neha has also led the fund raising efforts to fuel some of the most innovative and impactful technology at Persapien including a unique air disinfection technology developed to fight the menace of COVID19 pandemic. She helped in securing grants from Government agencies like BIRAC and NITI-Aayog. She also ran a successful Ketto Campaign during COVID19 pandemic to support the development of pandemic control technology.
Nikita is an Economics graduate and a data analyst having 4 years of diverse experience working and leading teams for Fortune 100 clients and startups across marketing, product, and retail analytics. I will be starting my MBA at Esade Business school this fall! I grew up across 2 countries and 8 cities building diverse experiences, and I have been a volunteer for a decade. Outside of my work, I am an avid traveler and outdoors enthusiast.
Dr. Saumya Arora is a nonprofit professional with 9 years of experience in social impact organizations in India and the UK. Aside from working in grassroots level organizations in program management and fundraising roles, she has consulted and advised new ventures and established organizations around fundraising strategy and donor engagement mechanisms. Following rich experiences at leadership, managerial and at grassroots level with various non-profits, Saumya has acquired deep knowledge of program, donor and partnership management and organizational operations. She has continued to immerse herself in the development sector and is currently working at the London based headquarters of an international education movement, where she manages programmes by working with partner organizations around the world.
Vamsi is an engineering graduate who completed his BTech in Mechanical Engineering from NIT Raipur and has nearly 3 years of experience in the Automotive (EV) sector. He works a testing & development engineer in a top MNC gearing for 2-wheeler products majorly.