ASSISI CONVENT SCHOOL

general studies
2025-26

Name – m. krishnakaanth
Class – xii-e
Roll no. –
 general studies
2025-26

Name – m. krishnakaanth
Class – xiie
Roll no. –
Topic – trade war and economic condition
due to international war
 Trade War
I.1. What is a trade war?
A trade war is a situation in which countries engaged in
international trade seek to reduce competitive imports through tariffs,
quotas or other restrictions on imports and expand exports. export
through export promotion measures. Such measures to harm neighbors
and with them the escalation of trade protectionism often fail and lead to
a decrease in the volume of international trade and the incomes of the
countries concerned.

I.2. Forms of trade war

Currency war: Countries seek to gain advantage by devaluing their
own currencies against foreign currencies. When the exchange rate falls,
exports to another country become more competitive while imports
become more expensive. Both of these effects are beneficial for the
domestic industry. However, an increase in the price of imported goods
(as well as the cost of traveling abroad) reduces the purchasing power of
people, and if all countries adopt such a strategy, it will undermine trade.
global and harmful to all countries.

Tariff war: Countries that increase tariffs on goods imported from

abroad make these imported goods more expensive due to incurring
additional tax costs, leading to reduced competitiveness with domestic
products. not taxable.

Economic embargoes: Trade and financial penalties imposed by

one or more countries against a government, organization or
individual.Economic embargoes are imposed not only for economic
sanctions, but also for economic sanctions. for many purposes such as
politics, military, and society.

Economic warfare: An economic strategy in which measures are

used to undermine the opponent's economy. For example, during
wartime, economic warfare aims to block, seize, control and destroy
important economic resources to weaken the opponent's force. Economic
warfare is often an aspect of an all-out war, in which not only armed or
military warfare, each other's economic destruction can undermine the
enemy's ability to fight.

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 I.3. The benefits and harms of trade war

Benefit Harm

Protect local Increasing costs and

companies from unfair causing inflation
competition
Increasing consumer The cause of the
demand for domestic goods commercial market decline

Promote domestic job Trade stagnation

growth

Improve trade deficit Economic growth is

slow

National sanctions Damaging diplomatic

have unethical trade policies relations, cultural exchange

I.4. Some trade wars in the world

I.4.a. The Smoot – Hawley Tariff Act (1930)

The Smoot-Hawley Tariff Act, enacted in June 1930, added about

20% to the United States' already high import duties on foreign
agricultural products and manufactured goods. A law passed in 1922, the
Fordney-McCumber Act, had raised the average import tax on foreign
goods to about 40%.

The Smoot-Hawley Act increased tariffs on foreign imports to the

U.S. by about 20%.

At least 25 countries responded by increasing their own tariffs on

American goods.

Global trade plummeted, contributing to the ill effects of the Great

Depression.

I.4.b. Japan - Korea trade war 2019

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 The 2019–2020 Japan–South Korea trade dispute, sometimes also
known as Japan–South Korea economic war on the Korean side, is an
ongoing economic conflict between Japan and South Korea, the world's
third and eleventh largest national economies.

The conflict was fuelled by the legacy of World War II, and the
ruling of the Supreme Court of South Korea which ruled in October and
November 2018 that 10 forced labour victims were able to claim
compensation from many Japanese companies.

The cause of the conflict was officially cited by the Japanese

government as the South Korean government allegedly not complying
with export control security regulations and ignoring the Japanese
government's request to have a bilateral trade dialogue for three years, but
it was also characterized by a dispute over legacy of Japanese colonialism
of the Korean Peninsula from 1910 to 1945, particularly the issue of
"forced labour" and comfort women compensation. The trade dispute has
caused a significant deterioration in Japan–South Korea relations to the
lowest point since the two countries normalized their diplomatic relations
in 1965.

I.4.c. The US-China trade war 2018–2019

The China–United States trade war is an ongoing economic

conflict between China and the United States. President Donald Trump in
2018 began setting tariffs and other trade barriers on China with the goal
of forcing it to make changes to what the U.S. says are "unfair trade
practices". Among those trade practices and their effects are the growing
trade deficit, the theft of intellectual property, and the forced transfer of
American technology to China.

The trade war has negatively impacted the economies of both the
United States and China. In the United States, it has led to higher prices
for consumers and financial difficulties for farmers and manufacturers. In
China, it has led to record decreases in economic growth and
manufacturing activity. In other countries it has also caused economic
damage, though some countries have benefited from increased
manufacturing to fill the gaps. It has also led to stock market instability.
Governments around the world have taken steps to address some of the
damage caused by the economic conflict

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I. CAUSES OF THE TRADE WAR
It is considered that March 23, 2018 was the formal date when the trade
war began with D. Trump signing the “Presidential Memorandum Targeting
China's Economic Aggression” and introducing tariffs on steel and aluminium.
However, the tensions in the economic relations of the US and China had
appeared and were discussed earlier. The WTO granted China the status of a
market economy in 2017, which aroused criticism from the US, because the
decision limited opportunities for protectionism against companies from China.
The US refused to recognize China as a market economy, which was the first
step towards the confrontation within the “Group of Two”. Trump's
confrontational policy was reflected in the National Security Strategy, adopted
in December 2017. It introduced restrictions on China’s investments in
American technology, tightened exports control and expanded the list of dual-
use products that could not be shipped to China. The Entity List was introduced:
US companies were banned from doing business with enlisted companies,
including the ZTE Corporation which was accused of violating US sanctions
against Iran.
Despite reaching the agreement at the G20 summit in Osaka, the parties
very soon started exchanging threats to increase the tariffs. Chinese companies
were reported to stop buying agricultural products from the US. The US
accused China of currency manipulations aimed to gain competitive advantage
and partly neutralize the effects of tariffs. China, in turn, initiated the third
WTO case against the US questioning the reasons for imposing the tariffs.
Neglecting the results of the G20 summit The US introduced a new list of tariffs
on $125 billion worth of imports from China. China then imposed 5% tariff on
US crude oil and other goods worth $75 billion. The both parties later excluded
some goods as it was becoming more and more evident that businesses of the
both countries were paying too much for the actions of the governments.

Unilateral sanctions against ZTE and Huawei have significantly reduced

their competitiveness and impeded the development of China’s high-tech
industries. China is unlikely to make significant concessions and abandon the
development of the digital economy. On the contrary, it is likely to pursue the
development of its own technologies, as well as put under boycott American
goods and services.
In particular, one of the sensitive topics of the trade negotiations in
agriculture is China’s import of the US-produced soybeans. China had stopped
importing soybeans from the US in July 2018 but resumed buying US soybeans
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in December 2018. Agricultural exports of the US have later been in the centre
of negotiations. As a result, China excluded soybeans, as well as other farm
products from additional tariffs in September 2019.
The US wants to increase the number of jobs by returning the US capital
to its home country and conducting reindustrialization. And at the same the
country seeks ways to reduce the costs of serving as a global leader. The
Americans blame China for many of their problems. By developing the Belt and
Road Initiative, China also reduces American influence in the APR.
The causes of the US protectionist actions, and not only against China,
can be identified as internal and external – from the perspective of the US own
interests. Supporting domestic producers by limiting foreign competition can
reduce overall consumption in the US but that will also increase the production
volume of mainly steel and aluminium products to which increased tariffs
apply. In addition to supporting domestic producers, the chronically passive
balance of the US current account can also be considered to be the internal
factor. Mutual trade with the PRC is a significant factor influencing the
increasing current account deficit of the US.
We can identify four main causes, or incentives for the trade war between
the US and China.
The trade war is supposed to reduce the deficit of bilateral trade and bring
American jobs back home. Out of the $796 billion worth US trade deficit in
2017, China accounted for $376 billion, or 47%, almost a half. The US
acknowledges several problems in the trade with the PRC, the trade balance
deficit being the most important one. The issue has been emerging for decades
and still has an increasing trend (although the US trade deficit with China
reached a historic low in May 2019). The US does not consider trading with
China "fair".
Out of the total Chinese exports, 19% goes to the US. But only 8.3% of the US
exports go to China . In 2018, exports from the US to the PRC dropped by 21%
as a result of the introduction of protectionist measures, but reduction was only
by 12% in the trade flow from China to the US.

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 Fig 1 US-China Trade Balance

Note: All values in the graph are in billions of USD

Source: US-China Trade War: Causes and Outcomes
The trade war is supposed to reduce high-tech capacity of China . The US is not
satisfied with China’s requirements on creating joint ventures for technology
transfer as a contribution to authorised share capital of local companies.
Another sensitive topic is Chinese public investment creating unfair competition
in global markets . The US has been alerted by China's success in implementing
a strategic plan for production modernization, increase in production of robots,
lithium batteries, network equipment, etc. The US has increased import tariffs
up to 25% on electronic products from China, including telecommunication and
network equipment.
The trade war is supposed to prevent the growth of China’s military strength.
Markov believes that it is absolutely unacceptable for the US to let China
achieve superiority in the military sector, even in the long run . Consequently,
the US is taking measures to ensure its competitive advantage in the national
security sector and to prevent China from using American dual-use
technologies.
The trade war is supposed to cut the federal budget deficit. According to
Dongsheng Di, Gal Luft, & Dian Zhong, “the US will need additional sources
of income like tariffs in order to balance its budget, and tariffs on Chinese
products is viewed as a main source of such income” . The budget deficit of the
US federal government grew and exceeded USD 21 trillion, which was
attributed partly to tax cuts in December 2017. The Chinese government also
has a much healthier fiscal position and is free to compensate any industries
harmed by a trade war. By contrast, the US government is facing a large budget
deficit of some 4 percent of GDP that is set to rise in the next few years.
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II. TRADE WAR MILESTONES.
Time period, general US actions China’s actions
Context
Investigation on steel
April – May 2017
and aluminium imports US companies get greater
Top-level negotiations is initiated. access to China’s
to resolve trade agriculture, energy, and
The US allows China to
disbalances; 100-day financial markets.
sell cooked poultry to
plan for trade talks.
the US.
Global safeguard tariffs:
February – April  30% on solar panels;
2018  20% on washing
machines;
Investigation into
 25% on steel
China’s acts, policies
imports;  15-25% tariffs on
and practices relating
 10% on aluminium 128 product
to technology transfer,
imports. categories including
intellectual property
and innovation. Measures targeting fruit, wine, seamless
China: steel pipes, pork and
The US initiates a recycled aluminium.
WTO case against  restricting investment  178.6% antidumping
China for in key technology duties on sorghum
discriminatory sectors; imports from the US.
licensing.  imposing import
tariffs on aerospace,
The US releases the
IT, communication
official statement
and machinery;
(May 2018).
 including ZTE in the
Entity List.
July 2018 25% tariff on 545
products (imports worth
Ongoing negotiations; 25% tariff on 818
$34 billion), including
products (imports worth
internal discussion of agricultural products,
$34 billion).
the new lists of autos and aquatic
restrictions. products.
August 2018 25% tariff on 279 goods 25% tariffs on 333 goods
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 (imports worth $16
The parties exchange billion) including: (imports worth $16
preliminary lists. semiconductors, billion) including: coal,
chemicals, plastics, copper scrap, fuel, buses
China files WTO motorbikes and electric and zmedical equipment.
claim and complain scooters.
against the US.
September 2018 10% tariff (announced
China cancels the subject to further
trade negotiations and increase up to 25% in 5% and 10% tariffs on
releases the White 2019) on $200 billion $60 billion worth imports.
Paper stating the worth imports from
official position. China.

December 2018
China increases import of
G20 summit in agricultural and energy
The US announces that
Buenos Aires. products, and lowers
the new list of tariffs will
tariffs on cars and auto
The US and China be delayed.
products from 25% to
agree not to increase
standard 15%.
tariffs for 90 days.
25% tariff (increase from 25%-20%-10% tariffs
May – June 2019 10%) on $200 billion introduced for $60 billion
worth imports. worth of imports
Ongoing trade
negotiations before the Huawei and five other (increased from 10%-
G20 summit. companies of China are 10%-5%
added to the Entity List. correspondingly).
June 2019 The ban on deals with
G20 summit in Osaka. Huawei is reconsidered. China announces its plans
The parties agree to 110 products are to increase import of
avoid increasing excluded from the 25%- agricultural products.
tariffs. tariffs.

Aug 2019 Aug. 1, 2019 Aug. 5, 2019

Trump announces 10% China halts purchases of
tariffs on $300 billion U.S. agricultural
worth of Chinese products, and the Chinese
imports, after two days yuan weakens past the
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 key seven per dollar level.
Equity markets plummet.
The U.S. Treasury says
of talks with no progress. China is manipulating its
currency.
Aug. 13, 2019
Aug. 23, 2019
Trump postpones some
of the 10% tariffs on the China announces
$300 billion goods list additional retaliatory
until Dec. 15. tariffs on about $75
billion worth of U.S.
goods.

On Dec 13, Washington and Beijing announce a

"phase one" deal under which Beijing agrees to
import US$200 billion of US products over two
years.
The US cancels new tariffs due to kick in Dec 15,
and promises to slash in half the 15 per cent tariffs on
US$120 billion imposed Sep 1, on consumer goods
Dec 2019: like clothing. Beijing also suspends new planned
preliminary accord. taxes.
US and Chinese officials say the agreement includes
protections for intellectual property, and also
addresses, financial services and foreign exchange
while including a provision for dispute resolution.
It also restores a twice-yearly dialogue process that
previous administrations conducted regularly but that
Trump scrapped early in his administration.
Jan – Feb 2020 Jan 27: The US warns
against travel to China, a
day after five people
who had been in Wuhan
become the first
confirmed cases in
America.
Feb 1: The US,

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 Singapore, Russia and
Australia ban foreign
travellers who were
recently in China.
June 22: Washington
March 17: Beijing says it will start treating
withdraws the press four major Chinese media
credentials of American outlets as foreign
journalists working for embassies, alleging that
three US newspapers in they are mouthpieces for
China. Beijing.

July 1: US Secretary of
May 28: China's State Mike Pompeo calls
Parliament the Hong Kong law an
March - July 13 2020 overwhelmingly affront to all nations and
approves imposing says Washington will
national security pursue Mr Trump's
legislation on Hong directive to end the
Kong. Mr Trump orders territory's special status.
his administration to July 13: Washington
begin the process of rejects Beijing's claims to
eliminating special US offshore resources in
treatment for Hong most of the South China
Kong. Sea, drawing criticism
from China, which says
the US position raises
tension in the region.
July 22 - July 24 July 22: The US tells July 24: China tells the
2020 China to close its US to close its consulate
consulate in Houston, in Chengdu, Sichuan.
Texas.

July 27: The United

July 25:The Chinese States consulate in the
Consulate General in Chinese city of Chengdu
Houston has closed officially closed Monday
following Tuesday's morning.

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 order to do so after US
officials alleged it was
part of a larger Chinese
espionage effort using
diplomatic facilities
around the US, a State
Department
spokesperson confirmed
to CNN late Friday.

July 23: Mr Pompeo

accuses the Chinese
consulate in Houston of
being a spying hub for
"intellectual property
theft" and calls on US
allies to pressure China.

Mr Trump had on
Thursday issued a pair of
executive orders to ban
TikTok and WeChat in
Aug 6 2020 45 days, a move that
marks a significant
escalation in the
confrontation between
Beijing and Washington.

III. IMPACT ON GLOBAL ECONOMIC

I.5. THE UNITED STATES
The American producers were the first to feel the impact of increased
tariffs, both as importers of intermediate and capital goods from China, and as
exporters to the Chinese market. Some of them were affected only by one of
these tariff increases (either that of the US, or China’s), but others - who either
import components and industrial equipment from China and then export there
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the final goods, or they first export machinery and components to be assembled
in China for subsequent import of the goods assembled – were hit twice.
According to a study by Lovely&Yang (2018), some of the most affected
companies will be the American MNCs that assemble final goods in China from
parts made in the US. In their oppinion, 87% of the items affected by the new
tariffs are those of the non-Chinese MNCs and only the balance of 13% are
items produced by Chinese firms. Another study, by the Federal Bank of San
Francisco pointed out, back in 2011, that for each dollar spent on a product
made in China, 55 cents are for services produced in the US (NYT, 2018). That
means that the import barriers to their access on the American market impacts
the US suppliers of such services more than they hit the Chinese firms.
The US import tariffs are ultimately paid by the American consumers
and producers, not by the Chinese ones, and, usually, the country that imports
more is prone to suffer more from a trade war. That’s the case of the US, at least
theoretically, in their trade relationship with China. Some of the affected
American companies may decide, in case they can, to absorb the additional
costs and diminish their profits. Others, may transfer those costs to the
consumer, risking to lose clients, market shares and, again, profit. As exporters,
they are also at a disadvantage in the international markets, where they may
meet competitors which don’t have these additional costs and, as such, become
more competitive by comparison. In fact, more accurately, what happens is that
the American companies lose competitiveness and, consequently, they are
forced to find ways of either reducing costs, or increasing the value added to
their goods.
To cut costs, US companies may try to replace their Chinese suppliers or
assemblers, but normally, in a GVC, the market forces had already optimized
costs, therefore the chance of finding replacements may be reduced, while the
costs of identifying and integrating them efficiently into the GVC might be
quite high and time-consuming. Some companies might also decide to postpone
their investments and development plans, to cut other costs, freeze wages, fire
personnel etc. Others might decide to relocate their activities in low-cost
countries which are not subject of either the American, or the Chinese higher
import tariffs.
On the other hand, there are many American companies - from Starbucks,
Nike and Apple, to General Motors (which sells more cars in China than in the
US), Ford and Boeing – that have developed great businesses in China. These
companies, to which China became a key market, might suffer the
consequences of the trade war not only by way of higher tariffs, but also in case
Chinese consumers decide to boycott them, refusing to buy their goods and
services. This has happened before in China’s disputes on goods and services
offered by South Korea, Japan, or the Philippines, and it might happen again
(NYT, 2018).
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 To conclude, the impact of the new import tarrifs on the US companies,
reflected in higher costs, diminished competitivenes and profit, lost jobs, eforts
to redesign the supply chains and/or to relocate production in low-cost countries
unaffected by the trade war, is not at all what the Trump administration intended
(i.e. more orders for American companies located in the US, more jobs in the
US domestic labour market, the return in the US of the American firms
relocated in China and elsewhere etc.), but on the contrary.
Agriculture: American farmers are most affected in the trade war with
China after the country stopped buying large quantities of agricultural products,
especially soybeans from the US. Annual U.S. agricultural exports to China
have fallen from nearly $ 25 billion to as low as less than $ 7 billion in the 12
months to April 2019. Agricultural debt in the past year hit a new record due to
an increase in bankruptcy cases plus unfavorable weather. The US government
spent $ 28 billion to support the loss of farmers in this country, who fear that the
US-China trade relationship will never be restored. Under the US-China trade
agreement phase 1, China will buy US agricultural products worth up to $ 40-50
billion per year.

Trade tariff: President Trump can "clap his chest" proudly that China
has lost more than the US. Comparing the trade data of the first 9 months of
2019 with the same period in 2018, the value of Chinese imports of US goods
has decreased by 53 billion USD, while exports only decreased by 14.5 billion
USD. However, the amount of US merchandise exports to China is much less
than it imports, so the drop in exports is negligible. Meanwhile, exports of
agricultural products of the US decreased 2 billion USD. Transport equipment
exports fell 5.8 billion USD.
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 Another U.N. analysis showed that consumers and importing companies
in the United States are heavily burdened by the tariffs Washington imposed on
Beijing as the prices of imported goods have been pushed up. than. “American
consumers are paying for tariffs at a higher price. Importers of intermediate
products, such as those that import components and parts from China, suffer the
same fate, ”said Alessandro Nicita, an economist at the United Nations Forum
on Development and Trade. (UNCTAD) reviews. However, it was the
American farmer who was most severely affected. As the trade war escalated,
many Chinese companies stopped buying American agricultural products. This
caused American farmers to lose their large market, have a large cut of their
revenue and have to apply for government subsidies.

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 Economic growth: In early 2018, the Trump administration achieved its
target with an economy growing 3% or more per year. Also in February 2018,
the White House forecasts that the US economy will continue to grow by more
than 3% per year in 2018 and 2019, and the economy will be so strong that the
Federal Reserve will not continue to increase interest rates. basic rate. However,
the US-China trade war continued to be tense and the US administration began
17
asking the Fed to lower the basic interest rates to consolidate the economy. FED
has cut the basic interest rate 3 times, but the growth of the US economy has
decreased to 2%. There are a number of other factors that slow the US
economy. The boost to tax reform in 2017 has started to diminish. The
European economy faces many enduring demographic challenges. Some
emerging markets like Argentina and Turkey have experienced currency crises
that have driven down global growth. Overall, global growth in 2019
experienced its worst year after the financial crisis. China's growth is also
inevitably affected. After growing nearly 7% in 2017, the Chinese economy is
forecasted to grow below 6% by the World Bank in 2020, the lowest level in
three decades. The trade war - questioning fundamental weaknesses of US-
China relations - has disappointed Chinese businesses while Chinese consumers
are concerned. Many businesses have had to postpone investment and
expansion plans and even cut down on workers. Without a trade war with
China, the US economy could grow 2.6% in 2019 and the global economic
growth rate would be 2.9%, according to Oxford Economics expert Gregory
Daco. Economic experts say the impact on the US, Chinese or global economy
is not simply due to tariff measures but also concerns about what's ahead and is
difficult to predict.

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 The American consumers might not have felt a too strong impact from
the first two rounds of tariff raises, which were focussed on the American
companies and farms. Therefore, the impact on consumers was indirect, mild
and objectively delayed. It was also additionally diluted by the fiscal and
monetary measures taken in advance by the American administration: tax cuts
for companies and gradual increases of the benchmark interest rate. The tax cuts
have given a quite vigorous boost to the US economic growth, while the
repeated interest rate increases have attracted dollars back into the American
banks, contributing to the strengthening of the US currency. This has attenuated
the potential decline of the American consumers’ purchasing power due to
rising prices.

As elsewhere, the American consumers have long benefitted from low

inflation levels backed up by the abundance of cheap goods imported from
China. However, the higher tariffs levied on Chinese imports may generate an
inflation leap, especially when more consumer goods will be targetted. As
compared to the first two rounds, the third round of tariff increases (of
September 2018, worth USD 200 billion) included more consumer goods (47%)
and the increase was deliberately moderate, to only 10%, specifically to protect
American consumers. But it also provided for potential further tariffs increses,
to 25%, in case US-China negotiations fail. If tarrifs on the consumer goods
imported from China do reach 25%, the impact on the the American consumers
will be direct and considerably stronger than before.
Inflation and prices: The Donald Trump administration's tariffs on $ 360
billion of goods imported from China were initially focused on machinery and
capital goods for business and gradually opened wide range of consumer goods.
Taxed items including auto parts, home appliances and furniture have increased
prices by around 3% since 2017 compared with a 1% drop for core items. The
overall inflation rate was maintained at a stable level while the consumer price

19
index rose 2% in 2019. Although President Trump once claimed China would
have to pay for the US tax rate, in reality it was the US importers who suffered.
It is worth mentioning here that a dollar that became stronger, as
described above, as well as a RMB (yuan) that is currently depreciating are
expected to trigger developments contrary to president’s Trump intentions when
he decided to change tariffs: a stronger dollar will descourage American
exports, while a declining yuan will stimulate the Chinese ones and that will
negatively impact the hoped-for rebalancing of the Balance of Trade. The US
trade deficit with China will not decline, but on the contrary, it might grow.
Trade surpluses and deficits are not the equivalent of surpluses and
deficits in a company’s balance sheet, as the Trump administration seems to
treat them. The deficit is not necessarily a loss, and the surplus is not profit. For
the USD 375 billion paid to China in 2017 for imports in excess of the amount
cashed from China for their exports, the US received goods of equivalent value
which, on the one hand, met the demand of the American companies, upheld
their production, competitiveness and profits, and helped increase the amounts
collected for the state buget by taxation, while, on the other hand, they met the
American population’s demand for affordable consumption goods, contributing
to a low inflation, higher purchasing power and better living standards.
Nevertheless, by increasing the import taxes all these advantages disappear: the
American companies will have to adjust, making suboptimal choices that will
impair their performances (at least in the shorter run), while the American
population will face rising inflation and diminishing purchasing power.

According to EIU, the US-China trade war will impinge especially on the
US, and its outcomes will burden mainly the American citizens. They will have
to bear a higher inflation, raised by 1.5 p.p., as compared to its previous level,
before the trade war outburst (Warner, 2018). Also, according to a preliminary
prediction by Kirill Borusyak, from Princeton University, and by professor
Xavier Jaravel, from London School of Economics, the new tariffs introduced
by both the US and China will lead to additional monthly costs of USD 127, for
each American family (Bryan, Gal & Chang, 2018).

Unemployment rate: Most economists also expect an additional cost

materialized in lost jobs and in slowing economic growth. It is difficult, for
now, to estimate the potential job loss, but only for the first tariff increases
enacted on steel (to 25%) and Aluminium (to 10%), which had been supposed
to salvage 30,000 American jobs in those two industries, it seems that the rising
import tariffs will, instead, generate the loss of 432.700 jobs in a diversity of
downstream industries: from a relatively low number of lost jobs in the fields of
transport by pipes, food, chemichals and wood processing, to machinery and
equipment, automotive and auto parts (about 10,000 lost jobs, by each),

20
communications, metal components and financial services (15,000 lost jobs
each), to construction (60,000), trade and distribution (about 100,000) and a
large range of services (180,000-200,000).

As the propensity for saving is chronically low in the US, but still strong
in China, the trade imbalance between the two might persist for many years on.
Until now, in opposition with president Trump’s expectations, but in keeping
with the predictions made by numerous economists, the trade deficit with China
has been prone to rising. A survey by the National Association of Business
Economics, carried out in August 2018, when many of the tariffs were still
unchanged, showed that 91% of the economists interviewed about the
consequences of increased import tariffs, thought that these will injure
American economy and that other rising tariffs rounds should be abandoned.
Obviously, the American administration did’t take these oppinions into account
and US import tariffs continued to be driven up. We expect that this trend will
continue.
Bilateral trade: After decades of increasing trade between the world's
two largest economies, US-China trade has had a major setback. The value of
US exports to China has fallen by more than $ 100 billion. The merchandise
trade deficit, one of the Trump administration's goals, has also fallen, but only
by $ 60 billion. In the 12 months to November 2019, the trade deficit between
the two countries remained at $ 360 billion. The trade war has a great influence
on trade flows, but has little effect on the trade deficit, economists said. Falling
exports to the US will affect manufacturers in Chinese port cities. Small
companies will have to cease operations while larger distributors will have to
find ways to reduce costs or increase product prices for US customers.
Still, the solution for the bilateral trade imbalance is not a return to
protectionism. Structural imbalances should be corrected by fiscal policies and
other means that address the American low savings and the Chinese low
consumption. However, if stimulating consumption in China might seem easier
to accomplish because it is, to a certain extent, a natural trend, stimulating
savings in consumerist US, at the expense of high consumption, might prove
extremely challenging, unpopular and very risky for politicians, discouraging,
as such, even the ideea of any attempts in this direction.

According to Jeffrey D. Sachs (2018) Donald Trump’s „... misbigotten

trade wars” and his policy on Iran will undermine the international use of the
American dollar, already rivalled by the euro and, to a lower but increasing
extent, by the yuan. In his oppinion president Trump’s „ill-conceived”
international economic policies will hasten the end of the US dollar’s world
dominance and particularly the trade war will weaken China’s growth only in
21
the short run, but it „... will bolster China’s determination to escape from its
continued partial dependency on US finances and trade, and lead the Chinese
autorities to double down on millitary build-up, heavy investments in cutting-
edge technologies and the creation of a renminbi-based global payments system
as an alternative to the dollar system.”

As none of these signals have been considered, the American economy

will increasingly feel the negative consequences of the trade war. This is, in
fact, the main reason why the IMF October 2018 outlook revises downwards its
forecasts on growth rates for 2018, from 2.9% to 2,5% in the US, from 6.6% to
6.2% in China and from 3.9% to 3.7% globally (Ward, 2018).

I.6. CHINA
As a very large and diversified economy, in which the government
promptly intervenes every time it senses risks, China is relatively immune to the
external disturbances. Empirical evidence demonstrate that in the recent 40
years any developments involving foreign markets - from the natural
fluctuations of foreign trade, to disruptive events, such as the economic crises -,
have exerted a limited influence on China’s economic growth and have never
driven the growth rates in the negative zone. Additionally, as China has made
significant progress in its endeavour of switching from the investment and
export-driven development model to a consumption-led one, its dependency on
foreign demand and markets, even on the American one which is the largest,
has decreased considerably: while the weight of China’s exports into its GDP
has declined from 37% (in 2007), to 18% (in 2017) (Roach, 2018), its
dependence on the exports to the US fell more briskly, by almost 53%, from
7.2% of its GDP, to only 3.4%, during the same time-frame (Lau, 2018).
22
 The Chinese producers do feel, undoubtedly, the impact of the trade
war, but, most probably, comparatively less than the American ones, if we also
consider – besides the above mentioned factors - the still high proportion of the
processing trade in the Chinese foreign commercial exchanges (33% in 2014).
While processing trade was pervasive before the year 2000, at present, the
traditional commercial exchanges are dominant (54% in 2014) and the main
actors are: (i) Chinese POEs (23.1% of the overall foreign trade) and (ii) SOEs
(12.5%), (iii) foreign companies with operating units located in China (9.2%),
(iv) foreign-invested joint ventures (6.2%), (v) others (2.8%) (Bawoo, 2017). In
this section we will briefly look only at the companies with whole Chinese
capital, either SOEs, POEs, large or SMEs.

Large SOEs exporting goods to the US are usually very powerful

companies that benefit from permanent state support in every respect
(favourable regulation, cheap financing, subsidies, support for outbound
investments and RDI, strategic guidance and every other elements of the
national champions industrial policy tool-kit). Large Chinese POEs – such as
Huawei, or Alibaba - enjoy, broadly, almost the same regimen, but the active
governmental support is more discrete. In principle, both SOEs and POEs,
which are all implementing and promoting abroad the Chinese government’s
interests and strategies, have gained, in time, both enough economic strength of
their own, and sustained protection and help from the Chinese state, to not be
badly hurt in the trade war. However, companies in the high technology (HT)
fields are still dependant on imports and technology from the US and other
economically advanced economies and, therefore, still quite vulnerable, in spite
of their high ranking in international hierarchies (as the recent case of ZTE has
demonstrated18).

Following the outburst of the trade war, foreign orders to China have
started declining and the predictions for 2018 are that the export decline will
inflict losses amounting to USD 22 billion on Chinese exporters and will
generate unemployment, mainly on the East coast (Zhang, 2018). Some
industries will be hurt more than others. Among the most affected ones will be
those already burdened by overcapacity, such as the steel and aluminium
industries, for which the new US tariffs rose to 25% and 10%, respectively,
driving exports down by 53% since March (Hao, 2018). Another relevant
example is that of the Chinese car industry and market: the Chinese car market,
which is the largest in the world, declined in 2018 for the first time in 26 years,
the industry’s stocks have also fallen significantly, some of the companies
postponed their investment plans and revised downwards the outlook on their
annual results. All these developments triggered the authorities’ intervention
through fiscal policies, primarily tax cuts of 50% on new car acquisitions.

23
 However, the Chinese SMEs are the ones prone to suffer the most, as the
consequences of the trade war will add to the adverse effects generated by some
of the on-going domestic reforms, such as those in finance and banking. For
instance, one side-effect of the government’s efforts to reign credit and to
contain shadow banking was that the SMEs – which, as a rule, were not
accepted for lending by the big state banks -, started to face increasing funding
shortage and, because of that, to lose oders, market shares, profit and jobs. They
are also losing competitiveness, due to the increasing costs of labour and of the
other inputs, and are forced to function with very thin margins. Against such a
backdrop, the consequences of the trade war added more pressure and
roughened their fight for survival (Lee A., 2018). In response, some of the
Chinese SMEs speeded-up upgrading, investing in automation and robots, while
the government instructed the state banks to start giving them loans. The
government also implemented a range of other supporting policies: fiscal policy
(tax cuts on certain acquisitions, to stimulate domestic sales), monetary policy
(four successive RRR19 cuts, to increase money supply) and customs policy
(tariff cuts for 1300 items imported from other countries than the US, to
stimulate trade substitution and domestic consumption).

The American market remains a major and difficult to replace market for
the Chinese companies, irrespective of their size, economic power or type of
ownership. That is why, under the circumstances, they will do everything in
their power to keep their US market shares, trying to restructure, cut costs, raise
productivity and quality, but also by finding ways to avoid the new American
import tariffs, such as: (i) by re-routing deliveries through third countries that
enjoy lower, or no tariffs on US imports; (ii) by totally or partially relocating
their activities in neighbouring countries which, besides enjoying better customs
regimen for their exports to the US, can also offer cost advantages that China no
longer has.

The Chinese consumers will probably face a mildly higher inflation,

some job losses and even a dent of their trust, reflected in an increased
cautiousness towards spending. Chinese population is still massively, although
not predominantly, rural. Their consumption is still quite frugal, traditional and
oriented towards Chinese-made goods and, as such, they are not directly
affected by the US import decline. As compared to them, city dwellers and the
affluent, especialy the young, are much more interested in western (luxury)
goods (mainly cars, electronics, cosmetics and fashion), as well as in travelling
abroad, but they are ready to boicott the US exporters if required.

Chinese consumers will not feel a direct impact of the trade war with the
US, but they will probably suffer its indirect effects if the economy keeps

24
slowing further, the macroeconomic evolution worsens and especially if they
happen to become unemployed. Generally, the trade war is not on the news and
most of the population is not even aware of it.
Boycott: Huawei was widely boycotted in the US-China trade war. The
countries allied with the United States in turn were informed about the
promotion and officially announced a ban on Huawei 5G technology. Including
intelligence sharing network Five eyes including the US, Australia, UK, New
Zealand and Canada. There are also Japan and India. India has currently banned
Huawei's 5G technology and 59 applications, including Tiktok and Wechat.
Less than a month later, India continues to ban 47 more Chinese apps, and is
considering a ban on 275 apps originating from China.

25
 The Chinese economy is the main target of the protectionist measures
adopted by the US, during president’s Trump first mandate.The US-China trade
war has contributed to slowing China’s economic growth and it might obstruct
for a while China’s advancement, but it will not reverse it. It might also have
contributed to some adjustments in the Chinese domestic policies agenda,
postponing some of the reforms and implementing others, but it surely has also
strengthened the resolution of both the authorities and the population to
accelerate their country’s technological development, economic advancement
and the Chinese economy’s uncoupling from the US, turning it into an
increasingly powerful rival of the US.
According to the IMF, in the most severe scenario, during the first two
years of trade war China might lose just 1.6 p.p. of its economic growth rate,
because much of the impact will be neutralized by the public policies
implemented by the government with a view to stimulating the economy and
giving growth a boost. The IMF forecasts a slower and declining economic
growth rate of 6.6% in 2018 and 6.2% in 2019 (WEO, 2018). On the other hand,
a report of September 2018 by JP Morgan Chase predicted that, in case the US
will decide to levy 25% duties on all Chinese imports and China will retaliate,
China could lose 5.5 million jobs (Fahad, 2019).

The new international context created by the trade war accelerates the
economic adjustments in China by both market-triggered processes (GVCs
restructuring, relocations, industrial upgrading, trade diversion or trade flows re-

26
routing etc.) and state-initiated policies. The Chinese government not only
answers to the US assault with similar tariff and non-tariff measures, but it also
devises and implements active policies able to attenuate both the negative
impact of the trade war on its domestic economy (by stabilizing investments,
encouraging consumption, more firmly supporting RDI, the private sector and
SMEs, by monitorring credit, debt and unemplyment etc.) and on China’s
international relations (by stimulating Chinese imports, promising more open
markets, opening new industries to foreign investments, promising to eradicate
forced technology transfers and strengthen IPRs etc.).

I.7. THIRD PARTIES

A trade war involving the two largest economies of the world (1 st - USA;
nd
2 - China by GDP), and, at the same time, the largest commercial powers on
earth (1st - China; 2nd - USA by total exports and total trade) which are tightly
linked through the innumerable GVCs and IPNs of their companies, could not
unroll without impacting on the other countries and on the world economy
functioning as a whole. Among the most affected third countries, which could
also have a significant role to play in the newly created context of the US-China
trade war, there are, on the one hand,

27
 (i) their neighbouring countries and/or those integrated into the same
regional/global value chains as the US and/or China, especially the
countries in S.E. Asia, and, on the other hand,
(ii) the other major trade partners of each of the two - in this case, the
European Union, which is the most important trade partner for both
the US and China.
For all these countries, the US-China trade war can generate great challenges
and risks, but also extraordinary opportunities.
1. The South-East Asian countries are, in their great majority,
developing and emerging economies, whose companies are involved in the
regional supply and production chains built around China thanks to their cost
advantages. At the same time, other numerous companies headquartered in the
highly developed economies of Asia (Japan, South Korea, Singapore, Hong
Kong, Taiwan), Europe (the EU Member States) and the US, are also integral to
the Asian regional value chains (RVCs), mainly due to their technological
superiority and outstanding RDI capabilities.

In the second half of 2018, the Asian companies have come to experience
the consequences of the trade war and, consequently, to adopt different
strategies of response.
Firstly, an increasingly consistent trend among the exporters to the US
located in China, is represented by the relocations of their production facilities
to the neighbouring South East Asian countries, with a view to capitalizing on
both their cost advantages or technological prowess, and on their lack of
obstructions to the US market access. Many of these companies – either totally
Chinese, or foreign invested – had already been under the pressure of the rising
production costs in China and of the increasingly thinner profit margins that
they had to practice, so that, when the new import tariffs were introduced on
both bilateral trade flows, they had sufficiently compelling reasons to decide to
move their facilities elsewhere. With development, China ceased to be a cheap
production place. Depending on the complexity of the work involved, Vietnam,
Thailand, India, Bangladesh, Pakistan, the Philipinnes and even some Eastern
European countries have become the favourite destinations of these companies
for the relocation of labour-intensive activities, while Taiwan, Hong Kong,
South Korea and Japan are chosen for the relocation of the capital-and-
technology-intensive industries.

Secondly, a distinctive group of companies among the exporters to the

US located in China is that of the companies that dependent on American
imports (mainly electronic components) to function, which now have to cope
with higher tariffs on both their import of components and on their exports of
final goods. These companies are currently searching for other suppliers in
28
Asia, especially in Taiwan, South Korea and Japan. According to some surveys,
even 30% of the American companies working in China and using American
inputs are now trying to find new sources of components in the region and new
locations for their facilities outside China (Kawase, 2018). It is interesting to
notice that both the facility relocations and the GVCs restructuring by changing
suppliers happen much more rapidly in the HT industries, than in the labour-
intensive ones. It is also worth highlighting that, from the point of view of the
receptor countries, the trade war has beneficial outcomes, creating unexpected
opportunities for them to receive foreign investments, to benefit from additional
job creation, product diversification and a boost to their GDP growth.
Thirdly, among the Chinese exporters to the large American consumer
goods trading networks (such as Walmart, Macy’s etc.), which used to have
their suppliers located mostly in China (e.g. Li&Fung), the acquisitions from
China are now drastically declining while new suppliers of garments are
searched for in Bangladesh, Vietnam, India, Pakistan and the Philipinnes and
suppliers of footware are looked for in Vietnam, India, Indonesia and Europe.

Finally, the the trade war impact is also felt at the level of the transport,
forwarding and logistics companies. Their new orders decline and routes change
according to trade diversion. For instance, as a consequence of lower maritime
trafic, COSCO Shipping Holdings, the third largest maritime company in the
world, gave up transports on one of the maritime routes that used to connect
China and the US, which had become unprofitable.

Speaking about the trade war impact on the S.E. Asian economies, one of
the most affected one could be South Korea, which depends on China for 25%
of its exports and on the US for 12%. According to a report by KITA 20, in the
worst case scenario, of a total trade war, in which China’s exports (which
include South Korean components) fall dramatically, this country could register
a 6.4% drop in exports, which is the equvalent of USD 36.7 billion (Lee J.-h.,
2018b).

Another such example could be that of Singapore, which is a huge

regional transboarding hub extremely dependent on foreign trade. In Singapore,
9 of 10 handled containers have a foreign destination, and many of the
components coming from various countries and heading for China stop there for
some intermediate operations. That is why the potential traffic decline generated
by the US-China trade war could lead to a significant GDP drop of 0.8 p.p. in
2018 and 1.5 p.p. in 2019. Similarly, other S.E.Asian countries that have
developed as export hubs, such as South Korea, Malaysia and Taiwan could
lose up to 0.6% of their GDP, in 2018 (Vaswani, 2018).

29
 All these examples show just one thing: that in a trade war almost
everybody loses. With the exception of a few developing economies which may
unexpectedly be in the situation of receiving the investors chased away from
other countries by the consequences of the trade war, all the other countries are
losing in the long-term, even after the trade hostilities have ceased. The trade
war itself is disruptive, generating powerful shocks, uncertainty, losses, but, in
their turn, the solutions that companies are resorting to in their fight to survive,
are disruptive too, and also suboptimal, expensive and difficult to implement.
Both relocations and GVCs restructuring are very difficult moves, that imply
high costs and, at least initialy, untill the learning processes roll on and the
cooperation mechanisms between links run in, they generate inefficiencies.
Additionally, even after such a conflict is finally closed, long-term scars, that
cannot heal, still persist in the guise of mutual distrust, reservedness and
suspicion, which will inccur further costs: those of the cooperation deals which,
against this backdrop, will no longer happen.
The DBS analysis report shows that Korea, Malaysia, Taiwan and
Singapore will be the most at risk economies in Asia because of the US-China
trade war. Because these countries have high trade openness and are heavily
involved in the supply chain. South Korea's GDP growth may lose 0.4% this
year. The figures for Malaysia and Taiwan are both forecasted at 0.6%.
Singapore is 0.8%. This impact could be doubled in 2019. When analyzing the
surplus value of Chinese exports, by origin, the Organization for Economic
Cooperation and Development (OECD) states that Taiwan is an economy. Asia
is the most involved in these goods, with more than 8% of GDP. Followed by
Malaysia (6%), South Korea, Hong Kong, Singapore with about 4-5%.
Philippines, Thailand and Vietnam about 3%. Australia, Japan, Indonesia are
2%. Besides instance, the US and China are both major economic partners of
Hong Kong. However, Hong Kong's economy is dependent on services.
Therefore, they will not be affected much by import duties. The burden that will
be on producing countries for many other factors also needs to be considered.
Taste more. Globally, according to WTO data, last year, total merchandise
export turnover increased by 11% to 17,200 billion USD. Ballpark estimates
that for every commodity affected by import tariffs, global trade will decrease
by 0.5%. This would lead to a 0.1% loss in global growth. Inflation will also
increase by 0.1% - 0.3%, excluding exchange rate fluctuations. Morgan Stanley
estimates the trade war could be severely disrupted, since two-thirds of the
goods exchanged between the two countries are in the global value chain. The
Peterson Institute for International Economics found that nearly two-thirds of
US goods imported from China come from foreign-invested companies. So the
US import duties, even if they are aimed at China, will still have an impact on
other countries. Based on the inflow of foreign capital into China, the names
most likely to influence are the US, Japan and South Korea. Some other

30
companies, such as DBS Bank, believe that the US economy will affect more
than China, because US companies invest in China quite a lot. Besides, the US
is also entangled in trade disputes with many other countries. Trade volatility
may cause banks to worry about their participation in affected industries, which
in turn affects prices and credit flows. It can also make companies hesitate to
invest. And if taxes are pushed down to consumers, consumer confidence and
domestic demand will decline. At the top level, volatility in financial markets
affects all of the above factors.
A model of the property manager Pictet shows that if the US imposes
10% import hiring, then the tax is pushed down to consumers through
increasing product prices, the global economy could fall into a state of increase.
slow growth, high inflation. Global corporate profits will also lose 2.5%.

2. The European Union didn’t have a very good start in its relationship
with the Trump administration, but the tensions have subsided once the
American president has fully focussed on China. Untill the negotiations for a
US-EU free trade agreement (FTA) are finalized, the US-China trade war opens
a window of opportunity that should be capitalized on (Wolff, 2018). As it is
under the trade war pressure, China needs good relations with the EU and, as
such, it might become more flexible and ready to conclude the negotiations on
the EU-China bilateral investment treaty (BIT) that have stalled for quite long.
It might be a proper moment to solve the negotiation blockages on the question
of reciprocity in investments, or the technology and IPR transfers, issues that
are also among the techy themes which president Trump also insists on.

31
 The European companies that have developed productive and trade
activities in both the US and China are broadly facing the same challenges as
the similar firms from other regions that we have already looked at, above. Still
an interesting example worth highlighting is that of the German companies in
the car industry (Daimler Benz, BMW) which have assembling facilities in the
US, where they build cars for both the American domestic market and for
various export markets, China included. A significant part of the components
assembled by the American units come from the European value chains that
integrate the production of numerous Central and Eastern European factories,
including many from Romania. By potentially enacting and charging higher
duties on the European imported car parts, the US could give a serious blow to
these intermediate goods manufacturers. Having the imports of EU components
into the US market made more expensive and then facing again hightened
Chinese duties for the US-assembled German cars exported to China, could
create huge problems to both the German companies and their numerous
European suppliers, but also to the American assemblers and their staff.
Fortunately, this is only a hypothesis which, hopefully, will not become
reality, once the US-EU negotiations have already resumed.
Moreover, an interesting additional aspect of this example, which
highlights once more the absurd of any trade war, is that the Chinese car
company Geely, that has recently become one of the new co-owners of Daimler
Benz, as well as its largest investor 21, will see its commercial interests and
profits harmed by the protectionist measures enacted by its own Chinese state,
which will be charging higher duties on the US exports of Daimler cars to
China.
According to a research by Bruegel (Garcia-Herrero, 2018), the US-
China trade war may generate immediate commercial opportunities for third
economies such as that of the EU (e.g. import substitution of US agricultural
products in Chinese market and of some consumption goods in the American
one), but also, more importantly, it may offer the opportunity of obtaining
certain concessions that China was not previously willing to give, as regards:
the opening up of its economy to EU imports and investments, under reciprocity
terms; giving subsidies up; reaching some common ground on questions
regarding Chinese takeovers of HT companies in Europe at subsidized prices
that neutralize any competition, with the purpose of getting access to their
technologies and RDI capabilities etc.
Starting from the US and the EU export structures to China, which are
quite similar, and presuming that the US will not hit the EU in the manner it did
with China, the cited above study comes to the conclusion that the EU motor
vehicle producers, followed by the chemicals and the machinery and equipment
ones, would gain the most in the US market, while in the Chinese market, the
EU companies that will benefit the most will be those in aviation, which would
32
have practically no rivals. Also, starting with the third round of tariff hikes for
Chinese imports worth USD 200 billion, enacted by the US, the EU consumer
goods manufacturers could take the opportunity to replace at least partially the
Chinese exports to the American market. Another important conclusion of this
research is that the EU could benefit more by substituting Chinese exports on
the US markets (earning up to USD 69 billion more, in the bilateral trade with
the US), than by replacing the American exports to China (for additional
amounts of up to USD 32 billion). In other words, the EU companies could
profit more from the tariff sanctions enacted by the US on China, than by the
tariffs charged in retaliation by China, on the US.
In paralel, other reports warn that under the US-China trade war, the euro
zone will have a modest economic growth in 2018, easy to be neutralized in
case of further escalation of the hostilities. According to a recurring survey by
Reuters among 44 economists, the current trade war presents a clear risk of
incurring the euro zone growth decline to 2.1% in 2018 and to 1.8% in 2019,
while the inflation rate could remain flat, at 1.7 in both years (Reuters, 2018).
The "giants" of the technology industry: The giants in the technology
sector like Apple and Huawei cannot avoid being involved. The US government
has long held a "prejudice" against Huawei, accusing it of producing electronic
and telecommunications equipment for espionage purposes. As the trade war
heats up, the US blacklisted Huawei on the grounds of threatening national
security and lobbied its allies, mainly Western countries, not to use its products.
Due to the US ban, many large corporations like Google, Intel or Qualcomm
have restricted business transactions with Huawei.
Even though Huawei is one of the largest telecom equipment
manufacturers in the world, Huawei is still heavily dependent on US component
suppliers, so the aforementioned decision caused serious losses for the
company.
Not only Huawei but Apple - a leading US technology corporation, also
suffers from "double losses". Apple's sales in the Chinese market have
plummeted. In addition, the group's products are also subject to US import tax
because although designed in the US, most of the assembly, production and
finishing process are done in China.

IV. IMPACT ON VIETNAM

POSITIVE IMPACTS
A report by the Development Bank of Singapore has suggested that at its
current rate of growth, Vietnam’s GDP will surpass Singapore’s by 2029. In
fact, Vietnam’s real GDP climbed 6.79 percent on-year during the first

33
 quarter of 2019, according to official government data. This was its second-
strongest first-quarter growth in the past decade, surpassed only by 2018’s
7.45 percent.
Over the years, the United States has been the largest market for
Vietnam’s exports (with China the third-largest), while China has been the
largest source market for Vietnam’s imports (except in 2018, when China
ranked second after South Korea) . As of December 2018, the United States
and China together account for 36 percent of Vietnam’s export earnings, and
nearly a third of Vietnam’s import bill. Vietnam has a substantial trade
surplus with the United States, which reached nearly US$34 billion in 2018.
It also has a correspondingly large deficit with China, amounting to almost
US$24 billion (see Graph 1 and Graph 2 below). A survey by the American
Chamber of Commerce in Guangzhou showed that Chinese companies were
losing market share to companies elsewhere in Asia, in particular to Vietnam.

34
 Fig 2. Graph 2: Vietnam-China Trade (2017-2019) (Billion US$)
Source: General Department of Vietnam Customs
One of the positive impacts of the trade war is that countries like
Vietnam have been presented with the opportunity to increase their export of
certain goods to the United States and China, particularly to the former.
Vietnamese exports to the United States are mainly consumer goods such as
apparel, leather shoes, phones, furniture, and seafood. According to figures
from the US International Trade Commission, mobile phone imports from
Vietnam more than doubled in the first four months of 2019 compared to the
same four-month period in 2018, and computer imports also increased by 79
per cent across the same period. There was also an increase in the number of
Vietnamese garments, textiles, furniture, and dried fish exported to the US –
goods which were previously processed in China before Trump’s tariffs
hikes. As a whole, Vietnam’s exports to the US increased by 27.3 per cent in
the first six months of 2019, as a result of the trade war. In contrast,
Vietnam’s exports to China grew by 0.3 per cent over the same period. 9 It can
be seen that the increase in Vietnam’s exports to China is much lower than
the increase in Vietnam’s exports to the United States.
Vietnam’s exports to China comprise mainly of electronics,
semiconductors, garments, footwear, sporting goods, and furniture (see
Graph 3 below). Vietnam often plays the role of China's OEM in these
industries, and only exports raw materials or intermediate inputs for
production in China. On the other hand, according to Yasuyuki Sawada, the
Asian Development Bank’s chief economist, Vietnam stands to benefit the
most from the US-China trade war because Chinese goods affected by tariffs
are also consumed and produced in Vietnam. 10 As a result, Vietnam can
export these products directly to the United States, and thus gain more market
share from Chinese products subject to tariffs when exporting to the United
States. At the same time, it can attract more FDI into these industries, thereby
creating more jobs, increasing exports, and improving Vietnam’s overall
trade balance

35
 Fig 3. Vietnam’s Key Exports to China and the United States
Source: General Department of Vietnam Customs
According to Vietnam’s General Department of Customs, the value of
Vietnam’s exports to the United States reached US$47.53 billion at the end of
2018 – an increase of 14.3 per cent, compared to 2017. In the first half of
2019, Vietnam’s exports to the United States was worth US$22.72 billion –
27.5 per cent higher than in the same period in 2018. Mobile phones and
components saw the highest rate of growth, reaching US$4.18 billion – up by
92 per cent. Computers, electronic products and components reached US$2.3
billion, up by 72 per cent. Meanwhile, the export of these two groups of
Chinese products to the US decreased by 27 per cent and 13 per cent
respectively. As for mobile phones, Vietnam is currently the largest
manufacturer for Samsung with an output of about 240 million units a year,
followed by China with an output of 150 million units a year. Samsung is
planning to cut its Chinese production by about 40 million units due to high
labour costs and the US-China trade war. Other Vietnamese exports to the
United States in first half of 2019 also saw an increase such as machinery,
equipment and spare parts at US$2.07 billion, up by 54 per cent; wood and
wood products at US$2.25 billion, up by 35 per cent; footwear and related
products at US$3.18 billion, up by 13 percent; and textiles and garments at
US$7.03 billion, an increase of 11 per cent. In the longer term, the textile and

36
 footwear industries are expected to be the sectors that will benefit the most in
the trade war due to two reasons:

(i) The CNY depreciated sharply against the USD, thereby also devaluating
against the VND, thus helping Vietnam’s businesses import China’s fabrics,
textile, and footwear materials at cheaper prices;
(ii) These Vietnamese industries are able to gain a larger share of the US
market thanks to more competitive prices as well as more FDI attraction.

Another positive impact of the US-China trade war is that companies in

certain sectors are either relocating out of China or diversifying from the
Chinese market to Vietnam. Total disbursed FDI increased by 6.3 percent to
US$12 billion in the first eight months of 2019 compared to the same period
last year, according to government data, with the number of newly-registered
projects increasing by 25 percent to 2,406. For Vietnam, the PMI in October
2018 increased from 51.5 to 53.9 points as a result of new export orders
increasing for three consecutive months from August to October. Analysts
from the Mizuho Research Institute say that even if the global economy
slows down, the relocation of companies from China to Vietnam is expected
to continue. In addition, as trade tensions between China and the United
States are expected to intensify, the trend of foreign investors turning to
markets such as Southeast Asia and India will be accelerated. Multinational
firms such as Foxconn, Samsung, and Daikin are already opening new
factories in Vietnam rather than in China, due to the doubling of Chinese
factory wages over the last seven years. It has even been reported that
Nintendo will shift part of the production for its Switch console to Vietnam,
from China. However this process will take place on a moderate scale, as
production in China is still attractive to multinational corporations due to
good labour skills and the country’s modern infrastructure network.
To some extent, Vietnam has some attractive features that will
enable it to benefit from the relocation of FDI enterprises. First and
foremost, Vietnam has a relatively stable government and cheap wages,
which are advantages that other countries do not have. Furthermore,
Vietnam's proximity to China, along with its geographical location in the
ASEAN region, allows manufacturers to sell and move equipment faster
across the border. Companies can sell and transfer goods and equipment
from China to Vietnam and then onward to other ASEAN countries. At the
same time, Vietnam has a robust economy, reflected in its growth rate of
7.08 per cent – compared to China’s 6.6 per cent and India’s 7.4 per cent.
With an annual growth rate of more than 5 per cent over the past 20 years,
Vietnam has become one of the emerging countries with the fastest and
most stable economic growth. Vietnam is ranked 69 in the World Bank’s

37
2019 Ease of Doing Business report, faring better than China’s 78 th
position.20 Investment regulation is also three times more restrictive in
China than Vietnam across nine sectors including manufacturing; electric,
electronics and other instruments; and business services. 21 Indeed, there
are indicators showing that economic institutions in Vietnam are creating
better conditions for businesses (see Graph 4).

Fig 4. Composition Index on Ease of Doing Business in Vietnam (2011-2018

Source: 2019 Doing Business, 2018, 2017, 2016, 2015, 2014, 2013, 2012
It can also be seen from the graph that from 2011 to 2016, there has
generally been positive progress in terms of the regulations on the
protection of small investors, electricity use, granting of construction
permits, and bankruptcy settlement. From 2017 to 2018, the indices on
regulations on starting a business, electricity use, and contract execution
saw marked improvement. In an overall sense, the ease of doing business
in Vietnam has improved over the years

NEGATIVE IMPACTs
There are, however, also negative impacts from the US-China trade
war. With Vietnam’s high trade liberalisation and the fact that both China
and the United States are its key trading partners, Vietnam will face a
complex and multidimensional problem as a result of the US-China trade
war.
Trade with China will be affected in three distinct ways. Firstly, when
China boosts its exports to Vietnam, this will result in an increase in
Vietnam’s trade deficit with China, and Vietnam’s domestic enterprises will
38
 face more competition from Chinese goods. In view of China's comparative
advantages over Vietnam in raw material supply, its position in the global
supply chain, coupled with its geographical proximity to Vietnam, should
China expand its export share to ASEAN countries – including Vietnam – in
the future, Vietnam's domestic market will be impacted, especially its steel,
furniture, and wood processing industries. Secondly, when additional taxed
Chinese goods shift to other markets (apart from Vietnam), Vietnam's exports
may face increased competition in these markets. Thirdly, if China is unable
to find an export market to replace the United States, it is possible that some
of its exports will have to be consumed within China. This will make it more
difficult for Vietnam’s commodities to be exported to China. In fact,
Vietnam’s export turnover to China in the first eight months of 2019 was
US$23.89 billion, a decrease of 2 percent compared to the same period in
2018, according to the General Department of Vietnam Customs.
Regarding trade with the United States, one key negative impact is
Vietnam being used as a convenient trans-shipment platform for Chinese
exports to sidestep the tariffs imposed by America on China. An example of
this is Chinese steel being brought into Vietnam and repackaged as
Vietnam’s steel exports to the United States. This has led to tensions between
Vietnam and the United States, with America slapping tariffs of over 400 per
cent on Vietnam’s cold rolled and flat steel. Although the items subject to tax
are mostly machinery and technology products which are relatively specific
and not too easy for China to trans-ship to Vietnam to avoid American tax,
certain concerns have emerged.
The United States currently has a trade deficit of US$34.78 billion vis-à-
vis Vietnam. This is more than Vietnam’s trade deficit with China of
US$24.17 billion in 2018. Vietnam is already one of 16 countries that the US
Department of Commerce is investigating because of its bilateral trade
surplus. Vietnam is, in fact, the subject of several safeguards implemented by
the United States. From January 2017 to March 2018, the United States
launched 104 trade protection surveys on anti-dumping, countervailing, tax
avoidance, and safeguard measures. In June 2019, US President Donald
Trump labelled Vietnam “the single worst abuser of everybody” in the trade
war. US Trade Representative Robert Lighthizer further called on Vietnam to
take action to reduce its “unsustainable trade deficit”, including increasing its
imports of goods from the United States and resolving market access
restrictions related to goods, services, agricultural products, and intellectual
property.
The US government is thus keeping a close watch on the possibility of
transferring production or trade from China to other countries, such as
Vietnam, to circumvent anti-dumping and countervailing duties. These US
moves are, however, not entirely satisfactory from Vietnam’s perspective as
39
 the country has continued to improve the investment environment for US
businesses in Vietnam and is proactively addressing the issues of concern to
the United States which include imported cars, network security, electronic
payment and financial-monetary matters. Furthermore, Vietnam’s signing of
an EVFTA on 30 June 2019 further illustrates Vietnam’s focus on building
economic relationships with other countries, in the context of growing
scrutiny from the United States. Vietnam, however, still needs to establish
effective monitoring mechanisms and relevant measures to avoid any
negative impact and mitigate risks from the US-China trade war.
Another impact is that Chinese enterprises may find ways to invest in
other Asian countries – including Vietnam – to produce items for export to the
United States. In terms of investment value, China was the fourth largest
foreign investor in Vietnam with a total registered capital of US$2.02 billion,
in the first five months of 2019. Over the same period of 2019, for the first
time, newly-registered FDI from China rose to US$1.56 billion, with China
taking the lead in newly-registered FDI (see Graph 5). While a strong
increase in the committed capital of Chinese FDI into Vietnam is a good
signal, there are also potential risks that Vietnam needs to be cautious about
regarding the types and quality of Chinese technology and projects, given the
notorious image of Chinese companies in theeyes of Vietnamese people, etc.

Fig 5. FDI Capital Structure from China and Other Major Partners (first five
months of 2019; unit: million US$)
Source: Ministry of Planning and Investment
The concern is that Vietnam may be turned into China's ‘backyard’, which may
result in adverse consequences. By ‘exporting’ models such as cross-border economic
cooperation zones, Chinese businesses may seek to move out obsolete technologies from
their countries to reduce pollution. Thus, it will be difficult for Vietnam to avoid receiving

40
outdated technologies from China. The Vinh Tan coal-fired power plants in Binh Thuan
province and Formosa steel mills in Ha Tinh province are such examples. Furthermore, by
being seen as China’s backyard, Vietnam runs the risks of being subject to more punitive
US measures in the future.
Finally, there are concerns about Vietnam’s ability to fully absorb and take advantage
of the increasing FDI inflow from the trade war, due to Vietnam’s limited production
infrastructure as well as its quality of raw materials. At present, Vietnam's supply chain and
infrastructure network is reportedly only equivalent to that of China’s several years ago.
Vietnam's business environment has much room for improvement, as it is currently ranked 69
out of 190 countries – down one place from 2018; it is 5 th among the ASEAN countries (after
Singapore, Malaysia, Thailand, Brunei) and 8th out of 25 regional countries in the East Asia-
Pacific region. In fact, Vietnam is beginning to realise that expectations are far exceeding
reality. More and more businesses such as Coach, Kate Spade, and Eclat Textile Co. are
complaining about congested ports and roads, skyrocketing costs for land and labour, and
regulations not easing fast enough. If Vietnam is unable to narrow this infrastructure gap in a
timely manner, there is a risk that it would lose the opportunity to capitalise on FDI inflow
from the US-China trade war. The costs may outweigh the benefits, driving manufacturers to
other regional market.
In the long term, the US-China trade war can cause problems such as inflation,
resource shortage, environmental damage, and labour shortage. The increase in foreign
investment as a result of the trade war has increased the amount of money in circulation, for
instance. There is also a continuing risk of the VND’s depreciation – the USD has continued
to strengthen since the start of the trade war, leading to the depreciation of several
currencies, including the VND. If the Vietnamese government fails to cope, this may trigger
a new round of inflation and a financial crisis. Given the current rates of inflation and
industrial transfer, Vietnam is also showing signs of labour shortage.

V. THE INFLUENCE OF COVID – 19 ON THE US –

CHINA TRADE WAR
The China-US trade war started on March 22, 2018, the course of the war was
a situation where the two biggest economies in the world continuously applied tariffs
and retaliation measures on a series of goods of the enemy. Tough war lasted for
nearly 2 years, on January 15, 2020, the "first phase" trade agreement of the US and
China was signed and started to negotiate a second stage trade agreement - before the
coronavirus slammed the world economy and relations between the two economic
powers took a turn for the worse.
The comity of the deal's signing in Washington has been overshadowed in
recent months as Washington and Beijing have traded barbs over who is to blame for
the coronavirus, which first surfaced in China.
Also worsening tensions are China’s crackdown on Hong Kong, which
Washington has responded to with sanctions, and the Trump administration’s order to
bar Chinese internet giants TikTok and WeChat from operating in the US.

41
 Nearly three million more American people filed for unemployment benefits in
the week ending May 9, according to the U.S. Department of Labor as the COVID-19
pandemic continues to batter the labor market. Due to the spreading coronavirus
pandemic. China's economy posted its first contraction in decades, contracting 6.8
percent year-on-year at 20.65 trillion yuan (about 2.91 trillion U.S. dollars) in the first
quarter of 2020.
"Until now, China has been relatively passive and the United States has been
relatively proactive, there shouldn't be much change coming from China in terms of
trade, cooperation or opening up the market, the key still lies in the US
side."according to Raymond Yeung, the larger China economist at ANZ bank.
But Trump apparently does not have the patience to sit tight for two years to
find out whether China will fulfill its promise as an election in November may take
off his crown. He has to do something "extraordinary" for public support, which
analysts have explained as one reason for his increasingly harsh rhetoric toward
Beijing. Earlier May, Trump hinted that the United States could impose more tariffs
on China as punishment for the spread of the pandemic, without providing any
authentic evidence that a Wuhan lab was the virus' origin.
As such, the covid-19 pandemic not only did not interrupt the Sino-US trade war
but also made tensions worse, when the origin of the pandemic was from Wuhan-
China, making the United States reasonable to assume that China has made a
biological weapon against the US. It is predicted that the second phase trade
agreement will not be signed because of the above reason and because China did not
comply with the commitments as stated in the "first phase" trade agreement (39 out of
48% target).
At a strategic level, COVID-19 has moved the United States and China further
down a collision course. Both countries have opted to use the pandemic to advance
divergence instead of mend ties. Recent stability in the trade relationship, and even
some positive actions such as the rollback of certain U.S. tariffs on Chinese goods, is
now on the verge of unravelling. While the Phase One agreement stabilized trade
tensions, COVID-19 threatens to overshadow the agreement and subsume the entire
U.S.-China relationship. What could have been an opportunity for cooperation among
the world’s two leading powers has instead devolved into a battleground.
In sum, the U.S.-China trade relationship is at risk of again spinning out of
control into another round of tit-for-tat escalation. Nothing has been done to bridge
fundamental differences between the two countries, and risk has been added, not
removed, due to COVID-19. This leaves the two economies on course for further
decoupling, which will generate costs in both economies as well as globally.

42
 IMPACT OF WAR ON INDIAN
ECONOMY

The recent war outbreak between Russia and Ukraine has both positive and
negative effect on the Indian Economy. Due to war between Russia and Ukraine, there
is the challenge on Indian economy on its nascent recovery after war. The war has
impacted Indian Economy by rise in the crude oil prices after Russia attacked Ukraine.
India imports more than 85% of its brunt crude oil. Russia exports a substantial
portion of crude oil and natural gas around the world, by various international trade
restriction on Russia, it had led to supply chain disruptions and surge in the
international crude oil prices in the international market. The major impact on Indian
economy due to war is rise in the crude oil prices.

IMPACT ON THE CRUDE OIL PRICES

The price of brent crude oil has increased from November, 2021, $81 per barrel
to above $100 in month of April,2022. The rise in the crude oil prices is due to the
ongoing war between Russia and Ukraine. As Russia is the third largest manufacturer
of crude oil and second largest importer of crude oil. Due to the sanctions imposed on
Russia in International Markets, there is the rise in price of crude oil in globally. The
supply of crude oil was already low, because of covid pandemic, and then due to war,
the is rise in demand and thus, resultant it led to increase in crude oil prices. In India,
the crude oil prices have risen to highest in the history and due to which petrol and
diesel prices are daily rising. Resultant, of all these, there is rise in basic commodity of
eating like vegetables, eatable product and the transportations cost etc.

Impact on edible oil prices in India due to war

The price of edible oil and vegetable oil have increased by 10-15% due to war
between Russia and Ukraine, this has negatively impacted Indian Economy. India
imports around 90% of its sunflower oil from these two countries, which accounts for
14% of its total imports of edible oil. The total consumption of edible oil in India is
240 lakh tones, the domestic production of edible oil in India is 90 lakh tones, the
deficit demand of 150 lakh tones is met through import. India import soyabean oil,
palm oil and sunflower oil. To supplement the demand and supply, India is importing
more quantity of soyabean and palm oil, because of increase global demand, the
exporting countries have raised the prices of edible oil. Thus resultant, there is
increase in price of domestically produced oil like mustard oil and rice bran oil.
Together with this, there is also rise in prices of groundnut oil and peanut oil and
because of all these it has affected Indian household.

43
 IMPACT ON FERTILIZER IMPORT OF INDIA
The war has impacted the import of fertilizer in India. India imports substantial
portion of fertilizer like Potash, Phosphate Diammonium and Uria from Russia and
Ukraine. Due to war, there in less supply of the fertilizers in India and this will affect
the agriculture sector. As, India produce 368.2 metric tonnes of fertilizer and import
141.6 lakh tone of fertilizer. The price of fertilizer has increased, but this will be
managed by the government subsidy on fertilizer. In, the coming days if there will be
shortage in the supply of fertilizers, it will affect the agriculture production. Our
Indian agriculture is heavily relying on use of fertilizers for increase in the crop
production, due to low supply it will affect the crop production. This too gives
opportunity for India to switch slowly to organic farming, in the long term.

Opportunity for India During the war

India, has the opportunity to become one of the biggest suppliers of wheat in
International Markets. India is the second largest producer of wheat in the world and
Russia is the third and Ukraine is the fifth largest producer of wheat in the world.
Russia and Ukraine export total of 35% wheat around the world. Due to war, the
export of wheat has drastically affected. The buyer countries are avoiding to deal in
black sea shipments. This presents an opportunity for India, to capture the wheat
market globally, being the second largest producer of wheat in the world. The effect of
war, is seen as there is rise in wheat prices in India, which are exported. There is
increase in export of Indian wheat around the world and India should use this
opportunity to export Indian wheat to those countries importing Russian wheat. Indian
granaries are flooding and this has too increased the export of wheat. India is ready to
export nearly 7 million of wheat in the upcoming month and till February,2022 it
exported 6.6 million tons of wheat.

STAND OF INDIA IN THE WAR

India, has a neutral stand in the ongoing Russian-Ukraine war. India is
continuing to impot the Russian oil at discounted prices, since it has been removed
from the international money payment system. There, has been various sanctions on
the Russia but India continued to Import goods from Russia. Presently, there is not a
vary major impact in the Indian economy due to war. There is rise is crude oil and
edible oil prices and the Indian government is looking of various alternatives to
manage the supply-chain disruptions.

44
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