The U.S. has recently started enforcing tariffs on China to address the trade imbalance between the two countries. The Trump Administration’s goal is to pressure China into altering its trade policies to favor the U.S. In response, China has enforced its own tariffs leading to the US-China trade tensions.
From May to June this year, the Chinese Renminbi fell 4.3 percent against the U.S. dollar. Many fear an impending trade war if neither side backs down. Unfortunately, the trade tension also has the potential to significantly impact not only the economies of the U.S. and China but developing nations as well.
Impact of US-China Trade Tensions on Developing Nations
The impact of US-China trade tensions on developing nations would be especially significant in Asia. Economic success is a pathway to alleviating poverty and advancing progress globally. The trade tension would serve as a roadblock. Should it continue, China and the U.S. are not likely to immediately feel major shock waves from the tariffs given the enormous size of their economies.
Smaller nations, however, are getting caught in the middle. According to JP Morgan economist, Sin Beng Ong, Asian countries like Japan, Malaysia, Singapore, Thailand, South Korea and Taiwan would be hit the hardest from a possible trade war. Each nation is export dependent and is intertwined in the complex supply chains in the tech and automobile industries. Chinese goods are often made using components produced in other nations. For example, Taiwan’s supply of components to China makes up two percent of its GDP. Tariffs on China then also impact Taiwan by proxy.
South Korea is similar. Compared to last year, exports were up by 13.2 percent in May and following the trade tension it dipped to 0.1 percent in June. OCBC Bank measured the impact of the US-China trade tensions on other nations as well. It projected a drop of 0.2 percent for South Korea and a drop of 0.3 percent for Japan if the U.S. continues with new tariffs on the $250 billion worth of Chinese goods.
Closer allies like India, Canada, EU and Turkey have noted concerns on impending harm in the long run as well. This would not only erode their economic progress but negatively impact our diplomatic relations as well. As a result, these countries have retaliated, despite being allies, fearing lack of jobs and an overall harm to their respective economies.
The US-China trade tensions have the potential to unite the world against the U.S. in order to protect years of economic development and avoid increasing poverty.
Trade Tensions and Poverty
As of 2013, the World Bank has reported the poverty headcount ratio in South East Asia to have significantly improved. The number of individuals living with just $1.90 a day was listed as 15.1 percent: a significant improvement from previous years. The US-China trade tensions, however, will impact this progress negatively.
The impact of the US-China trade tensions on development in the U.S. is mainly centered on food. China has targeted pork through multiple 25 percent tariffs and other products such as soybean. This hurts farmers economically because they now have to sell their products for much less.
Trade War and Nonprofits
In Asia, several nonprofits have a continued mission of resolving the issue of poverty. Organizations such as the Peace Corps and Care have existed for several years. In the event of a trade war, their work will have increased importance in impacted nations.
International groups, such as the World Trade Organization, have worked to quell the escalations through advocacy. WTO Director General Roberto Azevedo noted that the “escalation poses a serious threat to growth and recovery” in nations around the world.
A recent WTO report also mentioned, however, that the global trading system would be able to resolve such issues. Specifically, it asked the G20 economies to alleviate the issue and advocate for trade recovery.
As the US-China trade tensions escalate, it is imperative to the health of developing nations as well as the U.S. and Chinese economies that the issue is resolved. With organizations such as the WTO and nonprofits in South Asia working to minimize tensions, the goal of alleviating the issue is still attainable.
– Mrinal Singh