election campaigning days, Donald Trump has been very vocal about how he is not
in favor of the US and China trade relations. He made several statements like “China
is neither an ally or a friend–they want to beat us and own our country.” He
maligned China more than any other country during his campaign. Even then, he
did not take any step against China during the first year of his presidency,
something that he pledged during his entire campaign duration. He even visited
China on the first anniversary of his election and was welcomed with opened
Now, just as
he completed one year as president, Donald Trump, on January 23rd,
2018 has imposed high tariff on a range of products – solar panels and washing
machines – imported from China. The main reason for taking this step is to
protect the American manufacturers against low-priced imports. This is the
first step in Trump’s ‘America First’ approach and it proved that the administration
would “always defend American workers, farmers, ranchers and
immediate impact of this move was that Whirlpool’s shares rose by 5% and they
are planning to hire 200 more people immediately.
has also received a lot of backlash, not just from China and South Korea, who
are major exporters and will suffer because of this tariff, but also
environmentalists, who believe that increased price of solar panels will
negatively impact the uptake of renewable energy, which has already fallen in
recent years, in the US. China, along with other countries is planning to go to
WTO (World Trade Organization) and complain against this extreme step. Samsung,
a South Korea based washing machine manufacturer, called the tariffs a tax
on every consumer who wants to buy a washing machine”. Meanwhile China,
the world’s biggest solar panel manufacturer, said the move would further
damage the global trade environment.
segment that is unhappy with this decision is a large section of the US solar
industry that comprises of companies that install solar panels. These
businesses will have to deal with higher costs and that will negatively impact
the market. Also, the local solar panel manufacturers in the US need to make
technological advancements for their production to be more efficient,
otherwise, these companies won’t get a huge boost from Trump’s decision.
China has in
the past threatened the interests of US based corporates. The trade war that US
has started, will have economic consequences. A few things that China might do,
apart from going to the WTO, are halting the imports of soybean and maize from
the US and replacing Boeing orders with Airbus. Even the sales of iPhone and US
auto will suffer setback in China. Chinese government can also ask Chinese
tourists to not visit the US, and US could lose out a lot.
and US will be impacted by this trade war. The US government has estimated that
just under a million American jobs are supported by trade. The tariff will be a
tax on every product the consumer purchases. People will pay more and have
fewer choices. On the other hand, China is the biggest exporter of solar panels.
Chinese economy is threatened by Trumps’ move, as it will lead to reduction in
exports thereby reducing the inflow of foreign currency. Also, China will now
have to dump the surplus products in other countries. The Chinese government
has already depreciated CYN from USD = 6.40 Yuan to USD=6.90 Yuan.
As China’s exports to US will reduce, China
will now have to dump their product in other countries like India. When the
exports of solar panels increase, their price in India will decrease. This
increases competition for domestic products and manufacturers because now
Chinese goods will be available for a cheaper price throughout the globe. Also,
medium and small-scale enterprises will be unable to compete on quality with
the Chinese products. So, the price war increases the pressure on MSEs. This
will result in many of these companies shutting down their businesses, and
eventually lead to loss of jobs and income. Though, there are reports that
India is also planning to impose a 70% duty on import of solar panels.
Also, China has more than
1.7 trillion$ in US bond and a total of 3.2 trillion$ worth of US currency.
They might retaliate by slowing down or even halting the purchase of US
treasuries. This will result in low liquidity in the US bond market. Also, the
US dollar will depreciate if China goes ahead with this. The interest rate will
increase. All this will have a huge impact on the global economy.
If the US dollar
depreciates, oil prices will rise. This will largely benefit UAE and the Gulf
regions, as they are the largest exporters of crude oil. With increased prices,
there will be a rise in consumer confidence that will lead to job creation and
the workers’ salaries will rise. Also, UAE can import solar panels from China
on reduced price. UAE, because of its geographical location, has a lot of
potential for exploiting solar energy. Dubai has already launched the world’s
‘largest concentrated solar power project’ and is also working towards ‘Dubai
Clean Energy Strategy 2050’. Other areas in UAE can benefit by importing cheap
solar panels from China and further boosting their usage of renewable
Increased oil prices also
mean more expenditure for China, as it imports a huge quantity – approx. 9
million barrels – of oil every day. This will lead to higher cost of living.
As our world is a VUCA world
(volatile, uncertain, complex and ambiguous), we can say that any change or any
new policy in any part of the world affects almost the entire global economy in
some way or the other. We see how a political decision impacts the economical
atmosphere of the country. The given situation is a perfect example to
demonstrate how VUCA and PEST are caused and influenced because of one-another.
Finally, we can say that the
decision taken by president Trump is going to impact the entire world economy
in some way or the other. If China retaliates in the ways we have mentioned
above, US dollar will go down which will result in oil prices going up. The US
economy will take a hit and the local businesses will end up paying more for
maybe lower quality products. Though Trump could have imposed much higher
tariffs and made the situation worse, China sees that the imposed tariffs is in
the middle. There are still talks taking place and we will have to wait and see
if the Trump government imposes tariffs on even more goods or settles this controversial
step he has taken with talks.