We talked about the possibility of a trade war happening a few months ago in our article “Spot the oxymoron; the open China and the close USA”.
Let The Battle Begins
We are starting to see signs that such a trade war is starting. Recently, the USA administration issued tariffs on the imports of solar panels and some large residential washing machines. However, such a move might have
According to the news report, there will be an imposed tariff of 30% on solar panel imports. It will then follow a step-down schedule for the next four years. There will also be a 20% tariff on the first 1.2 million on some large residential washing machines imported to the USA and then tariff will be increased to 50%.
The move, especially the tariffs on solar panel imports seem directly targeting Chinese manufacturers as China is still the largest solar panel exporter to the US. Locally, Malaysia’s manufacturers would also be deeply affected by the move as Malaysia is now the largest photovoltaic (PV) exporter to the US market.
However, what is confusing about the policy is the objective of the US administration. President Trump promised to put “America First” and wanting to set up the trade tariff as a way to protect American jobs.
Save Amercian Jobs?
However, the solar industry in the US is actually growing due to the cheap imports from countries like China. And most of the jobs in the US solar industry is focused on installation than manufacturing. In fact, some solar associations in the US are warning that such a tariff would essentially cause job losses instead of more job creation! It is unclear how the import tariff would help create enough jobs in the US to net off the possible job losses.
So, the unintended consequence of such a move by the US administration can have a few dangerous side effects. For one, if the US saw that the policies are not working as they plan, they might choose to double down on their efforts instead of admitting their mistakes. That would only make things worse. Secondly, it would cause those affected, like China to retaliate. China is already working with World Trade Organisation (WTO) to see how they can mitigate the issue. It also could import some restricts on US import to China or directly go after US companies, like Apple Inc, Starbucks or Wal-Mart, that have a huge presence in China.
Going Down The Rabbit Hole
Retaliations might beget more retaliation. Once we go down that rabbit hole, it would be extremely hard to crawl back out again. It is dangerous for any of us to think that trade is a zero-sum game, that in order to win, the other party has to lose. However, that is far from what trade really is. In fact, the reason for any trade to happen is because it is beneficial to both parties. On a personal level, I would buy an Apple instead of growing one because I know I can get a quality fruit at a much lower price than I would ever be able to grow by my own. And the Apple farmer, distributor and reseller benefit through the profit they earned from me.
Thus, even in a macro level, trade between the US and China has been growing for so many decades because:
- The US is getting much cheaper but same quality products for their consumers compared to if they were to manufacture it themselves.
- China is growing its economy by selling to the US market.
Sadly, that is not what the mega powers are seeing at the moment. They are seeing each other as rivals instead of partners and seeing trade as a competing game.
Fortunately, not all world leaders are thinking this way. Prominent US lawmakers and top European Union leaders are coming out to condemn the decision on imposing the import tariff. Hopefully, reasons would prevail in the longer term. For now, the US administration has made it quite clear;