Quan-Ding Liu

The trade war between China and the United States has dealt a heavy blow to the existing international trading system. Although before the trade war, due to the 2008 financial crisis, all countries adopted trade protectionism measures to different degrees in order to recover their economies, in general, international trade remained in the multilateral free trade system dominated by WTO framework. However, the outbreak of the trade war between China and the United States has changed this basic pattern of international trade.

A basic feature of the trade war between China and the US is the "tariff war". In other words, both sides impose high tariffs on products originating in the other side. An important question is: How will the high tariffs imposed by China and the United States affect the trade between the two countries and the world at large？First of all, it must be admitted that tariffs have the most direct impact on import and export flows. Meinen, Philipp & Schulte, Patrick & Cigna, Simone & Steinhoff, Nils（2019） based on the monthly product data set of 30 countries imported by the United States over a period of more than four years from January 2016 to May 2019, the difference estimation framework shows that tariffs have a significant direct negative impact on imports from China by the United States. In fact, the dispute with China is just one of the trade wars the United States is waging against other countries. Starting in 2018, the United States retaliated with tariffs on all of its major trading partners.

In addition to imposing tariffs on China, Trump also imposed tariffs on Mexico, Canada and the European Union to encourage consumers to buy American goods. So these countries have responded by imposing tariffs on American goods. Canada imposed tariffs on $12.6 billion of US products, the EU imposed tariffs on $2.8 billion of US products, and Mexico, Turkey, Japan and others were involved in the "tariff war". With import prices unchanged, these retaliatory tariffs cost U.S. consumers and businesses buying imported goods about $51 billion, or 0.27 % of GDP. After accounting for tariff revenue and gains of domestic producers, the total real revenue loss was $7.2 billion, equivalent to 0.04% of GDP （Fajgelbaum, P. D., Goldberg, P. K., Kennedy, P. J. and Khandelwal, A. K., 2020）.  Of course, in addition to reducing trade flows, such tariff barriers could also lead to major changes in the redistribution of sectoral output. （Charbonneau, K. B. and Landry, A. ，2018） In addition to the trade war between China and the United States, the United States and other important trading partners are also redrawing trade treaties. Hit by these trade tensions, the IMF estimated that global economic growth will slow to 3 % in 2019, the slowest pace in a decade.

In addition to having a significant impact on imports and exports between the two countries, the trade war between the US and China has disrupted global supply chains, increasing demand for substitutes in third countries. Freund, C., Ferrantino, M., Maliszewska, M. and Ruta, M. （2018） assessed the impact of tariffs between China and the United States on developing countries using a computable general equilibrium （CGE） model. The analysis shows that the tariff escalation by the US and China could reduce global exports by 3 % （$674 billion） and global revenues by 1.7 % （$1.4 trillion）, with losses across regions. Felbermayr, G. and Steininger, M. （2019） used the modern general equilibrium trade model to simulate the impact of the trade war between China and the United States. The simulation found that tariffs imposed by China and the US through February 2019 would cost the US $2.6 billion and China $5.7 billion, respectively. Overall, both economies are losers, but China has relatively big losses. Europe's GDP, meanwhile, will rise by €345m. China's exports to the United States fell by $52.1 billion, and U.S. exports to China fell by $37.1 billion. A full-scale tariff war, with an additional 25% tariff on all imports, would cost the US $9.5 billion and China $30.4 billion. The trade war will add 0.6 % to US manufacturing value, while the agri-food sector will contract by 1.22 %. In China, manufacturing will fall by 0.8%. Chinese exports to the US would fall by a hefty $171.3bn, while US exports to China would fall by $51bn. Although the bilateral trade balance between the United States and China has improved, that is, the Trade deficit of the United States has decreased, and Europe may also benefit slightly from the trade transfer effect, Europe's trade surplus with the United States will become larger, thus, as the European Union deteriorates. Thus, while Europe may benefit slightly from the trade diversion effect, its trade surplus with the US will become larger, increasing the likelihood of US-EU conflict and undermining the world economic order.

The trade war between China and the United States will also affect the production decisions of multinational companies around the world, significantly increase the costs of intermediate goods and industrial chains, accelerate the return and transfer of some industrial chains, and undermine the existing international industrial and trade system. For example, labor-intensive industries will move faster to Southeast Asia, where labor costs are relatively low, and industries with high capital demand and high technology will move to Japan and South Korea. Once this trend takes shape, it will not be stopped by the cessation of trade wars. It should not be overlooked that since the trade war between China and the United States, Japan's Mitsubishi Electric has moved metal-processing machinery factories to the United States from China to Japan to avoid tariffs. Toshiba has also moved some of its production locations from Shanghai to Japan and Thailand. In recent years, with the rising cost of labor, resources, energy and environment, the international competitiveness of China's processing and manufacturing industries with traditional advantages has been weakened, and labor-intensive industries have shifted to Vietnam, Malaysia, Indonesia, India and southeast and South Asian countries. In 2015 and 2016, China's investment in ASEAN manufacturing grew by 73.4% and 34.3% year-on-year respectively. This shift in labor-intensive industries to Southeast Asia and other low-cost countries seems likely to accelerate in the context of a trade war, with tariffs and the impact of them shifting some of the capacity to assemble goods from China to other countries. America's share of imports has been redistributed, according to a study by Panjiva, a global market-intelligence and trade data firm at Standard & Poor's, U.S. imports from China fell 13.5 % in the first quarter of 2019. Imports from Vietnam increased 37.2 %.[1] This series of industry transfer will definitely bring serious influence to the existing international value chain system and trade system.

The overall global economic landscape is also in a very precarious period. The Brexit of The UK, the implementation of the "America First" policy in the US, the Coronavirus attack in 2020 and a series of major international events have seriously challenged the international free trade system since the Second World War. In fact, Brexit and the election of Donald Trump as US President have to some extent heralded the end of the Anglo-American order （Ian Buruma, 2016）.[2] This great alliance believed that Pax Americana and a united Europe would ensure the security of the democratic world and the prosperity of capitalist economies. The current "taking back our country" slogan of British and American nationalists is not so much a triumph of Anglo-American exceptionalism as a retreat from the post-1945 world envisioned by the Anglo-Americans. Ironically, the return to unilateralism and America first coincided with the announcement by Chinese President Xi Jinping at the World Economic Forum annual meeting in Davos, Switzerland, announced that China would become a new champion of free trade and globalisation. When introducing President Xi, Klaus Schwab, founder of the World Economic Forum, said that China is willing to take over the heavy responsibility from the obviously hesitant US: in a world full of uncertainty and turbulence, the international community is looking at China（Mishra, 2018）. This means that China and the United States have reversed roles in advocating free trade. Because China has long been considered a state-controlled market economy, it seems to lack the traditional idea of free trade. Since the reform and opening up, China has rapidly risen from a relatively isolated agricultural economy to the world's largest exporter and second largest economy. This is a great practice with Chinese characteristics. This great practice is considered a form of nationalist mercantilism, a style that bears many similarities to early East Asian success stories such as Japan, Korea and Singapore （Prestowitz, 2017）. But China has shifted from a labor-intensive, low-cost export strategy to a high-tech, innovation-driven strategy that is advancing at an unprecedented speed and scale, disrupting the economic order that has hitherto dominated major Western economies （Gereffi, G. 2018） This is the fundamental reason why the United States is determined to have a trade war with China, which will inevitably lead to the collapse of the existing international economic and trade order.

[1] Source：华夏时报，发布时间：2019-05-21 15:37:15 https://www.chinatimes.net.cn/article/86703.html

[2]  Ian Buruma，2016, The End of the Anglo-American Order, The New York Times ,Nov. 29, 2016, https://www.nytimes.com/2016/11/29/magazine/the-end-of-the-anglo-american-order.html  

(Quan-Ding Liu Office of International Cooperation and Exchange, Baoji University of Arts and Sciences, China)