What would a U.S.-China trade war look like? | CNBC Explains


China. China should love us. China. Could the United States and China be on the
brink of a trade war? Maybe…if President Donald Trump follows
through on his campaign promise to tax their imports. So what is it about the U.S. China trade relationship
that Trump isn’t a fan of? Well, he doesn’t think it’s fair. Let’s start with the numbers. Trade in goods and services between the two
is huge. $659.4 billion dollars in total to be precise. $161 billion dollars worth of goods from America
were sent to China that year, while Chinese goods imported to the U.S. stood at $497.8
billion dollars. So what does that mean? It means the U.S. had a trade deficit totalling
$336.2 billion dollars in 2015 – 6.6% more than the previous year. Which brings us back to President Trump and
why he is so annoyed with China. “We can’t continue to allow China to rape
our country, and that’s what they’re doing.” That’s why while on the campaign trail the
President promised to impose huge tariffs on the Chinese. This could be anywhere between 10% and 45%. So what exactly does that mean? Let’s use this cup of tea as an example. Say I’m a Chinese teamaker and right now it costs me about $1 USD to import this Chinese tea into the U.S. Well if Donald Trump introduces a 45% tariff on all goods from China, this one cup of tea will now cost me $1.45 to get into the United States. And you’re probably wondering who’s going to have to pay that price? Well it’s going to be me, the consumer. But I’m probably going to ask myself, why would I pay $1.45 for a cup of tea from China when I could potentially get a cup of tea
from India, for less than a dollar? And that could badly hurt Chinese companies
and their products. It would be the first volley in a U.S. – China
trade war. Beijing could impose retaliatory tariffs on
certain industries and that in turn would hurt American companies. America’s top export to China is airplanes,
so increasing tariffs on Boeing, for example, would hurt. But it’s not just tariffs – state-run carriers
like Air China could simply decide to stop ordering planes from Boeing and instead buy
from rivals, like European manufacturer Airbus. That leaves the big question: who would win
in a U.S. China trade war? The Chinese say they’re ready for any potential
protectionist actions and that their economy would remain strong. Over the last couple of years, China has been trying
to shift its economy from a manufacturing to a consumption based one. Trade made up just 28.6% in 2016,
down from 36.3% in 2015. China has also been trading more and more with
countries with a growing consumer base like India. And finally, the two could spark a trade war over
China’s currency, the Yuan. President Trump has been critical of the Yuan
saying throughout his campaign that Beijing is unfairly devaluing it. Making Chinese exports more attractive. Even after winning the election he tweeted: It’s unclear whether President Trump will actually impose a 45% tariff on goods imported from China but one thing is for certain, it won’t be hurting just the Chinese and American economies, it has the potential to leave the entire globe with an upset stomach. Phil Han, CNBC.

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