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KT edit: Decoupling with China won't help

Filed on September 9, 2020


In terms of pure numbers, trade can hardly be a zero-sum game

It has been two years since the US started a trade war with China. On July 2018, the Trump administration imposed 25 per cent tariffs on $34 billion of Chinese imports, the first in the series of tariff imposed on Chinese goods in 2018 and 2019. To think that American companies or the economy has benefitted immensely from such moves would be a gross misunderstanding of how the wheels of commerce and trade churn. The United States, as per a number of studies and analysis, has taken a hit and it is not just in economic terms but in strategic relationship as well that isn't easily quantifiable. A September 2019 study by Moody's analytics found that the trade war had already cost the US economy nearly 300,000 jobs and an estimated 0.3 per cent of real GDP. Another study points that US companies have lost at least $1.7 trillion in the price of their stocks as a result of US tariffs imposed on imports from China. 

Yet, the US trade deficit with China, which has remained a sticking point in US President Donald Trump's arguments, hasn't altered much since he took office in January 2017. It remains stubbornly high at $28.3 billion. And now with elections looming, the US president is hardening his threat to 'decouple' the US economy from China's which, if we look at it, has already been initiated with a slew of measures taken by the Trump administration concerning trade, participation of Chinese corporates on the US stock exchanges, and more. More of such measures could inflict deep wounds on both the economies and their ripple effects would be felt across the world. 

Trump has successfully used the China rhetoric to shore up support at home. But after decades of economic integration between the two largest economies, which is now reflected in various industries, it is hard to imagine a real severance of ties. In terms of pure numbers, trade can hardly be a zero-sum game. Trump's rhetoric is misleading. Instead of decoupling with China, perhaps, Trump might do better by talking about the very many domestic issues that need urgent attention.


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