The Feud Between US and China Explained – Introduction
The United States has a population of more than $300 million people and a GDP of more than $19 trillion. China on the other hand has a population of more than 1.2 billion people and a GDP of almost $12 trillion. This makes the two countries have a GDP of more than $31 trillion which is a third of the worlds Gross Domestic Product. Therefore, the happenings of these countries have a huge ripple effect around the world.
This year, the relations between the two countries has not been good. It all started with the US decision to place tariffs on Chinese goods. This was a big news because China and the US have a combined goods trade worth more than $700 billion annually. China has a trade surplus with the US worth more than $300 billion. A trade surplus is a simple term derived by subtracting a country’s imports from the exports.
The opposite of a trade surplus is a trade deficit. A deficit is when a country imports more goods than it exports while a surplus is when it exports more than it imports. Experts believe that while a trade deficit is not always a good thing, it is not entirely a bad thing. For example, if you spend $20 every day to buy a packet of milk from a local store, every month, you spend about $600. This means that you have a deficit of $600 but its not bad because you have your milk.
The US is a developed country with high wages while China is a n emerging country with low wages. For this reason, most of American companies moved to China to take advantage of the low wages. Therefore, most Americans buy goods from American companies that are manufactured in China. By so-doing, they benefit by buying low-priced products. If these products were manufactured in the USA, more jobs would be created but people would pay more money for the goods.
The deficit is also a reflection of the strength of the American economy. This is because the increase means that people have more money to buy from China.
To address the disparity between trade, Trump’s strategy is to impose tariffs on Chinese goods. Last month, he added tariffs worth more than $200 billion. China, which buys a few of American products imposed tariffs worth more than $60 billion. Experts believe that the tariffs US imposed on China will not have any impact on the trade balance. In fact, many believe that it will make it worse. This is because China will have ready alternatives to American goods. Americans will continue to buy goods from China.
Last week, Mike Pence delivered a strong message on China. He said that America’s overreliance on China presented the country with a lot of risks. He argued that since China buys little from the US, the country can easily provoke the US by even halting exports to the US. This speech was followed by a new revelation that China was secretly spying Americans who buy products from Apple and Amazon. Today, China warned the US against further escalation. All this means that the world could see a major disruption as the two biggest economies continue to flex their muscles on trade.