How Could a Trade War with China Affect the US Economy

us economy

Donald Trump’s accession from Republican nominee outsider to President-elect will no doubt go down in history of one of the greatest political upsets of our age. The real-estate mogul turned reality TV star now has the opportunity to shape the United State’s economy for years to come. One of the most significant legacies he could leave behind is from his relationship with China, which could go on to influence markets across the globe.

Consequences of a Potential Trade War

A staple of Trump’s speeches throughout the campaign was his proposal to enforce a 45% tariff on all Chinese exports in order to make the country’s own domestic products more appealing. The US simply does not have the infrastructure to compete with China in certain categories, however, especially in electronics. According to a new report, the choice would not be between a more expensive Chinese product and a cheaper domestic-made device, but a more expensive Chinese product and not buying the product at all.

China US Trade War

Another of Trump’s complaints was that China was playing as a currency manipulator, and artificially making its products more attractive. Trump is right that this has been a tactic of the country in the past. However, more recently the country has been attempting to manipulate the value of the yuan up, not down, in an effort to encourage wealthy individuals and financial institutions to invest overseas. By returning the country’s currency to its correct free market value, Trump could inadvertently have the opposite effect and end up actually raising America’s trade deficit with China.

Comparing Policies to Past Governments

Interestingly, Trump’s policies position themselves as an interesting parallel to what Margaret Thatcher attempted to accomplish the UK in the 1980s. This period become known for the privatisation of large chunks of industry, with more than 50 companies being sold or privatised. Many of these would eventually decide to move jobs overseas, while others made their way into the hands of foreign ownership entirely. Since then, no British Prime Minister has been able to offer direct replacements for those lost jobs.

Instead, the country has been forced to invest in new technologies moving forward. While the 1980s proved to be a turbulent and disenfranchising time for many people in the UK, Thatcher’s economic revolution ultimately proved to be a narrow success. Even if Trump is able to convince businesses like Apple to assemble their devices in the US. It’s difficult to imagine these positions staying around for much longer. The company is already investing in robotics and looking to automate more of its manufacturing process. The reality is that for the US to become the world’s largest superpower, they must look to lead and not look back.

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