Tom Holland

Opinion | US-China trade war: who wins, who loses?

Name: SCMP
Telephone: +852-2680-8888

Conventional wisdom suggests the US has the least to lose from a trade war. But, not so fast …

Reading Time:2 minutes

Why you can trust SCMP

Containers on a Chinese ship at the Port of Long Beach in Long Beach, California. Photo: Bloomberg

Tom Holland

Published: 2:00pm, 6 Jul 2018Updated: 1:58pm, 6 Jul 2018

Conventional economic wisdom suggests that trade wars hurt exporting countries more than importers, because if both sides impose equal and opposite tariffs, the country that exports more has more to lose. This explains, at least partly, why the US dollar has strengthened in the last few months. As the world’s biggest importer, in theory the US has the least to lose from a trade war.

But does the theory work in practice? Abacus examined two weeks ago how difficult it will be for China to retaliate if Donald Trump follows through on all his tariff threats. China simply doesn’t buy enough from the US to impose proportionate tariffs in response. And although Beijing can target the Chinese operations of US companies – Apple sells more iPhones in China than the US, GM more cars – these products are manufactured locally, so Beijing would be harming its own economy more than the US.

China and Trump’s tariffs: stop, or I’ll shoot myself too

WATCH: Is trade war hurting US steel business?

But that doesn’t mean China will necessarily come off worse in a trade war. Many of the imports from China on which the US is proposing to charge tariffs are vital links in the supply chains of companies in the US itself.

For example, many US companies import intermediate goods from China as inputs for their own manufacturing processes. For example, US industrial heavyweight Cummins makes components in China that go into the engines it manufactures in the US. It will now have to pay a 25 per cent tariff to ship in its own components.

Trump’s trade war: not about trade, not about Trump. Here’s what it is about

Similarly, many electronic products that the US imports from China contain components designed and manufactured in the US. By levying tariffs on imports from China, in lots of cases the US will effectively be imposing export tariffs on its own exporting industries.