Most economic analysts think that a trade war is universally harmful, although the US President (not a renowned economic analyst) would beg to differ. In a trade war, both sides put tariffs on imported goods from the target nation with the initial target responding to punitive tariffs with their own. The idea of this is that by imposing what is essentially and import tax, consumers in the “home” country will be dissuaded from buying the goods, opting for (now) cheaper domestic products or for alternatives from other exporting nations. The downside of this, obviously, is that people in your country that prefer or need to buy products from the target nation are going to have to pay more for them, hurting your own economy by fuelling inflation (particularly when domestic, finished products contain components or raw materials from the target country). The aim is to make the target country hurt sufficiently from loss of export share that they will come to terms, but this won’t work if they can simply boost exports elsewhere in the world.
On the back of the G20 summit, the suggestion emerged that the Chinese and the USA had agreed to a 90-day truce in their trade war in which time neither the US President nor his Chinese counterpart would introduce any further tariffs. However, this is yet to be confirmed by Chinese sources.
President Trump claimed that the Chinese had agreed to “reduce and remove tariffs on cars coming into China from the US”. Currently, such imports attract a 40% tariff in China, putting them beyond the reach of much of their target market when compared to similar products from non-US manufacturers.
However, following Trump’s announcement, by Tweet, naturally, White House spokesmen have made contradictory claims about the agreement. Larry Kudlow, Trump’s top economic advisor said that he “believed that commitment was made” although he went on to brief reporters that “a specific agreement on auto tariffs” had yet to be made. Another White House staffer, Peter Navarro, a senior trade advisor, remarked that the trade issue “certainly came up” during the G20 conversations – that’s not quite the same thing, of course.
Time will tell if an agreement has been reached, but at least the two sides are talking. However, nothing has been said about any concessions that the US side has made towards their Chinese counterparts in terms of reduction of US tariffs which would surely be the quid pro quo from the Chinese