125% Vs 84% = Chaos

Why other countries shouldn’t think they will escape the consequences of a US-China trade war

With Trump piling on an extra 50% tariff on Chinese exports to US – taking overall tariffs on Chinese goods to 104% – Washington has started the trade version of a slap fight with Beijing. In response, China hit back and raised its own tariff on US goods to 84%. While some countries have sued for negotiations and are sending trade delegations to Washington, China has said it is ready to fight to the end.

Given this, many countries may be inclined to adopt the view that the fallout of the trade fight will only be confined to US and China. But it won’t be so easy. First, Trump is on an unpredictable path – he has now threatened to tariff the pharma industry which will impact India, even as New Delhi tries to negotiate a trade deal. Second, EU too has approved 25% tariff on US goods in another pain-point for global trade. Third, as the largest trading nation and manufacturer, China’s supply chains are like a spider-web that covers the whole world. Untangling from this will be painful no matter where you are on the Trump tariff spectrum. Case in point, for more than 15 years China’s-exports of finished consumer electronic products have exceeded all other countries combined. In 2023, China represented over 65% of laptop and tablet exports and 47% of smartphone exports by value. Additionally, China accounted for nearly a fifth of global exports of intermediate inputs like transistors, PCBs and memory chips. This means that even if an electronic product is made in a third country, chances are its components were made in China.
This perhaps explains China’s confidence in this trade war. Experts believe that Beijing has been developing a retaliatory toolbox precisely for this moment. In fact, China is so price competitive that even with 100%-plus tariff Chinese trade volumes to US could still be 30-50% of earlier numbers. But that won’t be the case for US exports to China. And if Beijing starts targeting US services – like law firms operating in China – and adopting non-tariff barriers – halting export licences for rare earths – American firms will be in serious trouble.

That, of course, will have serious consequences for US consumers and ripple effects for other countries. Add to this growing worries about dumping of Chinese products in non-US markets. Trump is right that China’s yawning trade deficit with US has been a concern for several White House administrations. But since China joined WTO in 2001, US policy has been to mould and correct China’s behaviour, not press it into a corner like Trump is trying to do. With China today far wealthier and much more powerful than it was two decades ago, potential consequences of cornering Beijing can be hugely and globally disruptive.