Heading for a U.S., China trade war?

There are growing concerns that the U.S. and China are heading towards a trade war. The two countries have placed some trade barriers on one another in certain industries and the U.S. is upset that China has not done enough to let its currency appreciate naturally.

We will really know we are in a trade war when the U.S. places a large tax on all Chinese imports. This can cause any number of interruptions to the global economy. However, some people, including Donald Trump have said that if the U.S. were to place a 25% tax on all Chinese imports, then in one year the huge amounts of money owed to them would be wiped away. With all else being equal, this would dramatically improve the U.S. debt situation.

However, there could quite possibly not be a worse time for a U.S./China trade war than now. The global economy, starting with the U.S.’ is very fragile and a trade war between two of the largest economies in the world can easily put us all right back in to a recession. On most of the trade issues between these two powers, the U.S. is on the right side. Unfortunately, this does not mean that they will be the winner of a trade war. The most likely result of a trade war between these two countries is that everyone loses, at least in the short and medium term.

For the long term, that is, after we recover from it the winner could be either one of these countries. That depends on how it is handled and who can weather the storm better. If that is the U.S. then the future for them will look very strong. However, if it is not, then this can speed up the transition of power and influence to China. Hopefully, China will do the things the U.S. is asking for and in return the U.S. will ease up on some of their stances so we can avoid a trade war.