The US-China Trade War for Dummies

A full blown trade war has been going on between the world’s two largest economies, China and the U.S. The concept of trade wars can be complicated to understand. I’m sure most people have heard about the US-China trade war, but many don’t know about what is actually happening. That is where I come in and try to explain it to you, in the simplest way possible.

Here’s the summary of the entire situation: both China and the US have put tariffs– a type of tax that is placed on imports–on products made by the opposing country. This war have begun to hurt companies from both countries because they now have to pay a higher tax when exporting their goods. Because of the higher cost of exports, they also have to sell their products at a higher price to the consumers.

Now imagine yourself in a store. You see a wooden stool that is being sold for 200 RMB, but you look to your left and you see another wooden stool being sold for 100 RMB. No one wants to pay a higher price for the same product, so the logical decision is to purchase the wooden stool that costs less. You can see where I’m going with this and start to see how it would affect these companies and the economy of the country that they operate in.

This whole trade war started with the Trump administration setting tariffs on $34 billion of Chinese goods which equates to a 25% border tax on Chinese goods that are being imported. Now, of course, if you’re one of the executives of the Chinese government, you can’t just take that, so China retaliated with their own 25% tariffs on $34 billion dollars worth of goods being imported from the US.

Since then, Trump has threatened to place more tariffs on Chinese imported goods, and China has responded by saying that they will place an equal tariff on US imported goods. This trade war has been going on for almost a year now, and both Xi and Trump have been in talks of a trade war truce, but little progress has been made.

If you still don’t understand what is happening, here is a very simplistic timeline of how the China-U.S. trade war began:

1. Trump wants more goods to be made in the US to boost industry
2. Trump Administration puts 25% border tax on imported Chinese goods.
3. China gets mad
4. China places 25% border tax on imported US goods
5. US threatening on placing more tariffs
6. China isn’t phased and says they will place an equal amount of tariffs
7. Both countries can’t find compromise

For more information, please visit The South China Morning Post, China Briefing, and CNBC