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Impact of the US-China War on The Chinese Economy and Its Long Term Implications

Executive Summary

This economics assignment essay will go into great length about the effects of the US-China war on the Chinese economy and its long-term ramifications, highlighting two of the most competitive and powerful economies in the world.

China and the United States of America have long been considered each other's sworn enemies. While disagreements and conflicts have arisen over a variety of topics, including the army, the middle east situation, China's proximity to Pakistan, and Russia, commerce has also seen an increase in friction.


The two nations' trade relations have been a topic of controversy, and recently, the animosity between them has risen. The turning point in this situation came when US President Donald Trump threatened China with increased import taxes in America or a temporary total boycott of Chinese goods after China inflated exchange rates with respect to the American Dollar to boost Yuan, their currency, well in the international market. One thing led to another, and following a recent American president's strike, the Trump administration placed a higher tax duty on $35 billion worth of Chinese goods, creating a severe market squeeze in China.

Well, the reasoning is straightforward. The US consumer will switch to buying domestically made items once the very affordable Chinese goods become too expensive for them to purchase. This will boost the US manufacturing sector and force the Chinese market and supplier out of the US market as well. China, on the other hand, responded right away. The Chinese government denounced this US action, calling it the greatest trade war in history. The Chinese government then levied a 25% tax on $35 billion worth of US imports of goods like automobiles to equal what the US did and to balance the books (Aleem, 2018).

Reason Behind Trade War

One way the US government justified their action was as retaliation for the act of secondly as a response to China's policy of forcing American corporations into reviving technology in exchange for market, by increasing the FOREX rate for Yuan with respect to the Dollar. Despite the fact that the practice has been extremely immoral, these trade obstacles will have an impact that will hurt China more than it will hurt the US.

But this is only the very tip of the iceberg. The situation is out of control and much worse than anticipated. Both countries' markets have been significantly impacted, but China has seen the biggest effects.

Fig 1: State of US trade with China

The Chinese Economy and Market

A socialist market economy exists in China. Public ownership and state-owned markets are the foundation of this type of market. This strategy, which emphasizes everyone having their own part, is based on Marxist doctrine. Since China has a closed economy, it is extremely challenging for businesses from around the world to enter its market. As a result, China frequently receives criticism from the international community under the pretext of trade restrictions (Eckart, 2016).

Fig2: China GDP

China Growth Statistics

China is reputed to be the only nation to have a developed economy that is reported to have removed the greatest number of individuals from the labour force while still creating middle class customers. While China has been successful in accomplishing these feats, it has also come under fire for its tough and immoral approach against businesses that are not from China, particularly any corporation from the United States.

The US-China Face-Off

The American people and the cultures in the western economies have not taken this well. China has received numerous warnings for these actions, but last July, President Donald Trump took action and enforced the new tariff law, denying China access to a sizable market in America and ultimately causing a minor but noticeable economic crisis.

The US-China Face-Off

While economists from all over the world have praised China's rapid rate of development, this rapid change has also brought about a number of other changes, including a rapid and high rate of urbanization, higher consumer demand globally, an increase in work load, challenges to environmental sustainability, and external imbalances brought on by the feverish desire to achieve lofty target goals. China is now in a precarious position from which it cannot escape and must finally satisfy all demands, from those of foreign consumers to those of its own people.

Impacts of the Trade War On World Economy

The United States and China are two of the most significant and powerful economies in the world, and their integration has led to some fairly well-established regulations and opened markets for both of these countries as well as the rest of the world. Even if the US-China trade war is still in its early stages, it has already had an impact on people, organisations, and nations all over the world, particularly these two countries.

Fig 3: Widening Trade Gap

The countries' willingness to accept the defeat and refusal to give in to ego by finding a middle ground is astonishing. Both of these nations are confident in their capacity to diplomatically convene, identify answers to the issue they are currently experiencing, and mutually relieve one another without incident (Tahn, 2018). Due to the global financial crisis, both of these nations are now in the centre of attention, making them the champions of the cause. It seems as though people have begun to anticipate that they will be the cause of the current financial crisis and that they will also be responsible for its resolution. It is perplexing that now, only two of the world's 180 independent nations are credited with maintaining global economic stability. In fact, the United States and China represent both the causes and risks of global macroeconomic imbalances. The majority of the blame for the current crisis may possibly rest with U.S. regulatory and macroeconomic policies (Prasad, 2009).

Solutions to the Problem

A very deliberate and nonviolent strategy must be used to bring about peace in the situation. Due to the fact that its manufacturing and production sector will take a significant hit as a result of what president Donald Trump has done, China will likely suffer the most from this trade war. The output of Chinese goods will increase significantly if America stops buying from China, resulting in a market deficit for both nations. Despite having a socialist economy and a restricted market, China is unable to soften the impact of the American blow. There are various simple ways that both the United States and China can resolve this conflict, but it will be impossible to do so without causing diplomatic turbulence (SOlomon, 2016)

Problem in Leadership and its Effect on Economic Situations

The attitude problems of both countries' leaders might also be blamed for this issue. Even though the leaders are aware of how this crisis will affect both their countries and the global economy, none of them are willing to step back. Both of these leaders must intervene as soon as possible to change this terrible situation of bigotry and irresponsibility. It is therefore crucial to see how both countries' decision-makers attempt to find a middle ground in this murky scenario without doing more harm than they already have in the benefit of both their economies and societies. If this occurs, there will be less wastage of money, resources, and commodities, and China and America can establish a more comprehensive and sustainable trade relationship (World Bank, 2017).

US-China Trade War Facts

It is now even more crucial for China to take a step back and make things right because the US was, and still is, the country's top exporter by trade volume. Otherwise, the economic collapse the country has already experienced will only worsen over time. The international community is aware of some unethical tactics China used to strengthen their currency (inflating the FOREX rate for the Yuan relative to the Dollar), which did not sit well with the USA. However, changes must be made as soon as possible to prevent a situation similar to the 2008 market collapse, except this time it will only affect China. Chinese exports to the United States increased from $100 billion in 2000 to $338 billion in 2008, while imports rose from $16 billion to $71 billion. These increases illustrate how dependent the two nations were on one another at one point in time and how the proper balance was maintained in the global economy as a result. There are a number of nations prepared to capitalise on this deteriorating relationship, but doing so would only make China's problems worse and is undoubtedly not a positive indication.


The exchange rate problem has received a lot of attention recently, and it doesn't need any more than it already has. The fact that the exchange rates of the Yuan and the US Dollar have been steadily declining shows how disastrous China's economic policies have been. Due to China's employment of protectionist policies, which make it the least liked or favoured country by foreign investors worldwide on the FDI front, the value of the Yuan has fallen as a result (Financial Times , 2018). This war has the potential to result in numerous casualties and the economic instability of not only China but also several other dependent economies. Before time runs out, the only way out of this mess is a solution-centric strategy. In the modern era, economic stability is one of the things that all world leaders look forward to most, and any incidence like this has the potential to seriously harm the growth and even bring it back down.


We may therefore draw a conclusion by comprehending how the three factors—the FOREX Rate Problem, China's Closed Market and Protectionist Policies, and the Lack of FDI and Investor Trust in China—have played a significant role in forming the world's largest trade war between America and China. Both nations need to find a middle ground to get out of the economic mess they have created, which has the potential to affect people and economies all over the world as well. The USA is merely working on lines of maintaining ethics and implementing trade rules against all the bad practises of China. Both of these nations are confident in their capacity to diplomatically convene, identify answers to the issue they are currently experiencing, and mutually relieve one another without incident (Lau, 2018). Due to the fact that China's manufacturing and production sector will be severely impacted by this trade war and that many Chinese citizens will likely lose their jobs or suffer significant financial losses, China will likely be the country that suffers the most. It is therefore crucial to see how both countries' decision-makers attempt to find a middle ground in this murky scenario without doing more harm than they already have in the benefit of both their economies and societies.


Z. Aleem (2018). In less than 500 words, explain the US-China trade battle. Citing https:// www.vox.com/world/2018/7/6/17542482/china-trump-trade-war-tariffs

J. Eckart (2016). The Chinese economy: 8 things you should know. the 8 facts regarding China's economy that were taken from https://www.weforum.org/agenda/2016/06/8-facts-about-chinas-economy/

E. Prasad (2009). The Crisis' Impact on the Economic Relations Between the United States and China. Retrieved from "The Effect of the Crisis on the U.S.-China Economic Relationship" at from https://www.brookings.edu/testimonies/the-effect-of-the-crisis-on-the-u-s-

Global Bank (2017). China World Bank. the World Bank website http://www.worldbank.org/en/country/china/overview
Business Times (2018). What is the US-China trade war and how does it affect India? Retrived from Financial Express at https:// www.financialexpress.com/economy/us-china-trade-war-what-it-is--how-it-impacts-India/1233408

D. Solomon (2016). What effects may a trade war between the United States and China have on each country's economy? Reproduced from https:// www.focus-economics.com/blog/impact /impact /impact-of-the-trade-war-between-the-us-and-china-on-their-economies.

Lau, L. (2018). (2018). How would the Chinese economy react if the US-China trade conflict worsens? These are the figures. Retrieved from "if-us-china-trade-war-escalates-how-will," " www.scmp.com/comment/insight - opinion/united-states/article/2156470"

Tahn, W. (2018). China's attempts to repair its economy are being hampered by the trade conflict. from https:// www.cnbc.com/2018/07/18/us-china-trade-wars-impact-on-chinas- economy.html

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