U.S.-China Trade War: Who Pays the Price?

U.S.-China Trade War Who Pays the Price.jpg

On May 13, 2019, escalating trade tensions between the United States and China sparked a worldwide stock sell-off that wiped out more than $1 trillion in global equity values. The markets recovered over the next three days, but tensions between the economic giants continued to drive volatility with no resolution in sight. Investors sometimes overreact to short-term events, but the conflict with China has been simmering for decades, and an extended trade war could have long-term economic consequences.

The issues

China was the largest U.S. trading partner in 2018, with $737 billion in goods and services exchanged between the two nations, accounting for 13% of all U.S. trade. The fundamental issue is the imbalance in this relationship; the goods and services trade deficit of $379 billion represented more than 60% of the total U.S. trade deficit. The United States maintains a surplus in services (primarily travel spending by Chinese citizens and software), so the critical concern is the deficit in goods, which totaled $419 billion in 2018 — an increase of 11.6% over the previous year.

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