The US-China trade war seems to have subsided – but the sense of calm is misleading
Real-world example for IB, A-Level, AP and IGCSE Economics essays: Tariffs and protectionism, Balance of payments, Exchange rates
What happened
The article says the US-China trade war appears to have cooled because of a truce, but neither country has done anything to limit the outbreak of new hostilities.
The economics
This illustrates tariffs and protectionism: tariffs in a trade conflict change import prices, affect trade flows and the balance of payments between the two countries, and influence firms through uncertainty and exchange-rate expectations. A truce is only a temporary easing, not the removal of trade barriers, so tensions can recur.
Evaluation
A good evaluation is that the truce reduces short-run uncertainty, but the underlying disputes remain, so the long-run trading relationship stays fragile; also, part of the tariff burden falls on domestic importers and consumers rather than only on the exporting country.
Practice question
Using the US-China trade war as an example, analyse how protectionist measures such as tariffs may affect the two countries' trade balances and domestic industries.
Where it fits in the syllabus
- Tariffs and protectionism: Tariffs, quotas and similar barriers that shield domestic producers, at the cost of higher prices and possible retaliation.
- Balance of payments: A record of a country's transactions with the rest of the world, including the trade balance and capital flows.
- Exchange rates: The price of one currency in another; appreciation or depreciation changes exports, imports and inflation.
- IB Economics: International Trade, Exchange Rates and Balance of Payments
- A-Level Economics: International Economics
- AP Macroeconomics: Open Economy: International Trade and Finance
- IGCSE Economics: International Trade and Globalisation