The United States finds itself in a delicate situation, with its rare earth vulnerabilities leaving it exposed to potential economic risks. This has led to a controversial policy decision by President Trump, who has reignited trade tensions with a new round of trade confrontations.
The trade war, which officially began in 2018 with the imposition of tariffs on solar panels, has been justified as a means to protect domestic industries and boost local manufacturing. However, beneath this noble facade lies a more complex reality. Trade wars are often driven by the desire for market dominance and economic supremacy, and in this case, it seems the US may have missed the window of opportunity to curb China's rising influence.
Between 1990 and 2018, China's economic might grew exponentially, with its share of global GDP in PPP terms skyrocketing from 3.8% to a staggering 17.3%. Meanwhile, the US witnessed a decline, with its share dropping from 20.1% to 15.6%.
The trade war of 2018 and subsequent rounds were an attempt to restore economic balance and reclaim America's leadership position. But has this strategy borne fruit? The data suggests otherwise. China's share of global GDP in PPP terms has continued to rise, reaching 19.3%, while the US has further slipped to 14.8%.
Economic research on trade wars paints a bleak picture, indicating that all participants suffer, with global performance indicators taking a hit. Larger economies tend to weather the storm better, and nations with diverse economic structures are more resilient to external shocks.
In today's interconnected world, where economies are tightly interdependent through global supply chains and trade, any pressure on a key player has a ripple effect. The question is, how severe will this multiplier effect be? Our simulations from 2018 indicated that China would be less affected, as it could redirect its exports and find alternative suppliers, a scenario that has largely played out.
But here's where it gets controversial. While the US may have aimed to weaken China's economy, it seems China has found ways to adapt and mitigate the impact. And this is the part most people miss: the trade war may have unintended consequences, with the US potentially shooting itself in the foot.
So, what's your take on this? Is the US risking too much with its trade war strategy? Or is this a necessary move to protect its economic interests? Let's discuss in the comments and share our thoughts on this complex issue.
