The escalating trade tensions between the United States and China are not only a direct economic confrontation between two global superpowers, but also have widespread implications for the global supply chain. From tariffs to retaliatory measures, these actions have disrupted manufacturing activities in various countries, pushing the global economy into a prolonged period of instability. The economic fallout extends beyond just the US and China, affecting economies that rely on their supply chains, dampening economic growth, and increasing the risk of recession in many regions.
Impact on the World's Two Largest Economies
Decline in Output and Rising Production Costs
The US imposition of a 25% tariff on over $350 billion worth of Chinese goods, and the possibility of imposing a 60% tariff as previously stated by former President Trump, has significantly increased import costs for American businesses. Meanwhile, Chinese companies have been forced to lower their prices to maintain market share, leading to reduced profits and increased financial pressure.
According to statistics, the US remains China’s largest market, accounting for approximately 3% of its GDP. However, these tariff policies have led to a decline in exports from China to the US, while American manufacturers face higher raw material costs, resulting in increased production costs and reduced profit margins.
Losses from Retaliatory Measures
China and the US have continuously responded to each other's actions through economic measures such as increasing tariffs, limiting exports, and imposing technology bans. These measures have not only hurt businesses but have also put pressure on consumers in both countries.
Ripple Effects on Other Economies
Countries Dependent on US and China Supply Chains
Many countries in Southeast Asia, Europe, and South America, which are integral parts of the global supply chain, are likely to be more heavily impacted as the trade tensions persist. Disruptions in the supply of raw materials from China and a decline in consumer demand from the US have slowed export activities in these countries.
Export Challenges for Third Countries
The reduced demand from the two largest global markets has led countries like Vietnam, India, and Brazil to face surpluses of products and a decrease in export value.
Risk of Imbalance in Trade Balances
Challenges in Balancing Imports and Exports
The decline in exports has increased the risk of trade imbalances in export-dependent countries. Countries like Vietnam and India are facing higher costs for importing raw materials while experiencing reduced export value from finished goods.
Difficulty in Finding Alternative Markets
Despite efforts to expand trade relations with regions like Europe, Africa, or ASEAN, establishing new trade partnerships is not easy. These markets often demand higher quality standards and competitive prices, which many small businesses in exporting countries struggle to meet in the short term.
The decline in demand from both the US and China has caused a ripple effect, exacerbating economic issues in export-dependent countries. The resulting product surpluses, decreased export values, and trade imbalances not only affect business profits but also push many countries into a cycle of social and economic instability.
