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Since his election campaigning
days, Donald Trump has been very vocal about how he is not in favor of the US
and China trade relations. He made several statements like “China is neither an ally or a friend–they want to beat us and own
our country.” He maligned China more than any other country
during his campaign. Even then, he did not take any step against China during
the first year of his presidency, something that he pledged during his entire
campaign duration. He even visited China on the first anniversary of his
election and was welcomed with opened arms.

Now, just as he completed one
year as president, Donald Trump, on January 23rd, 2018 has imposed
high tariff on a range of products – solar panels and washing machines –
imported from China. The main reason for taking this step is to protect the
American manufacturers against low-priced imports. This is the first step in Trump’s
‘America First’ approach and it proved that the administration would “always defend American workers, farmers,
ranchers and businessmen.”

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The immediate impact of this move
was that Whirlpool’s shares rose by 5% and they plan to hire 200 more people
immediately.

This move has also received a lot
of backlash, not just from China and South Korea, who are major exporters and
will suffer because of this tariff, but also environmentalists, who believe
that increased price of solar panels will negatively impact the uptake of
renewable energy, which has already fallen in recent years, in the US. China,
along with other countries is planning to go to WTO (World Trade Organization)
and complain against this extreme step. Samsung, a South Korea based washing
machine manufacturer, called the tariffs a
tax on every consumer who wants to buy a washing machine”. Meanwhile
China, the world’s biggest solar panel manufacturer, said the move would
further damage the global trade environment.

Another segment that is unhappy
with this decision is a large section of the US solar industry that comprises
of companies that install solar panels. These businesses will have to deal with
higher costs and that will negatively impact the market. Also, the local solar
panel manufacturers in the US need to make technological advancements for their
production to be more efficient, otherwise, these companies won’t get a huge boost
from Trump’s decision.

China has in the past
threatened the interests of US based corporates. The trade war that US has
started, will have economic consequences. A few things that China might do,
apart from going to the WTO, are halting the imports of soybean and maize from
the US and replacing Boeing orders with Airbus. Even the sales of iPhone and US
auto will suffer setback in China. Chinese government can also ask Chinese
tourists to not visit the US, and US could lose out a lot.

Both China and US will be
impacted by this trade war. The US government has estimated that just under a
million American jobs are supported by trade. The tariff will be a tax on every
product the consumer purchases. People will pay more and have fewer choices. On
the other hand, China is the biggest exporter of solar panels. Chinese economy
is threatened by Trumps’ move, as it will lead to reduction in exports thereby
reducing the inflow of foreign currency. Also, China will now have to dump the surplus
products in other countries. The Chinese government has already depreciated CYN
from USD = 6.40 Yuan to USD=6.90
Yuan. 

As China’s exports to US will
reduce, China will now have to dump their product in other countries like India.
When the exports of solar panels increase, their price in India will decrease.
This increases competition for domestic products and manufacturers because now
Chinese goods will be available for a cheaper price throughout the globe. Also,
medium and small-scale enterprises will be unable to compete on quality with
the Chinese products. So, the price war increases the pressure on MSEs. This
will result in many of these companies shutting down their businesses, and
eventually lead to loss of jobs and income. Though, there are reports that
India is also planning to impose a 70% duty on import of solar panels.

Also, China
has more than 1.7 trillion$ in US bond and a total of 3.2 trillion$ worth of US
currency. They might retaliate by slowing down or even halting the purchase of
US treasuries. This will result in low liquidity in the US bond market. Also,
the US dollar will depreciate if China goes ahead with this. The interest rate
will increase. All this will have a huge impact on the global economy.

If the US
dollar depreciates, oil prices will rise. This will largely benefit UAE and the
Gulf regions, as they are the largest exporters of crude oil. With increased
prices, there will be a rise in consumer confidence that will lead to job
creation and the workers’ salaries will rise. Also, UAE can import solar panels
from China on reduced price. UAE, because of its geographical location, has a
lot of potential for exploiting solar energy. Dubai has already launched the
world’s ‘largest concentrated solar power project’ and is also working towards ‘Dubai
Clean Energy Strategy 2050’. Other areas in UAE can benefit by importing cheap
solar panels from China and further boosting their usage of renewable
resources.

Increased oil
prices also mean more expenditure for China, as it imports a huge quantity – approx.
9 million barrels a day – of oil every day. This will lead to higher cost of
living.

As our world
is a VUCA world (volatile, uncertain, complex and ambiguous), we can say that
any change or any new policy in any part of the world affects almost the entire
global economy in some way or the other. We see how a political decision impacts
the economical atmosphere of the country. The given situation is a perfect
example to demonstrate how VUCA and PEST are caused and influenced because of
one-another.

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