Currency and will adopt new policies that will

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currency and will adopt new policies that will provide a better business environment to US exports and investment in China. He hoped also to protect the national industries from unfair foreign competition by imposition of tariffs, taking into consideration some American national security concerns (Huang, Lin, Liu, & Tang, 2018). In January 2018, Trump imposed tariffs on solar machines and washing machines, based on US international trade commission recommendation that Chinese import of these products injured US industries. In March, he imposed 10% tariffs on aluminium imports and 25% on steel imports. In response, China imposed retaliatory tariffs about 15% to 25% on 118 American products like pork products, automobiles, selected nuts, fruits and aluminium waste in April. On June15, Trump administration announced two lists of Chinese products that will be exposed to 25% tariffs, the first worth $34 and the second worth $16 billion. Tariffs have continued to be imposed and the list of goods has been updated by both American and Chinese administrations with China targeting agricultural products and mechanical parts, and US targeting industrial products and resources. The amount of goods subjected to tariffs in industrial products is higher than amounts of others, as more than 1000 US industrial products have been subjected to tariffs. (BBC, 2018) Economic Consequences: It is admitted that trade war increases the prices of Chinese imports. Those consumers who are highly dependent on Chinese imported goods suffer by paying higher prices. Recently, US producers and firms who depend on Chinese imports of raw materials have been suffering by increasing costs of production which will be translated into higher prices causing cost-push inflation in US markets. Eventually, the profits of US firms decrease due to increasing costs and the profits of Chinese firms decrease because of reduced exports. Moreover, the stock and bond returns of the firms who are highly dependent on Chinese imports will decrease compared to other firms which are less dependent on them (Huang, Lin, Liu, & Tang, 2018). Moving to the global level, the imposition of tariffs negatively impacts the global supply chains which the input-output flows occupy. Trade war disrupts the distribution and supply channels, which are considered the main important catalysts for trade. Moreover, trade wars stimulate the effect of
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6 trade diversion. Trade diversion 1 creates inefficiency since it diverts the importing process from less cost-efficient country that has higher comparative advantage to another country that has lower comparative advantage (Strobel, 2017). In that case, China and USA will decide to search for other sources of imports, if they couldn’t produce them domestically with less cost.
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