With the escalating trade tensions between the US and China, trade experts are predicting grave implications on employment and the global economy at large. The Trump administration has been increasing tariffs on Chinese imports such as technology, aluminum, and steel products. Chinese trade officials, on the other hand, are adopting countermeasures that include cutting off imports of processed foods from America. If the top two largest economies in the world stand their ground and fail to compromise their interests for the interest of a favourable trade deal, even countries allied to either of the sides will suffer economically.
Who Is Most Affected by the China-US Trade Wars?
The China-US protectionism is damaging business and, by extension, employment. In early 2019, the Chinese government raised duties on $75 billion in US goods. The US reiterated by doing the same to $100 billion and later $200 of Chinese goods. By the end of 2019, this trade war could have affected over half a trillion dollars' worth of US and Chinese goods in total.
The unfortunate thing is that these levies are affecting manufacturers and consumers on both sides and not the governments per se. The increased taxes are transferred directly to the manufacturers, who in turn transfer that cost to the consumer by raising the price for their goods and services. Also, suppliers of raw materials (e.g. farmers) have been caught up in the middle of a war they know very little about. China could be feeling the pinch as President Trump claims, but the American people are the most affected by his administration's actions.
The Increasing Unemployment Index
In the first half of 2019, job creation in the US had slowed down so significantly that more than 130,000 jobs were cut. The rate of unemployment now stands at 3.7%, which isn't too badly off, but things will go south very soon if the odds do not shift for the better. The country's GDP stands at 2.3%, down from 2.9% in 2018. If this trend continues, the Congressional Budget Office predicts that the GDP could slide to 1.7% from 2021 to 2030. That's without forgetting that the tariffs have already cost American businesses $6.8 billion in terms of reduced production and sales.
Companies are struggling to hold back spending or even predict how the rising trade uncertainty will affect their productivity and profitability in the future. American companies are grappling with the idea of setting up a company in China or not amid these uncertainties. This has a serious negative impact on the US economy. With China's ongoing digital transformation, it will be at America's loss if its business people miss out on the many lucrative business deals and openings that the transformation is bringing forth.
The Impact on Chinese Labour Market
The decline in job openings in the US economy isn't reciprocated in China. The country has a thriving local labour market and still has room for international professionals. According to the National Bureau of Statistics (NBS), China created 10.97 million new jobs in the first nine months of last year, or 99.7 percent of the full-year target of 11 million. Companies trying to penetrate the Chinese market have a fair shot at finding top talent, especially through professional employer organisations. Understanding business culture and customer expectations in China is key to the growth of any multinational company.
But why has China managed to shake off the unemployment scare that the US-China trade war has precipitated? The country's State Council has come up with mitigation measures and policies to ensure that local workers aren't retrenched. They are, for example, giving subsidies to jobless young people and refunding unemployment insurance payments to employers as a way of maintaining employment stability. All indications are that corporate hiring demand will remain unaffected in China in the foreseeable future. However, export manufacturers might be forced to lay off staff if the trade war continues.
What Does the Future Hold?
The raging US-China trade war is getting costlier by the day, which means that companies will have to find alternatives if they are to remain in business. One possibility is that companies will soon start shifting to Latin America, the Middle East, and Australia for raw materials and market openings. If that happens, the markets of US and China will start experiencing declines in exports and GDP. For both countries, the consumers are the ones that will bear the biggest burden, as they are the ones paying the increased prices of products. In this context, this decline will impact other countries , either through weaker demand for their products, or supply chains or an overall weaker global economic growth. Furthermore, the labour markets of China and the USA will lose or gain depending on how well authorities in the two countries play their cards. Also, we can expect currency wars and devaluation, which will lead to stagflation, reactionary effect, and further loss of jobs.
(Image credit: Bloomberg)