US-China Trade War: How Does It Affect the Global Economy?

The US and China are bracing for a full-fledged trade war following Donald Trump’s new tariff impositions on several countries. 

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These tariff impositions had a vast impact on the global financial market, with several stocks witnessing massive dips. 

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The US’s three main stock indexes suffered giant losses. Nasdaq fell by 4.3%, S&P was down by 3.5%, and the Dow Jones Industrial Average was down by 2.5%. 

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What is a trade war?

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A trade war is a result of two or more countries’ clashing views on import tariffs. Nation leaders impose tariffs with the intention to protect their domestic markets by making local goods more attractive for their consumers. 

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These trade restrictions are put in place through tariff rates, which make imported goods more expensive and less attractive for the common man. 

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However, some would argue that these trade restrictions are imposed for protecting national interests by boosting domestic businesses. 

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US-China Trade War Explained

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President Trump launched a rigorous tariff proposal, mostly targeted at goods arriving from China, to try and correct the U.S. trade deficit. 

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The United States imposed further tariffs on a wide range of Chinese imports on the grounds that American intellectual property was being unfairly appropriated by China in trade. 

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China responded swiftly, levying large taxes—about 34%—on American goods and made it quite evident they would not back down easily. 

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Trump then escalated the situation by threatening to impose additional tariffs of up to 50% on Chinese imports.

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Impact of US-China Trade War On Global Financial Landscape

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The stock markets displayed one of the first indications of turmoil. Japan's Nikkei sank 8% and South Korea's Kospi dropped 5.6%; the Hang Seng dropped more than 13%.  

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Indian investors felt the heat also back home; Sensex and Nifty plummeted roughly 3%, destroying almost ₹20 lakh billion in market value. 

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With European and US markets likewise swinging dramatically as anxiety engulfed investors worldwide, the ripple effect was global. 

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April's Brent crude prices fell almost 15%, reflecting reduced demand forecasts brought on by trade disruptions.

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Price reductions in gold and other commodities point to investors seeking protection and a flight from risk.

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Gold investments become very popular during economic uncertainty as investors flock towards gold to manage financial risk.

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What many people end up ignoring is that gold investment is a long-term plan. The precious yellow metal has always been incremental with regard to its value. 

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Due to recent economic disturbances, gold prices were at an all-time high. Long-time gold investors did not feel the financial crisis as hard since their gold investments rose sharply. 

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You can also diversify your portfolio and protect yourself from such global financial crises by saving your money in digital gold on the Jar App. 

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Is the Indian Economy Affected by the Trade War?

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Right now, the US reciprocal tax on Indian exports is just 10%, significantly less than the 125% now targeted at Chinese imports. India is eager to seize the possibility created by such a discrepancy.

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Even though India is not directly affected, it can still feel the impact. For starters, its manufacturing industry is strongly reliant on Chinese components, particularly in electronics. 

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Everything from batteries and semiconductors to display panels comes from across the border. 

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That means cellphones, laptops, and appliances could become costlier in the following weeks.

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The pharmaceutical industry is similarly vulnerable. Despite being a worldwide pharmaceutical powerhouse, India relies on China for over 70% of its active medicinal components. 

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Any disturbance in that flow could raise production costs and cause delays in medicine supplies, affecting global generic drug markets.

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However, there is some good news. Similar to the previous round of trade disputes, India's IT and tech services sector may benefit.

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American businesses may increase their outsourcing to India, particularly for backend operations, software development, and AI support, as a result of growing costs and unpredictability in China.

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Additionally, there may be agricultural opportunities. India may have an opportunity to intervene if China withdraws from importing US agricultural products as it did previously, particularly in markets for cotton and soybeans. However, these opportunities are often unpredictable and limited.