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Impact of US-China trade war on across the globe


The US-China trade war started in 2018 and it hasn’t ended even though there has been a change in the US administration. These two countries have great importance in the world trade and any changes in policies with respect to it affect the whole world. This report studies the impact US-China trade war on the stock market of various countries during the period 2018-19.


The two giant economies of world USA and China have been in constant growth trade relations since 1970s. These trades accelerated after China entered World Trade Organization in 2001. The US has consistently imported from China their onwards and the bilateral trade deficit in of US rose to $375.6 billion in 2017. During Donald Trump administration, US started imposing tariffs and trade barriers on China in hope to reduce the trade deficit and provide market for home grown industries. The imposition of tariffs escalated quickly resulting countries taking some drastic measures which in-turn converted into a trade war.

This imposition of tariffs had ripple effects around the world. Some countries benefitted to some extent from it and some countries paid the similar price via tariff hikes. By 2019, the US had placed tariffs on about $350 billion in Chinese imports, while China had countered with duties on US exports worth more than $100 billion. The tariffs were imposed to reduce the trade deficit, but in 2020, the US-China trade deficit hit a new high of $915.8 billion and the goods and services deficit hit a new high, the most since 2008. The decision to impose tariffs affected consumers, the importing firm also absorbed some cost The US consumers paid the price in the end of all the tariffs imposed onto China. The impact on US producers with significant exposure to Chinese markets was also captured in stock market valuations. The equity price performance of US companies with high sales to China underperformed relative to US businesses exposed to other international markets, after tariffs linked to the $34 billion retaliation list by China were implemented.

                     Impact of US Tariffs on Sales                  

   Tariffs affecting top 10 importing sectors

The above charts show impact of tariffs onto top 10 imports of US from China. The sectors which import the maximum in terms of $ are telecom and electrical industry, computer industry and households’ items.

First, Trade Policy uncertainty about trade policy affects investment decisions of companies. If it were 100% certain that the tariffs stay in place, the producer in the import competing sector could raise investments and if it were sure there would be an agreement about the reduction of tariffs to pre-trade conflict levels, the producer in the exporting sector could raise investments. If it is uncertain what will happen, companies in both sectors will wait with investing. This slows down the whole manufacturing cycle ultimately hurting parties on both sides.

Second, the trade policy uncertainty had a much larger impact on the stock market than on investment itself, the S&P 500 fell by 2.5% on March 22, 2018, the day the US announced higher tariffs on 50 billion dollars of Chinese imports. Many companies listed on the stock market have substantial commercial business outside of the US which were also heavily affected by the new tariffs. This uncertainty has weighed on investor confidence around the world and has contributed to losses. In 2018, Hong Kong’s Hang Seng index fell more than 13% and the Shanghai Composite slumped nearly 25%. Both indices have recovered some ground and were up 12% and 16% respectively 2019 (Fig-1: Shows the performance of US and China stock index)

                                    Impact of Trade war on Stock Market of US & China

 Impact of US-China trade war on other countries:

The trade war between the United States and China had a significant worldwide impact, with some countries benefiting while others suffered the brunt of the consequences, and some economies remaining unchanged.

While trade flows between the US and China dropped, trading prospects for other countries increased. Here, we have picked a few countries to analyze the impact of the trade wars:


During the US-China trade war, Vietnam was one of the countries that benefitted as US, over the years, has been the biggest market for Vietnam’s exports, and China was the 2nd largest source for Vietnam’s imports.

Vietnam’s exports rose to around $290.4 billion, and the country saw a trade surplus of $34.78 billion with the US. Meanwhile, Vietnam faced a trade deficit of $24.17 billion with China in 2018. However, Vietnam spent US$57.98 billion on imports during the first quarter of 2019. Additionally, there a GDP growth of 7% majorly due to manufacturing, consumption, and tourism. The expansion of manufacturing helped in gaining more investors and thus aided in increased exports including apparels, furniture, shoes, seafood to the US.

While there is an increase of exports to US to a large extent (by 27.3% in 1st half of 2019), the increase to exports to China was only 0.3%. Vietnam’s exports to China mainly consisted of electronics, semiconductors, apparels, furniture.

There is a benefit as the effect of tariffs on the Chinese goods consumed are also produced and consumed in Vietnam. Therefore, such products were exported to the US, and gain market share from Chinese goods subjected to tariffs, while exporting to US. This led to increase in FDIs, expanding the job market.

Another benefit was that the companies based in China shifted production operations to Vietnam. However, investors are finding it strenuous as the quality of manufacturing and sourcing materials are not at par with China.

Despite the jump in exports and investments, Vietnam also saw a negative impact as it faced similar tariffs as China due to the increasing trade surplus with the US. Vietnam is also not immune to US taxes.

China’s rampant exports to the country would lead to an increase of Vietnam’s trade deficit with China, and Vietnam’s domestic firms will face difficulty from rising competition from Chinese goods. Due to the trade wars, if China decides to consume the exports instead of exporting to other countries, Vietnam will find it challenging to export to China.

                                                        Vietnam-US Trade (2017-2019)                               

                                                        Vietnam-China Trade (2017-2019)                                       


Taiwan was also one of the countries that benefitted from the US-China trade wars due to the effect of trade diversion, gaining unexpected earnings of $4.2 billion in 2018-2019. The country earned the most out of office machinery equipment by gaining around $2.8 billion dollars.

Due to increasing labor charges, productivity challenges, IP rights violations, Taiwan had already begun shifting its operations from China back to Taiwan. Therefore, now those goods turned from made-in-China to made-in-Taiwan. Additionally, Taiwanese investors invested back NT$610 billion from China back to Taiwan.

Taiwan had initially faced a loss due to steel and aluminum tariffs, but as it is a rich ICT hub, it gained the most in precision engineering products and electronics ($2,941.6 million, and $310.7 million) the effects of trade diversion was made up for. However, Taiwan also faced negative effects in services like Business, transportation, trade, finance ($58.323 million, $36.6 million, $25.3 million, $24.5 million).

In 2018, Mainland China was Vietnam’s largest trading partner (with 23.9% total trade, 18.6% Taiwan imports).

US was Taiwan’s 2nd largest trading partner (with 11.8 % of total trade and 12% of Taiwan imports), the countries had a total transaction in goods and services of $94.5 billion – with $40.3 billion in exports, $54.2 billion imports, where Taiwan faced a trade deficit of $13.9 billion. Taiwan’s GDP grew to 2.96% in 2019 from 2.79% in 2018.


                              Goods exported from Taiwan – overall (Source: Statista.com)


As Mexico is a country of low tariffs, it was viable for companies to move their production from China to Mexico during the trade wars between US and China.

The global economy was facing a slowdown as there was a decrease in investment in manufacturing, but due to the shift of operations to Mexico, the country had opportunity to grow through employment, investment, and market.

Due to the effects of increased tariffs imposed by US on China, Mexico replaced China as a major trade partner in 2019 as the value of Mexico exports to US increased as compared to China

Mexico exported a total goods and services of US$ 361 billion to the US (majorly automobiles with reciprocating piston engine – where Mexico’s US market share rose 15%, and China’s dropped 9%; raw materials), and imported a total goods and services of US$ 235 billion (majorly petroleum) million in 2019.

When it comes to China though, the scale tips considerably to China as Mexico exports to China was only US$ 7.1 billion, whereas China’s exports to Mexico was around US$ 93 billion. However, there is a steady increase from US$ 6.7 billion in 2017

Mexico did benefit from the trade war, as the resulting exports of China to US reduced, opportunities grew for Mexico. Additionally, China started using Mexico as an export platform to reach US as the tariff for exporting from Mexico was lesser than the 25% tariff of exporting directly from China

However, Mexico’s GDP declined by -0.177% and entered recession in early 2019 as the country couldn’t handle the slow industrial output, and decreased business investments


Bottom line for the US-China trade war is that both the countries being economic superpower share huge stake in fostering open trade and investment. Any geopolitical disputes among these countries will have and had serious repercussions on countries all over the globe. Some countries may have benefited from this, but majority of the countries had to face some difficult time. Both the countries risk losing billions of dollars’ worth of money which could have contributed to their GDP due to this trade war. US’s changes in trade policy could have been based purely on politics and to reduce the China’s economic growth and its growing importance in the world economy. Since it has not benefited any of the two countries. The China’s government in its turn has a goal to achieve leadership in robotics, biotechnology, and artificial intelligence. It will provide financial support to high-tech industries and will do everything possible not to let the US stop or slow down the modernization and digitalization of the China’s economy.                 

Trade war: US-China trade battle in charts – BBC News
US-China trade war: ‘We’re all paying for this’ – BBC News
The U.S.-China Trade War The Global Economic Fallout | S&P Global
The global macroeconomics of a trade war | VOX, CEPR Policy Portal
USCBC Reports | Page 2 | US-China Business Council
The Economic Impacts of the US-China Trade War
U.S. trade deficit hits record high in 2020: The Biden administration must prioritize rebuilding domestic manufacturing | Economic Policy Institute
The Impact of US-China Trade Tensions – IMF Blog
The US-China Trade War and Brazil as Proof of Trade Redirection – Harris Bricken
US-China trade war to cost $455bn in lost output, says IMF | International trade | The Guardian
Trade Balances Mostly Driven by Economic Forces, Not Tariffs – IMF Blog
Full article: US-China trade war and China’s stock market: an event-driven analysis
The failure of Trump’s trade and manufacturing policy | Economic Policy Institute

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