What will Donald Trump’s tenure usher for global politics and trade? This question has been asked frequently since the announcement of the US presidential election results. Now, the debate over a second round of tariff war between world’s largest trading partners has gained new traction and it’s not without reasons. President-elect Trump has a well-known position about the revival of American industry and minimizing Chinese influence in the US market. He took some serous steps in this direction during his previous term as the US president from 2016-20, which triggered the US-China trade war.

He believes that the China’s inclusion in WTO at the beginning of 21st century has allowed Beijing to manipulate the WTO terms to bypass free market practices.

Thought out in his election campaign, Trump has promised to “Make America Great Again” through his political vision in which the US must manufacture goods within the country instead of China. He promised to take measures to incentivize local industry, put heavy tariffs on Chinese products, and reduce reliance on imports overall. He believes that the China’s inclusion in WTO at the beginning of 21st century has allowed Beijing to manipulate the WTO terms to bypass free market practices and Chinese industries have been given state protection to gain competitive edge in trade with the US.

Although there are strong arguments against this stance, Trump is back in the White House and he will fulfill his political vision. As many US brands have their manufacturing facilities in China, any tariff war will harm these businesses who have supply chain network across the world. Hence, any trade war between China and the US is not merely a bilateral issue, and demands close examination of possible outcome of such eventuality in near future.

Trump’s aggressive “America First” policy can lead to increased tariffs which will trigger a reciprocal response from China, leading to a renewed trade war which in turn will result higher consumer costs for the same goods which are now available at lower prices.  Any such outcome of Trump’s likely actions will certainly disrupt the global supply chains and impact various industries, including technology, automobile, industrial manufacturing, consumer goods, and agriculture.  For example, if Trump imposes a 60% tariff on Chinese goods and 20% tariff on all imports, as he promised to do many a time during his election campaign, several key industries in China would be significantly affected.

Most important sector where the US and China are competing is the tech sector particularly semiconductor design and manufacturing, electronics, and related systems. Already Taiwan, under the US demands, has announced to drop China off from potential customers of its AI-enabled microchips, even though China remained Taiwan’s largest chip buyer for decades. Increased tariffs on China-made electronic devices will increase the cost of business for Chinese manufacturers and consumers of these items in the US both.

The automobile industry, which is deeply integrated into the global supply chain, is another sector that would face increased costs. Not only Chinese EV sector but the US-based automakers like Tesla, which depend on Chinese parts, will see higher prices and potential disruptions.

More than Chinese and US businesses, such a conflict will affect the entire global trade and supply chain networks which are still healing from the impact of COVID.

Similarly, ripples of Trump’s trade war with China will also be felt by large scale engineering and manufacturing sectors. This includes steel, non-ferrous metals, and fertilizers. These industries are already sensitive to global trade dynamics and would likely see reduced output and increased costs. Such measures will affect the US consumers of the Chinese goods who have now become accustom to cheaper imported many consumer goods, from clothing to electronics, which are mainly produced in China. Higher tariffs will lead to increased prices for these products, affecting both Chinese manufacturers and global consumers. So, in the end, Trump will be affecting own people more than Chinese who also have the entire world as open market.

Trump’s trade war will put US brands being manufactured in China in the most challenging position as they had to take some drastic measures in very short span of time to mitigate or minimize the impact of this trade war.

Some of these steps are mentioned below. Not all the businesses can take each step, but few of these will have to take in order to survive in the competitive market where Chinese local brands are eager to replace these US based brands.

The most obvious step which even Trump wants US brands to take is the relocation i.e. moving operations to countries with lower tariffs like India or ideally back to the US. Brining back manufacturing to the US has been Trump’s political slogan since his first tenure. Second option which large scale brands can afford is absorbing higher costs to maintain pricing strategies and passing on increased costs to consumers.

At the same time, trade war is going to affect the US brands that are not even located within China by disrupting the supply chain networks where many components of their plants and machines comes from China at very low cost. Such businesses will have to readjust the sourcing of components by seeking different suppliers than China. Some businesses may have to redesign their products with fewer components subject to tariffs increases. Finally, US brands may have to diversify revenue streams so that they can absorb the impact of increased tariffs without passing them on to consumers and losing competitiveness in the market.

Trump believes that his tariff strategy could potentially benefit local US businesses and manufacturing by boosting domestic production and by encouraging consumers to buy American-made products. He says that his actions will trigger increased capital investment in domestic production facilities and consequently triggering supply chain reshoring – bringing supply chains back to the US. Trump is confident that his strategy will enhance innovation and competitiveness in the US industry by pushing businesses to invest more in research and development to improve products.

Trade war is going to affect the US brands that are not even located within China by disrupting the supply chain networks where many components of their plants and machines comes from China at very low cost.

Trump’s trade war with China cannot be discussed without analyzing the China’s potential responses. Beijing may impose retaliatory tariffs on US goods. China can also impose stricter regulations and customs delays which is a form of non-tariff barrier. Currency devaluation is another weapon China may employ which will make Chinese exports cheaper and more competitive. US already blames China for doing it to penetrate European and American markets. But most strategic weapons China hold in big tech sector is to restrict rare earth exports to the US which will disrupt the critical supply chain of the US. Entire US weapon manufacturing sector depends on it.

These measures may lead to increased tensions and further disruptions in global trade and even geopolitics. Already China and the US are at odds with each other on the issue of Taiwan. Trade war will only exacerbate these issues. More than Chinese and US businesses, such a conflict will affect the entire global trade and supply chain networks which are still healing from the impact of COVID. Trumps trade war is a bad omen and must be discouraged.