Macroeconomics: Trade War. Mathematics & Economics Essay

Macroeconomics: Trade War
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Macroeconomics: Trade War
In the article “US-China trade war is pushing the world economy closer to the edge. The longer it goes on, the harder it will be to undo the damage,” Steinbock examines the possible effects of the U.S.-China trade war on the global economic growth. Steinbock first explores four scenarios that are likely to impact the global economic growth. In the first two, global integration is enhanced while in the second two scenarios, global integration suffers. The first of the two scenarios that enhance global integration involves cooperation between the U.S. and China, where a trade agreement is signed and both countries work towards eliminating additional tariffs as well as other areas that bring tension, such as technological advancement. In this scenario, global economic growth can be expected to rise above 4 percent. This is the best-case scenario. In the second scenario, the two countries achieve a trade agreement, but they are unable to resolve other areas that cause tension. In this scenario, uncertainty remains unstable, although it decreases a bit. Global economic growth is expected to remain between 3.5-3.9 percent. The third scenario, which results in a failed global integration, involves both countries failing to remove additional tariffs. As a result, the import value at risk increases ten times and China’s economic growth reduces by 0.4 percent while that of the U.S. decreases by 0.8 percent. Steinbock reveals that in this scenario, uncertainty will increase and the global economic growth will drop to 3 percent or less. In the fourth and final scenario, both countries approve additional tariffs and the U.S. continues attacking Chinese companies. Steinbock indicates that in this scenario, markets will become volatile and China’s economy will be gradually destroyed to a point of no recovery. The U.S. economic growth also suffers greatly. The global economic growth also drops to 2.5 percent or less and more people become globally displaced. This is the worst-case scenario. According to Steinbock, today, the world is headed towards the final scenario described above because the U.S. has already increased tariffs on Chines goods, as well as banned American companies from doing business with Huawei Technologies, a Chinese company. Steinbock also posits that the possible effects of this trade war are a decline in global economic activity and a drop in global economic growth, as estimated by the International Monetary Fund and the World Bank, respectively. Further, Steinbock projects that continued multilateral conflicts will have long-term effects on global economic growth, which will be difficult to reverse.
A topic in Steinbock’s article that is related to our work in class is a trade war. In particular, the article gives a clear picture of the rate of economic growth as a macroeconomic factor. Trade war has an impact on the economic growth rate of the countries involved. In addition, it may spread to other non-participants and a prolonged trade war, especially between industrial countries, can affect the overall global economic growth. In our classwork, we indicated that the economic growth rate measures the magnitude of a ...