Finance and Business Economics

RUNNING HEAD: BUSINESS ECONOMICS
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Business Economics

Business Economics
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Introduction
Trade war is known as protectionism and in fact is “an action that government takes by tax or
tariff”. The recent trade war is between the US and China and is named as “US-China” trade
war. This trade war has greater impact on the world as both the countries have over 30% of the
world population and contribute 40% to world GDP. The trade war between these two countries
has big influence on countries and mainly to ASEAN countries. As Asian countries contribute
for 70% of the trade and from that Singapore has a special place in growth of Asian economy
(Teimouri et.al, 2019). This assignment is based on the analysis of US- China trade war on
Singapore economy and steps that government take to reduce the impact of this on the economy.
US - China trade war
The United states-China trade war is “an ongoing conflict between two biggest economies in the
world”. The trade war started when Donald Trump in 2018 began setting trade barriers and trade
tariffs on China with the aim of forcing it to make changes in their unfair trade practices. Trump
aims to reduce trade deficit of the US and want to promote domestic manufacturing as trade
deficit was considered as the problematic situation for the US. The US was the world’s largest
importer and China was the world’s largest exporter. Due to the largest importer, trade deficit of
the US in 2017 was $566 billion out of that trade deficit between the US and China was $336
billion (Liu and Woo,2018). Trump claimed that the trade deficit was higher because China
manipulated their currency as Chinese undervaluation was 40% and due to that it was not
possible for the companies to compete with Chinese firms. Due to that Trump imposed tariffs in
order to control the unfair trade practices of China. Further it was also claimed by the US
government that China was using intellectual properties of the US. In response to all these
allegations China also planned to put restriction on automotive industry and foreign investment
(Mahadeevan and Nugroho,2018).
Impact on World
In the today’s globalization scenario any problem or issue at the global platform impact on each
and every country. As in the scenario of US- China trade war there are chances of recession at
the global level as the two most developed economies are struggling and involved in trade war.

Business Economics
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Figure 1: Trade War risk to global economy
Source: Waugh,2019
There are different scenarios and impact on the global level of trade war, if both the countries
achieve a trade agreement the world economy start to climb and global growth would exceed the
expectation from 4 percent. On other side, if there are chances of more trade restrictions and
barriers by both the countries the impact would limited to 0.8 percent to the US growth and 0.4
percent to China growth. At the global platform the economy fails to recover and remain at the
same phase (Ozer,2019). If trade war continuous between countries, the uncertainty increases
and the global economic condition may worsen and declined below 3 percent. If the countries
fail to negotiate the political and social issues at the global platform increases, growth of both the
countries sinks and great global depression 2.0 hit to worldwide platform. At present the
situation in such that both the countries can compromise and back to growth and this might leads
to come back of the global economy. There are also chances that further trade tariffs can be
imposed and this leads to tension at the global platform and leads to economic breakdown (Li
et.al,2018).

Business Economics
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Impact on Singapore
The Singapore accounted for 70% of the trade and is one of the finest economies in Asia.
Singapore mainly exports to Asia, America and Europe and imports from Europe and America.
Due to that link the country is too vulnerable to china and US trade war with the highest level of
indirect and direct exposure. As shown in figure 1 and figure 2 Singapore import and export
from countries and role of the US in the trade with Singapore.
Figure 1 Singapore exports in 2017 and 2018
Source: (Teimouri et.al, 2019)
Figure 2: Singapore imports in 2017 and 2018