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| US-CHINA Tariff war |
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Understanding Tariff Wars
A tariff war occurs when one country imposes higher taxes on another's exports, prompting retaliatory measures. This cycle of increased taxes hurts economies by making imports more expensive and discouraging consumers from buying foreign products. The US-China trade war is a prime example, with both countries imposing reciprocal tariff hikes. The US initially imposed a 34% tariff on Chinese imports, later surging to 145%, while China retaliated with 125% tariffs on US products.
Causes and Consequences of Tariff Wars
Causes:
- Unfair trade practices: Perceived unfair trade practices can lead to tariff wars.
- Political tensions: Political tensions between countries can escalate into tariff wars.
- Economic pressure: Countries may impose tariffs to exert economic pressure on their trading partners.
Consequences:
- Higher costs for consumers: Tariffs make imports more expensive, leading to higher costs for consumers.
- Reduced trade and economic growth: Tariff wars can reduce trade and economic growth.
- Potential for customs wars: Tariff wars can escalate into full-blown customs wars.
De-Dollarization: A New Era of Economic Cooperation
Countries like China, Russia, and Iran are pushing de-dollarization to shield themselves from US sanctions. By promoting alternatives like the RMB, they're seeking:
- Financial independence: Reduce dependence on the US dollar and increase financial autonomy.
- Reduced geopolitical vulnerability: Minimize the impact of US sanctions and increase economic resilience.
- A new global financial order: Create a more multipolar global financial system.
China's Efforts to Promote the RMB
China has taken several steps to promote the RMB as a global currency:
- Cross-Border Interbank Payment System (CIPS): Launched in 2015 to facilitate RMB-denominated transactions.
- Commodities exchanges: Established in resource-rich areas to price and trade commodities using the RMB.
- Multilateral partnerships: Partnering with non-Western regional and multilateral groups to promote RMB usage.
Impact of De-Dollarization
If China succeeds in promoting the RMB as a global currency, it could:
- Reshape global trade: Increase the use of RMB in international trade and finance.
- Alter international politics: Reduce US influence and increase China's economic and political power.
- Erode US financial power: Impact the US's ability to raise debt at low costs and enforce financial sanctions.
As de-dollarization gains momentum, its impact could reverberate far beyond international finance, influencing the balance of global power. The world is already witnessing a shift in economic cooperation, with Russia and China ditching the US dollar and other Western currencies in their bilateral trade. According to Russian Prime Minister Mikhail Mishustin, nearly all payments are now being made in Rubles and Yuan, marking a significant shift in their economic relationship.