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Chinese and US trade war- Impact on Economy of Bangladesh

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AKM Asaduzzaman Patwary

Research Fellow, DCCI

us-china-trade-war-640x306China and USA are very stable trade partners of Bangladesh since ages. The trade volume and value are very significant with both countries. The nature of trade with both countries is different- China is our largest importing nation having USD10 Billion and USA is the largest export destination country having USD6 Billion. Change in geopolitical state influenced by Mr. Trump and Mr. Xi xing has alarmed many trading countries with trade stake with these two nations. The trade battle kicked off due to imposition of $200 billion escalated tariff by USA on Chinese import and consequently China also raised their tariff on US led import for this same ground. Indeed, the longstanding smooth trade relation of these countries turned bitterness and be considered as world trade war as both economies try to establish their dominance in the world trade.      

The first meeting of US and Chinese Premiers ended without any literal and remarkable hick up this year. Without any good reason, series of tariff escalation to goods worth $267 Billion on Chinese import by USA and tariff impose on $60 Billion worth merchandise by China and threat to increase it to $600 Billion US import  have tensed the world and all stakeholders of this huge trade relation adding woe to the world economy in recent months. The Product line of export to USA from China was also hugely reduced and restricted.

China is the potential largest economy of the world within next couple of decades. However, Bangladesh is the very preferred location of China and other industrially enriched countries for industrial relocation. The recent war between the USA and China has trembled the world. There is a saying that if USA sneezes the rest of the world catches cold and has been evident since British colony ends. The economic strategy of Trump Government to Make in USA is some extent suicidal as significant share of US local consumer market is dependent on imported products and services to keep the inflation incidence minimum and cost of living lower.

screenshot-10The trade of USA and China are interdependent. China is the largest importing country for the USA on the other hand USA is the second largest export destination of China. The USA mostly imports computer accessories, products, consumer and textile products and China imports aircraft and aircraft equipments and automobile, vehicles equipments mostly. The $650 billion trade is going to challenge the trade of $21 trillion world trade. The current tariff led trade war is severe breach and violation of WTO rules of business for the member countries. The relentless tariff rise by both nations is limiting the aspiration of world trade and investment growth this year and coming years since trade of all nations are largely connected with these economic hegemonic. The World economy was projected 3.9 percent growth early last year by world economic outlook but meanwhile IMF has revised it down to 3.7 percent provided the ongoing trade war is neutralized. Since low and flexible exchange rate of Chine Yuan has given huge leverage to other economies of the world in terms of low-cost import which enabled China to exceed their trade to $2.5 trillion alongside marking a sizable growth  in service trade.

In order to getting access to US market at reduced tariff, many countries have earlier established their businesses in China but many leading Japanese, Hong kong and European conglomerates and other leading international conglomerates are thinking to pull out of their business from China as Higher tariff will not keep them competitive any longer in USA as this war may continue for sine a die. Alongside, the increasing emergence of Chinese Renminbi to position as the global currency over US Dollar is also another big concern of USA in the recent time.

Bangladesh gets some DFQF facility to USA in many lines of products but our product diversity is not adequate enough to have larger pie in US market.  Bangladesh is a potential source of import and low cost production hub to supply many countries in the world and the trade battle is risking on other hand creating some opportunities to attract new relocation business especially from Japan, South Korea, Malaysia, Singapore and Taiwan especially countries maintaining smooth political and diplomatic relation with USA.

But, these oppscreenshot-11ortunities are to be seized and utilized within earliest possible time. If delayed, this potential of Bangladesh may not remain any longer. Bangladesh is in the process of LDC graduation within next six years leading to new economic era and the current preferential trade benefit will not sustain any longer as minimum 6.5% tariff will be charged in especially US and EU market and reduce our net export earning retention challenging our trade and industrial competitiveness. In this transition period, while Bangladesh is working hardest to work out and sustain our trade scenario, this undeserving and unhealthy trade battle will be a blow to our sustainable trade growth and add miseries to our trade future.

As a whole the changing geo-economic atmosphere, current trade war, economic polarization led by Chian and USA and continuation of this war will ravage and damage the world trade balance and developing economies like Bangladesh and in Asia.  Bangladesh must cautiously eye on the situation and strategically step further to address and overcome the turbulent geo-economic situation keeping our economic interest unharmed and longstanding economic visions.

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