Trade War, Water War: The Untold Truths of the Trump-Xi Tariffs

Water is hidden in everything we use, eat, and wear. Crops must be irrigated, cotton for clothing must be washed, and fuel sources must be fracked and processed with water. Much like a carbon footprint, water consumption has a footprint. It comprises not only the water we use for drinking, laundry, and other daily uses, but also the hidden water in our products.

This hidden water, often referred to as virtual water, plays a significant role in the global goods trade. As goods are shipped and traded around the world, the water used to make or grow them is therefore also traded. When significant changes in the trade status quo occur, so does a nation’s water imports or exports - and thus its overall water supply.

The US-China trade war is shifting the way water is spent between the two nations. In 2017, China was the United States’ largest trading partner. Before the imposition of tariffs, China exported many water-intensive products to the United States; China is the world’s largest exporter of hidden water, and the United States is the largest importer. As trade between the two nations stymied, the ‘water balance’ between both the United States and China has changed. For example, China imported zero soybeans from the United States in November 2018. Compared to the same month last year, the 4.7 million tons it imported from the United States not only represent $1.8 billion of lost value for US farmers, but also 5.08 billion m3 of virtual water received by China.

Under this new reality, the US and China must adjust their water budgets - or else risk shortages. China’s per-capita available freshwater supply is ¼ that of the US, making it especially at risk of a water shortage (China’s per-capita availability is 2,061.91 m3, compared to the United States’ 8,844.32 m3).

“Despite the US’s significantly larger water resources, China exported a net 2.4 billion tons of virtual water to the United States in 2012 - enough water to support 6.3 million households for a year. Nearly half (46%) of this imbalance is accounted for by water used to manufacture general machinery and equipment in China, which is then shipped to the United States. Another 19% comes from textiles, and agriculture accounts for the next largest portion (in fact, farming accounts for 65% of all water used in China). Clothing, machinery, and crops are by far the most water-intensive goods traded between the United States and China.

As trade of these now-tariffed goods has slowed, the water balance between the US and China has changed. Both countries have tariffed many goods that are included in the three most water intensive trade industries. Below, a list of tariffed goods from these three industries and their virtual water content (in liters per kilogram) indicates a clear difference in the virtual water that’s been tariffed by each country: China’s tariffed goods in these categories have approximately double the virtual water content than goods tariffed by the United States. Because tariffed goods are traded less, this indicates China is now receiving comparatively even less virtual water from the United States, and the virtual water trade imbalance is increasing.

Water Footprint and Virtual Water Trade Imbalance

*Copper's water footprint is heavily dependent on mining technique; this number is an average of open pit and underground.

Sources: Waterfootprint.org; WellBeing; URS; USTR; WTO

In addition, overall goods traded, including goods unaffected by tariffs, between the United States and China has changed. Since the trade war began in July 2018, the United States has actually imported more Chinese goods than it did before. US exports of goods to China decreased by an average of 18% in a comparison of monthly trade from August, September, and October 2017 (before the trade war) to the same months in 2018, after tariffs were implemented. However, US imports of Chinese goods increased by 7% in the same time frame.

Surprisingly, the total trade imbalance of goods has increased by 17% since the beginning of the trade war - a 10-year high. As China exports even more goods to the United States, and receives fewer in return, the water imbalance between the two nations will grow even more disparate.

For example, China’s textiles sector, which makes 65% of all clothing in the world, not only uses up to 40,000 liters of water per kilogram of textile, but also creates 600 liters of wastewater per kilogram. This chemical-ridden water often directly enters rivers and streams. As China continues to export more clothing, it doubly endangers its water supply - first, by sacrificing thousands of liters of freshwater, then again by polluting its rivers. Employing over 10 million workers, the future of China’s textile industry is uncertain unless its virtual water use is properly managed.

As trade talks resume, the United States and China should take the world’s most precious resource into consideration as they negotiate. As China sends increasingly more of its water abroad in the form of exports, the country’s ability to manufacture goods is put at risk. Without considering the impact of virtual water in traded goods, the United States and China risk endangering the very export-oriented industries that rely on an ample water supply.