US-China Trade War
The United States and China have been engaged in a trade war since mid-2016, and the two countries remain uncommitted to resolving their issues. Both have taken a strong stance, unwilling to yield to the demands of the other. Economists predict that the trade war will lead to billions of dollars in GDP decreases, given the fact that the US and China trade in many items. However, supporters of the trade war argue that China has been unfair in their trade dealings with the US, and thus President Trump should stand up to China. The tactics employed by both nations show that the war may drag on for longer. In investigating the topic of the US-China trade war, one of the most critical issues is whether the US emerges as a winner during and after the war.
Several reasons led to the start of the trade war. Both sides accuse each other of unfairness and lack of transparency in trade dealings. The United States and China are two of the largest economies in the world, and there are likely to be significant repercussions from their economic fallout. The first reason that led the US to declare war on China is the trade deficit. The US imports much more goods from China than China does from the US, and this is a problem. For example, in 2018, the trade deficit stood at $419.2 billion. The US imported goods worth $539 billion from China, while it only exported $120 billion (Liu & Woo 321). There is a significant difference in the figures, and this is a cause of worry to the US. The trade deficit has been growing over the years.
The second reason that prompted the trade war between the two countries is the theft of intellectual property by China. The Chinese have been accused of forcing American companies to transfer their technologies to China, and this amounts to an annual loss of roughly $600 billion for the US. These figures come from the Commission on the Theft of American Intellectual Property. The third reason for the trade war is accusations that China manipulates its currency, with the US claiming that this gives China an unfair competitive advantage when it comes to international trade. These accusations have been simmering for years, but this marks the first time they have been made official since the year 1994. To get even with China, the US has instituted trade tariffs against goods from China, and China has similarly responded with its own levies and tariffs. For example, in September 2018, President Trump imposed tariffs of 10% on certain Chinese products and is set to raise these tariffs to 15% on the 15thof December 2019 (Prasad). In addition to this, the President ordered US businesses to leave China immediately. This begs the question; will the situation prove beneficial or detrimental to the US economy?
There are two sides to the question, one supporting the trade war as beneficial to the US and the other explaining that the US stands to lose much more from the war with China. The reason that supporters believe the war will eventually benefit the US is that the country has a much larger economy than China. The US is economy is 50% bigger than China’s, and therefore it has a larger capacity to withstand the effects of the trade war (Handley & Limão 2742).
The second reason why the US will benefit from the trade war is that the US economy is not as heavily reliant on trade as China’s is. In the article titled ‘Which country is better equipped to win the US-China Trade War?’ the author explores some of the reasons why the US will suffer less in the short term. The US exports significantly less to China, and this means that the country does not have as much to lose as China does. The 2018 Chinese exports to America amounted to $539 billion, while American exports to China only came to about $120 billion. China takes up only 7.2% of the US total exports (Prasad). The bulk of these includes aircraft at $18 billion, electrical machinery at $13 billion, and vehicles at $8 billion. America imports much more from China. This difference will work in the US’ favor because they do not have such a big market in China.
However, the US will face some negative impacts from the trade war in the long term. The major problem with the trade war negotiations is the US President has been shifting goalposts in the talks. He has shown little good faith, despite Beijing making conciliatory efforts. On the 10th of October 2019, President Trump tweeted the statement that China might be ready for a deal, but he wasn’t sure he wanted to make one. The message in this is that China needs the US more, a fact that may not necessarily be true. For example, US farmers are already reeling from the stalemate in the trade war negotiations. They cannot export their products, and they have incurred huge losses (Liu & Woo 335). The main reason for this is that the President made a huge demand for China to increase imports of US agricultural products, despite his advisers informing him that US farmers could not manage the huge supply. Additionally, the US consumers will bear the brunt of the trade war for the most part. Taking the example of shoes, the US imports roughly 70% of all footwear from China. As of the 15th of December 2019, all footwear will be subject to 15% tariffs. This will affect customers heavily because they will have to fork out about 10% more to purchase the items.
Another reason why the US stands to suffer in the trade war is that a lot of US companies shifted their production to China due to lower costs; thus these companies will be severely impacted. China knows that American companies need the huge Chinese market, and they might make business difficult for these companies. China has some advantages over the US, with one of them being the fact that the Chinese economy is largely state-managed (Handley & Limão 2731). The government can avail cheap credit to boost economic growth. China can also stifle dissent and filter out news about the trade war to keep its economy stable. The US, on the other hand, is a liberal economy, and access to information could destabilize the economy.
In conclusion, the trade war between the US and China is a weighty matter. The key consideration is whether the US will benefit from the ongoing war. Those supporting the war explain that China has long perpetrated unfair business practices, and it is time they are checked. The trade war will, therefore, benefit the US. However, the danger is that the tariffs imposed on goods from China mostly affect consumers, which is a loss for the US. Additionally, the Chinese economy is more stable because it is mainly state-controlled. The United States, under President Trump needs to show more good faith in negotiations with China to bring an end to the war, which will prove hurtful to both economies in the long run.
Handley, Kyle, and Nuno Limão. “Policy uncertainty, trade, and welfare: Theory and evidence for china and the united states.” American Economic Review 107.9 (2017): 2731-83.
Liu, Tao, and Wing Thye Woo. “Understanding the US-China trade war.” China Economic Journal 11.3 (2018): 319-340.
Prasad, Eswar. “Which country is better equipped to win a China-US trade war?” Brookings. 12 August 2019. Retrieved from https://www.brookings.edu/opinions/which-country-is-better-equipped-to-win-a-us-china-trade-war/