Francis Gabriel S.
Hipolito 02/12/2021
Alexandra Faith F. Layug BSME-1C
A trade war is known to be an economic conflict caused by extreme
protectionism in which states raise or create tariffs or other trade factors against a
rivalling party in response to trade barriers. On Monday, 4th of October, it has been
reported once again that two countries, USA and China, have been involve in such
economic fracture. China’s abrupt growth was noted in the early 1978, and has been
known to manufacture a lot of items, equipment, and many more to be distributed and
sold into different countries all across the globe. Where in the USA is deemed to be the
top 1 global economic contributor, making both countries earn the spotlight in the world
of economy.
Unfair business practices that harm a country's markets are often at the root of
trade conflicts, according to experts. A trade barrier, such as a tax on an important
product imported from another nation, may be imposed in an effort to safeguard
domestic industry or generate employment. This tit-for-tat conflict might turn into a trade
war if the other nation responds in kind. The US thinks that China is playing unfair
business in order to shovel up their economy. Anywhere in the world, China is known
for being a copycat nation. Chinese companies have a reputation for ripping off Western
products and modifying them to fit the Chinese market. To further their business model,
they have a name for it called "Shanzhai," which means making counterfeit or pirated
goods. According to Marine (2015), Chinese company Xiaomi has just launched the 399
(roughly $64) Yi Action Camera, which looks like a budget version of the $130 GoPro
HERO, which is a US product, but with better specs. However, the Yi's Sony 16MP
sensor is able to shoot at 120 frames per second at 1080P and 60 frames per second at
720P, whereas the HERO can only shoot at 30 frames per second. This kind of
scenario is an example of how China tries to rip off the US. There are a lot of products
that are being modified in China, and that is the reason why the US government went
ablaze and started the trade wars. US tariffs on a few major import items–washing
machines, solar panels, steel and aluminium–were raised in the early months of 2018.
However, it soon became clear that US trade policies were aimed at China despite
these tariffs' non-discriminatory nature. Between 2018 and 2019, the United States
increased tariffs on thousands of Chinese products, resulting in a total of $350 billion in
imports from China. Over the course of several rounds of tariffs, China targeted about
$100 billion worth of US exports in retaliation.
As of 2021, the tariffs that were in place when the agreement was signed in
January 2020 were still in effect. While tariff reductions have long been a hallmark of the
United States' global leadership in global trade policymaking, this trade war represents
a dramatic shift from that role.
Both sides suffered economic losses as a result of the trade war, which diverted
trade flows away from both China and the United States. According to Heather Long of
the Washington Post, "U.S. Economic growth has slowed, business investment has
stalled, and businesses have not hired as many people. Across the country, many
farmers have gone bankrupt, and the manufacturing and freight transportation sectors
have reached lows not seen since the previous recession. Trump's actions amounted to
one of the most significant tax increases in recent memory." According to a September
2019 Moody's Analytics study, the trade war has already cost the US economy nearly
300,000 jobs and an estimated 0.3 percent of real GDP. Other studies estimate that the
cost to the U.S. GDP is expected to be around 0.7%. Bloomberg Economics estimated
in 2019 that the trade war would cost the US economy $316 billion by the end of 2020,
while more recent research from the Federal Reserve Bank of New York and Columbia
University found that tariffs imposed by the US on Chinese imports cost U.S. companies
at least $1.7 trillion in stock price losses. Numerous studies have found that US
companies primarily paid for US tariffs, with a total cost estimated at nearly $46 billion.
Tariffs compelled American businesses to accept lower profit margins, reduce wages
and job opportunities for American workers, postpone potential wage increases or
expansions, and raise prices for American consumers or businesses. According to an
American Farm Bureau spokesperson, "farmers have lost the vast majority of what was
once a $24 billion market in China" as a result of Chinese retaliation.
Meanwhile, the United States' goods trade deficit, China continued to rise,
reaching a new high of $419.2 billion in 2018. The trade deficit had shrunk to $345
billion by 2019, roughly the same level as in 2016, owing largely to reduced trade flows.
It should be noted that, while the United States' trade deficit with China decreased, the
country's overall trade deficit did not. Trump's unilateral tariffs on China diverted trade
flows away from China, increasing the US trade deficit with Europe, Mexico, Japan,
South Korea, and Taiwan. The trade war caused China economic pain, but not enough
for it to cave in to the Trump administration's core demands for major structural reform.
Indeed, as the trade war dragged on, Beijing reduced tariffs for its other trading partners
in an effort to reduce its reliance on US markets. Both parties announced the final
agreement on January 15, 2020, which largely mirrored Beijing's initial offer —
increased goods purchases plus commitments on improved intellectual property
protection, currency, and forced technology transfer.
Because of this, it's important to realize that the United States and China do not
trade in a vacuum. A global economy is a web of countries where purchased goods are
made and sold before they reach their final destinations in different countries. Many
other countries, products, and businesses will likely be affected by the U.S. decision to
impose tariffs on China as a major manufacturing hub.
According to Peterson Institute for International Economics research, 87 percent
of the products that will be affected by the tariffs are supplied by non-Chinese
corporations operating in China, while only 13 percent are supplied by Chinese
companies. To target one country or one industry is nearly impossible in our global,
interconnected economy, and may even affect some of our closest allies.
The tariffs imposed by the Trump administration could have a greater impact on
American businesses than those targeted in China. For every dollar spent on a "Made in
China" product, the Federal Reserve Bank of San Francisco calculated in 2011 that 55
cents went to services produced in the United States. 6 Increasing tariffs and starting
trade wars in a global economy may have unintended consequences for the U.S.
economy.
The impact of Trump's trade war with China on American consumers will not be
felt for some time, but it will eventually. There's a safety net in the form of a buffer.
Because of new tariffs, companies have to pass the increased costs on to consumers.
Cost increases in business take time to trickle down into retail prices. Prices are likely to
rise, but it won't happen all at once.
According to Hsu (2021) The U.S.-China trade war is continuing. Donald Trump's
presidency began with an investigation into China's unfair trade practices and the
slapping of 25% tariffs. Those tariffs are still in place four years later. At an ornate
signing ceremony at the White House involving President Trump and Chinese Vice
Premier Li Hè, the two sides declared a trade truce. Although the full text of the
agreement has not been made public, reports indicate that it commits China to
purchasing an additional $200 billion in American goods over the next two years,
compared to 2017. The agreement's text, which has been made public, shows China
pledging to protect American intellectual property, stop coercive technology transfers,
and refrain from using currency devaluation as a trade weapon. It also included an
enforcement mechanism that would allow import tariffs to be imposed if disputes were
not resolved. In other words, Beijing effectively paid for the deal with the promise of a
windfall in American goods purchases. President Trump appears to have accepted an
IOU as a declaration of victory.
Time will tell whether the innovations in the agreement on enforcement succeed
where others have failed, and much will depend on China's willingness to translate
agreements into law and, more importantly, enforce them. However, the key question
for the United States — especially now, when the US economy is in the worst shape
since the Great Depression as a result of the COVID-19 pandemic — is whether the
economic costs paid for those enforcement agreements were worth the billions of
dollars lost in value, hundreds of thousands of jobs lost, stagnation of US
manufacturing, and devastating effects of the trade war on American farmers.
Finally, the phase one agreement disappointed because, together with the trade
war, it severely harmed the US economy while failing to make significant progress in
fundamentally resolving the structural imbalances in the US-China trade relationship.
The consequences may not be felt as of now, but it will deal a huge blow later on as
time goes by.
DOCUMENTATIONS
REFERENCES
- https://nofilmschool.com/2015/03/xiaomi-yi-action-camera-china-gopro-hero-
price-cost
- http://pfajgelb.mycpanel.princeton.edu/tradewar_0920.pdf
- https://www.brookings.edu/blog/order-from-chaos/2020/08/07/more-pain-than-
gain-how-the-us-china-trade-war-hurt-america/
- https://www.aljazeera.com/economy/2021/11/18/after-biden-xi-summit-what-next-
for-us-china-trade-war
