Question

Essay:
subject: Global political economy
Trade war between China and US and its economic impact on other (developed and developing) countries.
2000-2500 words.

Answer 1

The trade war between China and the United States is an ongoing economic conflict between China and the United States, the two largest national economies in the world. President Donald Trump started to impose tariffs and other trade barriers on China in 2018 with the intention of pressuring China to reform what the U.S. considers to be "unfair trade practices." The rising trade deficit, the theft of intellectual property, and the forced transfer of American technology to China are among those trade practices and their consequences.

Since the 1980s, Trump has promoted tariffs to minimize the U.S. trade deficit and encourage domestic manufacturing, saying its trading partners are "ripping off" the country; imposing tariffs has become a central feature of his presidential campaign. While some economists and politicians agree that the persistent trade deficit in the United States is problematic, other economists argue that it is not an issue, and very few support tariffs as a solution, citing historical evidence that increasing tariff disputes lead to no winners.

The trade war in the U.S. has caused hardships to farmers and retailers as well as higher prices for consumers. It has also caused economic damage in other nations, although some countries have gained to fill the gaps from increased production. It has also led to instability in the stock market. Many countries ' governments have taken steps to address some of the damage, including China and the United States. The trade war was criticized internationally; corporations and farm associations were also critical in the U.S., although most farmers continued to support Trump. The response was mixed among U.S. lawmakers.

In 2008, the WTO released a formal ruling against China forcing foreign car producers operating there to buy some parts from local suppliers or face higher tariffs, 25 percent, rather than the usual 10 percent. The WTO concluded that it amounted to an unfair discrimination against foreign parties, a violation of the laws governing global trade. The original complaint was raised by the European Union, the United States and Canada in 2006, after allegations against China for using a mix of subsidies, tax incentives and an undervalued currency to gain an unfair advantage over foreign companies operating in China had already been lodged.

China reduced its average import tariffs from the 40 percent it retained in the 1990s to 10 percent by 2005. Chinese exports to the U.S. rose 31% in 2005, but U.S. imports only rose 16%. And while the US trade deficit with China amounted to $90.2 billion in 2001 ($130 billion in 2019 dollars), it nearly doubled by 2005.[20] In the four years that followed WTO membership, China usually met many of its legal obligations, including policy adoption and deadlines. Nevertheless, implementing intellectual property rights and introducing clarity to its industrial rules and regulations was sluggish, making it difficult for U.S. companies to enter their market.

in endorsing tariffs as president that because of unfair trade practices, China cost the American economy hundreds of billions of dollars a year. He denied initiating a trade war after imposing tariffs, saying that "the stupid and incompetent people who represented the U.S. lost the trade war several years ago." He said the U.S. has a trade deficit of $500 billion a year, with theft of intellectual property (IP) costing an estimated $300 billion. The United States has naively looked the other way through several presidential administrations — Clinton, Bush, and Obama.

The Chinese government has denied that forced IP transfer is a mandatory practice, acknowledging the importance of domestic R&D in China. Former U.S. Treasury Secretary Larry Summers concluded that the product of "huge government investment in basic science" and not "theft" of U.S. resources was Chinese leadership in some technical fields. In March 2019, a new foreign investment bill was approved by the National People's Congress to come into force in 2020, which explicitly prohibits the compulsory transfer of IP from foreign companies and offers better protection of international intellectual property and trade secrets.

There are no real winners in this trade war that has been launched by the US. Countries facing new tariffs are suffering decreases in real exports and GDP, including the United States. Many countries are affected indirectly, either through supply chains or in reaction to slower global economic growth, by lower demand for their own exports. To order to avoid tariffs, these consequences overshadow potential gains from trade diversion. In the protectionism case, the rate of real global GDP this year is decreased by 0.1%, 0.8% in 2019, and 1.4% in 2020. Global economic growth in 2019 and 2020, for a global recession, is thus only slightly above our 2.0 percent threshold.

In a more defensive climate, world trade declines as countries turn inward and multinational companies move production to end markets under order to remain competitive. Real global exports of goods and services are below the baseline level by 2020 by 2.4 percent in the scenario. Specific sales in China and the three North American countries are facing the sharpest declines.

Not unexpectedly, the United States is facing the greatest drop in actual goods and services imports. Real US imports decreased by 4.5 percent in 2020 relative to the baseline level. China is also experiencing a significant drop in real imports due to the high import content of its exports, dropping 3.2 percent below the baseline in 2020.

Real fixed investment is limited in the scenario of trade war, reflecting declines in real exports, financial stress, dropping share prices, and a decline in foreign investment in emerging markets targeted by US import tariffs. The biggest losses are in China, as both foreign and domestic investors will be taking a more cautious approach to China's capital spending.

President Donald Trump wants to cut the US trade deficit of $621 billion. It has been the largest in the world since 1975. Reducing the deficit is part of Trump's job creation policy.

Most of the U.S. deficit was due to American demand for imported consumer and industrial goods. The U.S. imported $648 billion in medications, television, clothes, and other household items in 2018. Just $206 billion of these consumer goods has been exported. That alone added the deficit to $442 billion. America imported cars and parts worth $372 billion, while exporting only $159 billion. This contributed to the trade deficit another $214 billion.

Global stock markets tumbled in anticipation of a trade war between the three largest economies in the world after Trump's announcement. Many U.S. companies established "Tariffs Hurt the Heartland" in late 2018. They were hurt by the rising cost of imported goods. Trump's tariffs were projected by the Federal Reserve to cost the average U.S. household $1,245 a year, including higher prices and decreased economic growth. Goldman Sachs cautioned in August 2019 that the trade war could spark a recession.

Farmers are suffering from retaliatory tariffs levied on their exports by China and Europe. Insolvencies have risen to their highest level in a decade in the agricultural belt of Illinois, Indiana, and Wisconsin. In 2017, half of all U.S. food was produced by those states. From January to March 2019, farmers ' income dropped by $11.8 billion. This has been the most since 2016.

Trump pledged $16 billion in aid to farmers on May 23, 2019 to partly compensate for their losses. In 2018, he'd earned them $12 billion. Trump administration declared a tariff of 25 percent on steel and a tariff of 10 percent on aluminum imports on March 8, 2018. It said reliance on imported metals would threaten the ability of America to make weapons. The Council for Aerospace Industry said Trump's tariffs would instead raise the costs of the military.

The U.S. Congress is the only tariff-imposing body allowed. But in 1962, the president was allowed to limit imports that threatened national security. The World Trade Organization is unable to settle trade disputes concerning security. A trade war with America's largest trading partner in goods has long been threatened by U.S. politicians. When exports are less than imports, there is a trade deficit.

The U.S. exported $130 billion to China in 2017. Aircraft at $16 billion are the three largest export categories; soybeans at $12 billion; and cars at $11 billion. There were $506 billion in U.S. imports from China. Electronics, shoes and equipment are the bulk of it. An example is salmon captured in Alaska and sent for shipment to China and then returned to U.S. grocery stores. It will raise prices by 25 cents to 50 cents a pound if Trump imposes tariffs on imports of seafood.

China is the No.1 exporter in the world. The comparative advantage is that consumer goods can be manufactured at lower costs than other countries can. China's living standards are lower, allowing its businesses to pay lower wages. American businesses are unable to cope with the low cost of China, thereby reducing U.S. manufacturing jobs. Of course, Americans want these items at the lowest prices. For "Made in America," many are unwilling to pay more.

The trade war has raised the price of steel and aluminum-using consumer goods. The first to raise prices was soda and wine distributors. Imported garment hangers, heavy equipment components, and computer chip makers and machine manufacturers have increased costs.

The Alliance of Automobile Manufacturers warned that when cheap foreign imports are withdrawn, steel manufactured by the U.S. would cost more. The move is "threatening the global competitiveness of the industry and rising our customers ' vehicle costs."

Mid-Continent Nail, for instance, reported layoffs in Missouri when steel prices became too high to keep them competitive. Harley-Davidson announced that to avoid retaliatory EU tariffs, it would move some production abroad.

Chinese retaliatory tariffs on U.S. seafood would affect the lobster industry in Maine. Because of retaliatory tariffs, California cheese makers are already seeing their markets vanish in China and Mexico. Auto parts producers in Wisconsin and the U.S. whiskey industry are being targeted by other industries. According to The Wall Street Journal, tariffs have reduced U.S. wood and grain exports.

With each new trade-war headline, financial markets are already wobbling, and China's stock market has seen a rash of dramatic daily swings in particular. Even so, both China and the U.S. stocks are up year-on-year, suggesting investors are still betting on making a deal. If they're wrong, and tariffs are slapped on heavyweights like Apple, this raises the possibility of a sharp correction.

An escalating trade war would have a multi-channel effect on foreign exchange markets: changing trade flows, as well as development and monetary policy expectations. Bloomberg economist David Powell mixed OECD nation exposure data with in-house foreign exchange over-and under-valuation estimates to show the most vulnerable currencies. The currency valuations are based on the real effective exchange rate index system of the International Monetary Fund, which adjusts for inflation.

The UN agency also noted early evidence that by reducing export rates, Chinese exporters may have begun to bear some of the tariff costs.The hardest-hit Chinese manufacturing sector was computers and other office machinery, as well as communications equipment, with China's exports declining by $15 billion. The UNCTAD report shows that other sectors that have "substantially fallen" include drugs, furniture, precision instruments and electrical machinery. Nonetheless, it highlighted the resilience of Chinese companies, which, given the "substantial" tariffs imposed, retained 75% of their exports to the US.

The reduced domestic demand in China is expected to negatively affect U.S. businesses which produce a significant portion of their sales from China. This is bad news for these companies ' investors and staff. Typically, layoffs are one of the first solutions to consider if cost-cutting is needed to remain competitive, which raises the unemployment rate.

China has a huge influence on world economies, particularly those linked to China, with its giant economy. A downturn in China's domestic demand could adversely affect the global economy and delay global economic growth. The United States is one of the countries likely to be affected by the Chinese economy's recession due to the anticipated decline in exports of goods and services to China. Nonetheless, through fixed oil prices, the negative effects of economic slowdown can be partially mitigated.