This Article is written by Pooja Lakshmi pursuing (BBA-LLB Third year at Bennett University, Greater Noida)
ABSTRACT
The primary goal of this article is to examine the trade relations between the United States and China. This study examines the trade war, most commonly considered as “The War Nobody Can Win”. The significant repercussions of the trade war on the economies of both countries are also explored in this article.
Key Words: China, USA, Trade War
INTRODUCTION
From 1945 to the present, the United States has dominated and reshaped the global economy in close collaboration with international institutions. In global economies, U.S has benefited from the free market economy and free trade. China’s reform strategy and openness to foreign competition, on the other hand, has catapulted the formerly closed, economically insignificant, underdeveloped country into the top tier of the global economy. China has developed its own economic, political, and social model of state capitalism, wherein the economy is state-led and thus regulated by the state, in contrast to free-market economies. Therefore, both the United States and China are today’s dominant economic and military (super) powers.[1]
TRADE RELATIONS
In general, trade policies act to protect the regional industry from foreign competition. Import taxes (tariffs) are often used to safeguard domestically located non – competitive industries from foreign competition. This mostly happens at the expense of domestic consumers and in support of domestic producers and government budget revenue. To counteract the effect of domestic consumers paying greater costs at home for the same commodity than international consumers, export subsidies have helped the country expand its export revenues. The competitive strategy seeks to lower production costs or raise overall productivity by maximizing resource allocation efficiency. Raw materials and intermediary items used by US producers to make final goods account for half of all Chinese imports, and the US sends raw goods to China for low-cost assembly maximizing the utilization of Chinese manpower. China not only maintains a large trade deficit with the United States, but it also holds 28% of the US public debt owed to foreign countries.[2]
ORIGIN:
During the 2016 presidential campaign, whereupon Trump invariably blamed U.S. trade with China and the accords that facilitated it, for the loss of manufacturing jobs and intellectual property in the United States the trade war began. President Trump initiated the trade war to put pressure on China to make significant reforms to areas of its economic structure that promote unfair Chinese trade activities, such as forced technology transfer, limited market access, intellectual property theft, and state-owned enterprise subsidies.[3] Both sides suffered economic losses as a result of the trade war, which resulted in trade flows diverting away from China and the United States. Trump’s unilateral tariffs on China shifted trade flows away from China, resulting in an increase in the US trade deficit with Europe, Mexico, Japan, South Korea, and Taiwan. The Chinese leadership holds full responsibility for the country’s unwisely nationalistic activities on the periphery as well as its violent domestic repression.[4]
Since 2018 do the US and China have been engaged in a trade war the configuration has led to a series of increases in tariffs by both countries. US President Donald Trump increased the import duties during January 2018 on solar panels and washing machines to 20-30%. In the same manner, import duties and tires were imposed and different imports throughout the year. The US also launched a complaint against China in the World Trade organization for breaking IPR rules and also blocked Chinese takeovers in the US companies. China finally retaliated to all these attacks in April and levied tariffs on almost $50 billion worth of US imports. China even devalued its currency as retaliation.
A preliminary agreement was later signed during 2020 between the two countries however some issues remain unsolved. The agreement led to China pledging to boost US imports by $200 billion and the US in exchange agreed to half some of its new tariffs that were imposed on China. However, the debate over the origin and China’s handling of the coronavirus pandemic led to a new series of wars between the two countries and thus we can say that the tussle between the two countries is not yet over.
However, it was statistical stated that the Indian economy would not be significantly impacted by the trade was as the US accounts for only 10% of India Steel exports while China accounts for around 10% of India’s total exports. But it was also seen in researches that a prolonged war would lead to uncertainty and slower global growth recovery and this, in turn, affect India. If other countries react to US tariffs then ultimately India would suffer and India’s exports GDP and the economy would be hit. The US did file a complaint against India in the world trade organization for unfair export subsidies. However, some analysts believe that the trade war might benefit India as China is one of the major outsourcing destinations for most US companies these companies would have to diversify their products and would have to approach countries such as India and Vietnam gradually.
CONCLUSION
A trade war is a bad side effect of protection that occurs when a country raises tariffs on a country’s imports in retaliation for a country’s imports being raised. What emerged as a trade conflict over China’s unjust economic and social policies has now devolved into a “cold war” driven by differences in opinion. If the US wishes to maintain its intellectual and ethical dominance, it must first address domestic economic and political issues. It will not fix the situation to criticize China’s discriminatory policies and autocratic government. Instead, the US should concentrate on improving its own economic competitiveness, fostering internal political cohesiveness, and collaborating with European and Asian allies to establish long-term international institutions.[5]
Unlike the Trump administration, however, the Biden government has signalled a desire to first discuss US-China trade issues with its friends. It is vital that they do so soon in order to restore relations between the US and China. The US government’s prioritization of supply chain review implies that the US wants to safeguard its supply chains in order to reduce reliance on China and boost competitiveness in the manufacturing of items such as semiconductors. Nonetheless, the US should not squander time working with China to strengthen what has previously been a mutually beneficial relationship.
[1] A quick guide to the US-China trade war,( 16 January 2020 ), https://www.bbc.com/news/business-45899310
[2]BahriYılmaz, THE US-CHINA “TRADE WAR”: THE WAR NOBODY CAN WIN, https://eaf.ku.edu.tr/wp-content/uploads/2019/10/erf_wp_1911.pdf
[3] ORIGINS OF THE TRADE WAR, https://www.brookings.edu/blog/order-from-chaos/2020/08/07/more-pain-than-gain-how-the-us-china-trade-war-hurt-america/
[4]US-China Trade War, Battles lines drawn between the world’s two largest economies, https://www.scmp.com/knowledge/topics/us-china-trade-war/news
[5] Sara Hsu, The US-China Trade War Is Still Happening, (March 03, 2021), https://thediplomat.com/2021/03/the-us-china-trade-war-is-still-happening/