The two largest economies in the world including China and the United States are on the brink of starting a trade war. It has not begun yet but the opening shots have been fired by both parties to make the opposite party cautious about the serious consequences it will bring. The U.S government lead by Trump, released a recent statement, introducing new annual tariffs of worth $50 billion on imports from China. In retribution, China, also levied its own list of tariffs on U.S products, complicating the situation further (Joanna S Kao, 2018). Back in 2001 when China was allowed to become a part of World Trade Organization, it was anticipated that this would change the face of world economy, primarily because China would be able to gain an access to markets all over the world and different countries would be able to initiate trade with one of the strongest economies in the world.
Over the years, it became apparent that Chinese had a bigger plan. They became successful in luring huge amounts of foreign investment in the country, bringing home knowledge and innovation back home in the process. This not only made China self-sufficient enough to construct its own industries but also made it a huge contender in the international market. China made it impossible for foreign companies to operate independently in the country and enforced foreign business to partner with Chinese counterparts while relocating technology to China in the process. Trump angered by this, calls China a thief for stealing technology and trade secrets from the U.S, causing a huge deficit of revenue and reducing job opportunities. To counter this, He increased Taxes on the imports of products like solar panels and dishwashers and steel and aluminum (Joanna S Kao, 2018).
Trade between the United States and China
China, being a confident contender hasn’t backed down or seems to be scared by these threats. It made sure that the U.S became of aware of the fact that China is strong and its economy is big enough to support the country on its own. It declared that China isn’t scared of the trade war either and is already preparing with countermeasures. The Chinese government claims to have lined up a powerful strategy to counter sanctions and taxes imposed by the U.S and on top of it, the consumer force of China is something that can’t be ignored either. In 2012, Chinese autonomists tarnished various Japanese businesses and totally boycotted Japanese cars because of political and regional differences. Not just Japan, when the Philippines supported Manila in the United Nations, online Chinese vendors totally stopped selling dried mangoes, affecting their business on a huge scale. In another example, a South Korean based brand was forced to shut down 80 outlets across the country because South Korean Government allowed America to install its missile system on their land, which was strongly appalled by the Chinese. Hence Chinese nationalist movements can make a huge impact when it comes to boycotting foreign products in the country over political or territorial disputes.
China’s – ‘Made in China 2025’ plan revolves around the idea of strengthening their industry by upgrading it along the rules and regulations directly inspired by the German industry. The strategy involves a focus on manufacturing innovatively and locally, preferring quality over quantity promotes the growth of eco-friendly projects and cultivates human talent (Kenedy, 2015). This plan will especially target the development of pharmaceutical industry, advanced microchips, automatic cars, and robotics. To the U.S, this transforming step of the Chinese comes off as illegal since they believe that China stole innovative ideas and technological secrets from the U.S in the first place, Hence creating a bigger rift between the two countries. Giving another reason apart from the additional Tariffs being applied to each other (Xinhua, 2018). China, however, clarifies that the plan is crystal clear, open and impartial for everyone and China would be more than happy to accommodate foreign business involvement (Xinhua, 2018).
On one hand, China is really optimistic and confident about countering the trade war against the U.S tactfully, but it might have forgotten to consider that fact that the economies of both the countries are joined by the pelvis. Where, the U.S market will be affected in China, by mass boycotts and shut down of American based brands, there, an enormous number of people will also lose jobs from factories belonging to this brand based china, employing Chinese nationals. More than 40 U.S based brand including Nike have well-established stores across the country, selling in a huge market for these high yield products. Even though China has introduced boycotts against several nations in the past, to do it against American might be tougher. Even though nationalist tried to start a movement against iPhones, in order to boycott them, but its use remains prevalent among the general masses. So does the love for Starbucks, a well-known coffee store remain up and about irrespectively? Nike is still one of the most popular sportswear brands in China. According to a report of American chamber of commerce in China, more than 1000 Chinese employees have employed in American based setups in the country. It surely is a large number to cater, once they all become jobless (Tiantian, 2018).
The U.S however, did go forward with imposing tariffs on aluminum and steel, with Trump reasoning, that the step is taken solely to protect American people’s jobs. However, many argue that these tariffs won’t hurt Chinese economy as much as it should. China is only involved in 5 to 10% of steel and aluminum imports to U.S respectively and imposing tariffs on these goods will not harm Chinese as much as it will bring damage to American allies including European countries and South Korea, itself. Some people also accuse Trump of taking the easy way out by making social media appearances and not doing the actual work required to make a difference (Donald Trump’s Empty Words on Trade, March, 2018).
Both the countries, do, realize how lethal a trade war between two most powerful nations in the world could be at such a time and hence have made an effort to reach common grounds by negotiating on terms that are acceptable by both the nations. Recently, Trump issued several statements on Twitter, regarding the U.S line of action to resolve the trade war. He began with targeting the previous government by questioning them about their lack of efforts and interest in this area concerning trade with China in the first place. Then he revealed that China will become a large buyer of goods from the American farmers, although he was unable to specify the number of sales and purchase and if Chinese will be finally changing their strict rules relating to companies already functioning in China. China and the U.S also made a joint statement claiming that indeed China will work on growing their purchase of Chinese products. Representatives from both the countries made statements claiming that progress is being made in order to resolve this issue and things are finally taking a turn for the better (Rappeport, 2018). There remain a lot of details that need to be worked upon and hence it’s expected of Trump administrative to travel back to China in order to reach a firm decision. But both the countries seem to be letting go of the idea of introducing additional tariffs on each other. Trump also made it clear that he will sign a deal keeping in mind that his people remain protected (Rappeport, 2018).
In an effort to make things better, United States finally decided to ease up on the tariffs they were planning to impose in the Chinese imports. Statements such as “the trade war is being put on hold” were made, which for many economists is a positive sign. It’s not as simple as it seems though since many other related issues are tied to this agenda, putting both the countries in a more challenging position to come up with a firm decision. Issues include the lack of assurance as to how much will China finally invest in American products and what will America’s decision be regarding ZTE’s fate. According to analysts, these critical issues can tip the bar in any direction. Both the countries did release a joint statement revealing the details about the future business and the need for further discussions (Rappeport A. S., 2018).
Two both countries disappointment and as time passes by, the situation can’t help but get more critical. Even after rigorous meetings and attempts to reach negotiations, Trump’s announcement relating to the introduction of additional tariffs worth $60 billion on Chinese imports including electronics and sports gears, has only caused China to retaliate into imposing $3 billion worth of tariffs on products imported from the United States. Both the countries have forgotten to play by the rules as going forward with this decision will not only cause a violation of the rules levied by the world trade organization but will also give rise to a new dispute, the United Nations will have to take care of (Aawaz, 2018).
Aawaz, R. (2018, June 3). The Asian Chronicle. p. Retrieved from: http://theasianchronicle.com/448.
Donald Trump’s Empty Words on Trade. ( March 2018). The New York Time, Retrieved from https://www.nytimes.com/2018/03/08/opinion/donald-trump-trade-tariffs.html.
Joanna S Kao, E. C. (2018, April 17). What’s at stake in the looming US-China trade war: the full list. Retrieved from: https://ig.ft.com/us-china-tariffs/
Kenedy, S. (2015, June 1). Made in China 2025. Retrieved from: https://www.csis.org/analysis/made-china-2025
Rappeport, A. S. (2018, May 20). The U.S. Suspends Tariffs on China, Stoking Fears of a Loss of Leverage. p. Retrieved from: https://www.nytimes.com/2018/05/20/us/politics/mnuchin-kudlow-china-trade.html
Rappeport, E. S. (2018, May 21). Trump Defends Administration’s Trade Strategy With China. pp. Retrieved from https://www.nytimes.com/2018/05/21/business/trump-defends-china-trade-strategy.html.
Tiantian, S.-L. W. (2018, April 19). In a Trade War, China Might Boycott U.S. Goods. That Could Backfire. pp. Retrieved from https://www.nytimes.com/2018/04/19/business/china-trade-us-boycott.html.
Xinhua. (2018, April 4). China says “Made in China 2025” in line with WTO rules. Retrieved from: http://www.xinhuanet.com/english/2018-04/04/c_137088566.htm