Running Head: US-CHINA TRADE WAR

US-CHINA TRADE WARS

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1. Introduction

For the past 10 years, the US and China have been among the two most powerful

economies. With booming economies backed by a large pool of ready workforce, the output

from these superpowers has multiplied significantly across all fields. Most countries stranded in

the race for economic growth have found themselves entangled in a war of allegiance as both

superpowers aim to strengthen their international reach and appeal. By helping to enhance the

economic growth of other states, these two countries open doors to trade thus maintaining their

large economies. However, with both China and the US trying to jostle for world dominance,

there come vast repercussions to both states as well as to other markets. An instance is the

Google ban on Huawei handsets due to suspicions of spying by the Chinese company, enforced

by President Donald Trump. Griffin (2019) explains that by US restricting business between

Google; which owns Android and Huawei, there will be a dynamic shift within the smartphone

industry and substantial changes that may affect how the industry runs. Therefore, the illustration

highlights that both parties stand to gain and lose while in the course of this trade war.

2. China-US Trade

Sino-American trade relations began after the US gained independence. During the inception of

the relations, both states were keen to bolster themselves and derive as many economic

advantages from each other. Companies on both sides of the divide have been able to work in

unison for many years through their operations. Apple and other American brands have been

known to source their parts for products from China while some such as New Balance have

production lines in China. Aided by technological advancements and the world's largest

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population, China is a dream hub for corporations that intend to rock whatever markets they are

involved in.

The US confers China with such benefits while benefitting from the revenues that come from the

sales of the finished products. Besides, the US is blessed with some of the pioneers in the

software technology space. Top Chinese companies, which are involved in the production of

gadgets rely on American produced software to run their devices. According to Baden (2013),

more than a million American jobs depend on goods and sales produced in the US and sold to

China, forming part of the billion dollars of goods and services that flow between the two

countries daily. Both parties operated with low tariffs, quotas and a generally relaxed trade for

many years.

With such a symbiotic relationship, understanding the origin of the China-US trade wars

becomes complex. “In its efforts to achieve what it believes to be fair trade, the United States has

started trade disputes with several different economies. Its conflict with China is by far the most

intense, resulting in a series of additional tariffs" (Hooper, 2019). Mullen (2018) points out that

the current US government imposed the tariffs to force China into abandoning practices which it

deemed to be unfair, thereby forcing China to strike back to safeguard her interests.

3. Trade War Impact

3.1 Impact on US

Tariffs are charges that are imposed on imported goods by customs and duties officers at the

entry points of the goods. They are intended to protect local industries from a harsh external

competition which may stifle the upcoming industries within a specific state. With China

importing several goods to the US including; machine parts, electronic devices, vehicles, LED

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among others, some local industries and individuals who depend on these components are

affected. Since the imposition of higher tariffs, the prices of these goods have increased to offset

the high charges of exportation faced by the exporter. This creates a bullwhip effect whereby the

consumer, an American citizen or industry, has to spend more to procure these goods. This

forces the market to reduce the supply as the costs of importation are high, which forces even the

local producers to adjust their prices to create harmony within the markets.

Since Beijing had to retaliate, American exporters to China have been hit hard. Most of

the American export comprises of foodstuff. “Soybeans are the US's largest agricultural export to

China, with more than $14 billion going across the Pacific in 2016. Since China hit soybeans

with a retaliatory tariff, US prices have cratered, putting the squeeze on American farmers”

(Bryan, Gal & Cheng, 2018). This situation has left many American citizens uncertain of

employment thus dropping the standards of living.

3.2 Impact on China

As China is on a mission to revitalize its economy, the trade war could not have come at a worse

time. According to Tan (2018), China has been trying to fill the holes in its economy and create

monetary conditions that will allow for rather stagnant growth. By imposing tariffs on Chinese

products, the US has forced Beijing to look for alternative measures to curb the defects in their

economy which in turn affects Chinese citizens. Moreover, the local producers who were

dependent on exports to the US have had to source for other markets to offset the surplus without

incurring the extra cost. Companies such as Huawei have focused on markets such as Asia and

Africa more to sustain profits.

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3.3 Impact on Global Economy

With the trade war escalating amongst the world’s largest economies, an imminent

reaction is expected to the global market. This clash of the titans has brought about “shifting

trade flows, as well as expectations on growth and monetary policy” (Holland & Sam, 2019).

The middle markets such as Taiwan, Vietnam, and Hong Kong stand to feel the pinch as they act

as gateways for Chinese-American trade. China is not necessarily a producer of the construction

material she exports to the US. China uses the outsourced supply chain to gather the necessary

resources it uses to sell to other markets. Being superpowers, the two economies can sustain the

war without much damage, however, other states would have to bear the collateral damage. As

described by Hedrick-Wong (2018) in Forbes; EU and Asia, led by China are working to open

their markets and forge closer alliances to facilitate more trade.

4. Recommendations

Practices such as exercising international regulations that provide a cap on tariffs and other

duties levied on imports and exports will help create harmony between the US and China. By

capping on trade regulations, both states will be able to conduct business with each other

amicably, allowing for the affected parties to enjoy an economic reprieve.

Noteworthy is the fact that China has to improve technological innovation. Over-reliance on

software developed in the US has put China in a peculiar spot. However, if innovation is

harnessed; exemplified by Huawei's launch of its operating system, tensions would be calmed as

the US would have no grounds to claim that China is using Android and Google as a whole to

spy on her.

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The ‘Belt and Roads’ initiative by China will help quench the trade war. This is “a peace-

developing initiative that aims at promoting China’s relations with other countries, assuming due

responsibilities as a great power and benefiting other countries” (Li, 2018). In considering the

greater good of relations with other countries, China endears itself to other states as a big brother

figure. This will motivate the US to cool on the trade wars as it will focus on regaining the big

brother status. Already, Washington has begun talks with other capitals in a bid to boost ties and

bolster trade.

To effectively put an end to the trade wars, bilateral talks between the heads of the states of the

parties involved need to be arranged and optimized. President Donald Trump and President Xi

Jinping need to come up with an agreement as to how trade will be carried out in a way that no

particular party feels victimized. As reported by Wallace (2019) in March, talks are coming to

fruition, with agreements being made. With regard to that, both parties need to come up with

strategies that will curb a repeat of such an event and prevent defaulting on the agreement. These

bilateral talks will allow both parties to table whatever concerns they have in regards to each

other, then iron them out.

5. Conclusion

For the US, the trade war is about trying to ensure that the local industries are awakened.

However, the tariffs imposed have come out as a combative sign by the US government

administration. This has led to a retaliatory attack by the Chinese government. Therefore, the

trade war is being fought for different purposes, but have one common aim; safeguard national

interests. This is a situation that can be averted, if not, avoided. By embracing each other as

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economic bigwigs, the US and China can go back to deriving benefits from each other and

working in synchrony and harmony for the greater good.

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References

Bryan, B., Gal, S., & Cheng, J. (2018, July 28). Trump's trade war is getting serious — here's

why it started, what it means for the US economy, and how it could hit you. Retrieved

from https://www.businessinsider.com/trump-trade-war-tariffs-effect-on-economy-

prices-consumer-stocks-2018-7?IR=T.

Griffin, A. (2019, May 31). How the Huawei and Google fallout could change the way your

phone works. Retrieved from https://www.independent.co.uk/life-style/gadgets-and-

tech/news/huawei-google-ban-android-issue-updates-china-us-trump-a8938351.html.

Hedrick-Wong, Y. (2018, July 14). How The U.S.-China Trade War Will Transform The Global

Economy. Retrieved from

https://www.forbes.com/sites/yuwahedrickwong/2018/07/13/how-the-u-s-china-trade-

war-will-transform-the-global-economy/#2dafe5a81c09.

Li, X. (2018, February 12). How Will the Indo-Pacific Strategy Impact the Belt and Road

Initiative? Retrieved from https://www.chinausfocus.com/finance-economy/how-will-

the-indo-pacific-strategy-impact-the-belt-and-road-initiative.

Mullen, J. (2016, July 6). China: The US has started 'the biggest trade war' in history. Retrieved

from https://money.cnn.com/2018/07/06/news/economy/us-china-trade-war-

tariffs/index.html.

Perspectives, K. H. B. (2019, January 3). Perspectives: Why the US would never win a trade war

with China. Retrieved from https://edition.cnn.com/2019/01/03/perspectives/us-china-

trade-war/index.html.

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The Trump administration's 25% tariffs affect more than 800 Chinese products worth $34 billion

such as industrial machinery. (n.d.). China: The US has started 'the biggest trade war' in

history. Retrieved from https://money.cnn.com/2018/07/06/news/economy/us-china-

trade-war-tariffs/index.html.

Wallace, C. (2019, March 20). US-China Trade War Hurting The Global Economy. Retrieved

from https://www.forbes.com/sites/charleswallace1/2019/03/20/us-china-trade-war-

hurting-the-global-economy/#54dda35d5756.

Weizen, T. (2018, July 18). The trade war is complicating China's efforts to fix its economy.

Retrieved from https://www.cnbc.com/2018/07/18/us-china-trade-wars-impact-on-

chinas-economy.html.