C-01 Aakriti Singh

C-42 Priyadarshini Tyagi

C-46 Shaik Yasmin Naaz

C-52 Smriti Dureha

US -CHINA TRADE WAR

 • A great majority of trade wars resolved by peace talks and
negotiations
• Suggesting threats of tariffs were mostly rhetorical ‘tough talks’
• serves as bargaining chips to force the other party to return to the
negotiation table.
• To evaluate a trade war, aggressive rhetoric, underlying
motivations of the trade war need to be seen
• Mostly motivations behind a trade war are beyond economic
reasoning.

HISTORY • The US has launched five ‘Section 301 investigations against China
since 1991
• probing into intellectual property rights, unfair trade barriers, clean
energy
• Obama administration initiated a ‘Section 301 investigation’ on
China’s subsidy policies and investment in green technologies
• In June 2017, Trump initiated a ‘Section 232 investigation’, on the
import of steel and aluminium
• In 2018 began setting tariffs and other trade barriers on China 
• Launched a ‘Section 301 investigation’ into China’s intellectual
property practices, threatened extra tariffs on Chinese imports.
 • One way is to enact tariffs that tax imports. That immediately
raises the price of the imported goods. They become less
competitive when compared to local goods. This method
works best for countries with a lot of imports, such as the
United States.
• A second way of protecting trade is when the

Four Methods government subsidizes local industries. This makes the

products cheaper even when shipped overseas. Subsidies work
even better than tariffs. This method works best for countries

of Trade that rely mainly on exports.

• A third method is to impose quotas on imported goods. This

Protectionism method is more effective than the first two. No matter how
low a foreign country sets the price through subsidies, it
cannot ship more goods.
• Fourth type of trade protectionism is subtle. It is a deliberate
attempt by a country to lower its currency value. This would
make its exports cheaper and more competitive. This method
can result in retaliation and start a currency war.
TRADE DEFICIT
• U.S. trade deficit with China in 2019 was
$345.6 billion
• Categories of U.S. imports from China were
computers, cell phones, apparel, and toys and
sporting goods
• Sends raw materials to China for low-cost
assembly
• China's biggest imports from the United States
are commercial aircraft, soybeans, and
semiconductors
• China's competitive pricing 
• A lower standard of living,
• lower wages to workers
• unlikely that the trade deficit will change (If
the United States implemented trade
protectionism, U.S. consumers would have to
pay higher prices for their "Made in America"
goods)
TRADE DEFICIT

•US trade deficit shows an overview

of US trade deficit from 2001 to
2017.
•Root of US national debt crises
•Root of public discontent in the US
•Motivation for US government to
wage a trade war against China.
INTELLECTUAL PROPERTY  • 94% of packaged software
THIEVES used in mainland China was
pirated  
• Clinton threatened to
impose 100 per cent tariffs
on US$2 billion of imports
from China
• Counterfeit and pirated
tangible goods 
• From fake Rolex watches and
Nike shoes to Louis Vuitton
bags and Apple iPhones
• Theft of commercial and
trade secrets
CHINA’S SUBSIDISED
STATE-OWNED
ENTERPRISES 

• State-directed capital flows – state

capitalism
• Government financing has fueled
investments in capital-intensive
manufacturing industries in China
• Cheap loans support investments in fixed
assets that create overcapacity and
incentivize overproduction
• Overproduction and creating a glut in global
markets
• Influx of large volumes of commodities in
the global market -  downward spiral in
prices
• Profitability, adversely impacting producers
 • The United States labelled China a currency
manipulator
• Most modern capitalist economies let their
exchange rate “float” 
• China maintains a “controlled” currency

MANIPULATI • Government controls the exchange rate

• Keeps the currency ARTIFICIALLY CHEAP
NG ITS • Made its goods cheaper in the global
marketplace.
CURRENCY  • Chinese people with less purchasing power to
buy foreign-made goods
• To avoid falling into a recession during the
global financial crisis
• To help China build up its long-term industrial
capacity
 • Another driving force traces back to the
American political system.
• In the US, midterm elections held every four

AMERICAN years.
• Voters elect members of the Congress.
• Takes place in the middle of the four-year

POLITICAL presidential term of office,

• Midterm election results often viewed as
voters’ verdict on the president elected two

SYSTEM years ago

• Incentives to adopt radical policies to appeal
to his supporter base.
• Trump’s main promises during election
campaign - solve the trade deficit problem
• The China-US trade war was timely, logical
move to secure votes for his political party in
the midterm elections.
 • A battle for global economic dominance
• ‘Made in China 2025’ undermines the interests
of America – President Trump
• Section 301 tariffs targets ‘Made in China 2025’
industries.
• Made in China 2025, a strategy that aims to
MADE IN upgrade China’s industrial sector
• State‐led financing associated with MIC 2025 will
CHINA 2025 enable Chinese companies to unfairly compete
and dominate over strategic industries
• To shift the country’s economy to higher value‐
added manufacturing sectors
• Such as robotics, aerospace, and energy‐saving
vehicle, mostly which US exports.
 GLOBAL IMPACT
• The key issues of the war: Market access, intellectual
property rights, and joint-venture technology transfer.

• A rise in financial stress

would adversely affect
new credit flows and
restrain investment,
industrial production, and
trade.

• In addition, global equity

prices are expected to
decline in a protectionist
environment.
 MACROECONOMIC IMPACT:
NO WINNERS IN THIS TRADE WAR
• No real winners.
• Experience declines in real exports and GDP.
• Other countries are hit indirectly
• In 2019 and 2020 is only marginally above our 2.0% threshold for a world
recession.
• In the scenario, real global exports of goods and services are 2.4% below
the baseline level by 2020.
• Trade Conflicts – IMF reports: Ripple effects and their potential
• Winners and losers are emerging
• Changing status quo and injecting uncertainty into the future
of global growth

• WINNER: VIETNAM
• Distorting supply chains- Distributors adjusting their way –
Countries like Vietnam
• Circumvent US tariffs, Companies moving some distribution-
Keeping prices down.
• Investment growing, US importing 40% more-2019
• Vietnamese exports account for 26% of 7% GDP this year.
• SINGLE MOST ABUSER of trade wars- Trump
• LOSER: European Union
• Feeling the pain – Third party economies
US-CHINA TRADE WAR
 Opportunity to reduce
widening trade gap
with China

India may also increase India can export

export in textiles, agricultural products
garments, gems and such as soyabean to
jewellery to US China

INDIA
EMERGING
AS WINNER
Enhance the flow of India gained about $ 755
million in exports majorly
Chinese investment chemicals, metals, ores to
towards India US.

India can become

China’s software
industry partner.
 Impacts on Indian Markets
US INDIA
$241 million $238 million

• USA imposed duties on steel and aluminium

• India to pay approximately $241 million worth of tax to the US.
• As a counter-measure, India has proposed imposing duties on 30 different
types of goods.
• This will ensure that the US has to pay about $238 million as duties to India.
 IMPACT ON MANUFACTURING SECTOR
Two key challenges:
• Land laws:
Current land laws make it difficult for
the private sector to obtain space for
manufacturing units.
Indian economy could benefit by $11 billion from
these trade shifts Land ownership is fragmented across
Manufacturers may move production to
India. Ex: Taiwan’s Foxconn-APPLE
several states, and companies need
products
extended periods of time to obtain
Tariffs kick in & the exports from
U.S. and China will be expensive
land, or bypass legal issues.
Benefits to the
textiles, footwear and
electronics sectors.
• Labour regulations:
Labour laws in India are “extremely
complex comprising of 40 acts.
 IMPACT ON INDIA

• Three sectors that could benefit are • Cautious about China dumping its over production
pharmaceutical, chemicals and engineering of steel and aluminum.
• Chinese substituted cotton imports from US • Lack of infrastructure may reduce the foreign
to India and other Asian Countries. investment
• Focus on investment from global companies • Further Duty reduction can hamper domestic
is transformative path production. (eg Harley Davidson bikes, knee
• India can explore opportunities to export implants, poultry products)
goods to US which are being restricted to • America has trade deficit with every nation of G7
Chinese goods. • With India trade deficit is $21.3 billion which is
trade surplus for India is at risk of turning deficit.
• More exposure to commodities - Rising oil prices
widen’s India’s current account deficit – currency
may decline
 GLOBAL INVESTORS –
• Investors will be risk averse in emerging markets
• Shift towards developed markets
 CORPORATE BANKRUPTCIES –
• Input prices goes up due to higher import cost & company passes burden on customers or
absorb cost
• Higher interest rates tends to financial vulnerability leading to high debt
 INFLATION –
• Higher cost of production
• Fall in domestic purchasing power , which affects growth of country
 RISK OF CURRENCY WARS –
• Every country starts imposing higher tariffs on imports leads INR to come under pressure
• Country boost economy by weakening the currency
• Sharp depreciation in rupee could trigger risk off capital flight
 CONCLUSION
• India requires strategic approach to convert opportunities into
major gain.
• Focus to become powerhouse as global hub for exports.
• Exports to have positive impact on competitiveness and job
creation.
• India to emphasize and implement support policies
• New flagship programme ‘India: Making for the World’
• Focus on champion sectors (textiles, automotive products and
electronics.
• These 3 sectors in India likely to contribute over $ 1 trillion by
2025
 WAY FORWARD
• Era of interconnected markets and global supply chain.
• Trade war could derail the global economic growth and also can hurt the developing
countries.
• Need for settlements of disputes through International Conventions
• WTO dispute settlement resolution mechanism should be approached
• India can derive maximum benefits of the opportunities from ongoing trade war
• However, should remain careful and prepare for the challenges arising out of the trade
war.
 US-CHINA PHASE ONE DEAL
 On January 15, 2020, the US and China signed the much-anticipated phase one trade deal (US-
China Economic and Trade Agreement) in Washington DC aimed at easing a trade war that has
rattled markets and weighed on the global economy.
 This initial trade deal is perceived as the first sign of de-escalation in the protracted US-China
trade war.
 Its provisions puts into immediate effect tariff rollbacks, expansion of trade purchases, and
renewed commitments on intellectual property (IP) rights, technology transfer, and currency
practices, among others.
 Parallel to this phase one deal – trade envoys from US, Japan, and the European Union met on
January 14, and announced a proposal to strengthen the WTO’s provisions on industrial
subsidies, which they found to be “insufficient to tackle market and trade distorting
subsidization existing in certain jurisdictions,”.
 This might drive Beijing to invest more diligently on expanding new trade relationships,
including those along the Belt and Road and with the Eurasian Economic Union.
 TARIFF ROLLBACKS
 The deal cancels the tariffs originally set to take
effect on December 15, 2019 that would have
affected mass consumed Chinese-made imports
like cell phones, toys, and laptops, among others.
 In addition, it reaffirms Trump’s commitment to
halve the September 1, 2019 tariff from 15
percent to 7.5 percent on US$120 billion worth of
Chinese products, including flat-panel televisions,
Bluetooth headphones, and footwear.
 However, other tariffs will remain which include
the 25 percent US tariffs slapped on US$250
billion worth of Chinese products and China’s
retaliatory tariffs on US$110 billion of US goods.
 According to US Treasury Secretary, these could
be rolled back as part of a Phase 2 trade
negotiation.
 In February 14, 2020, after the implementation of the phase one deal, average
US tariffs on imports from China remain elevated at 19.3 percent. These tariffs
are more than six times higher than before the trade war began in 2018.
 Average Chinese tariffs on imports from the United States also remain elevated
at an average of 20.3 percent, down only slightly from their average rate of
20.9 percent when the deal was announced on December 13.
 Overall, the trade war has proceeded in five stages since early 2018.
 The first six months of 2018 featured only a moderate increase in tariffs.
 The months of July through September 2018 resulted in a sharp tariff
increase on both sides: US average tariffs increased from 3.8 percent to
12.0 percent, and China's average tariffs increased from 7.2 percent to
18.3 percent.
 In stage three, there was an 8-month period (September 25, 2018,
through June 2019) of little change in tariffs.
 From June to September 2019, another set of tariff increases kicked in.
 In the current stage five, and despite the phase one agreement, tariffs
between the two countries remain elevated and are the new normal.
 EXPANDING TRADE AND SERVICES
 A centrepiece of the deal is China’s pledge to purchase a minimum
of US$200 billion worth of additional US goods and services over the next
two years.
 The additional US$200 billion in purchases include:
 US$77.7 billion of manufactured goods;
 US$32 billion of agricultural goods;
 US$52.4 billion of energy goods; and
 US$37.9 billion of services.
 Special focus appears to be placed on agricultural and financial service
imports, both of which formed their own chapters within the agreement.
 The agricultural provisions support the expansion of US agricultural
exports, particularly seafood products, poultry rice, dairy, infant formula,
horticultural products etc.
 Overall, combining a baseline of US$186 billion purchases in 2017 with the
increased US$200 billion purchases, US exports to China should in theory
climb to US$263 billion in 2020 and to US$309 billion in 2021.
 While American businesses and farmers may be pacified by these
commitments, analysts think it will be challenging for China to meet
this trade goal. Such a significant jump in its US imports will mean China
reducing imports from elsewhere to balance the country’s total trade
balance.
INTELLECTUAL PROPERTY FINANCIAL SERVICES
 The deal demands stronger Chinese legal protections in the  U.S. officials said the deal includes improved access to China’s
areas of patents, trademarks, trade secrets, copyrights, financial services market for U.S. companies, including in
pharmaceutical-related IP, geographical indications, including banking, insurance, asset management, securities and credit
improved criminal and civil procedures to combat online rating services - addressing common complaints made by US
infringement, pirated and counterfeit goods. businesses about investment barriers to China’s financial
 The deal contains commitments by China to eliminate any sector.
pressure for foreign companies to transfer technology to  Under the deal, China has agreed to move forward the
Chinese firms as a condition of market access, licensing or deadline for removing foreign ownership caps on securities
administrative approvals and to eliminate any government firms, which includes investment banking, underwriting, and
advantages for such transfers. brokerage operations, by nine months to April 1, 2020.

CURRENCY DISPUTE RESOLUTION

 The deal prohibits both the US and China from manipulation  The United States and China will resolve differences over how
of exchange rates or interest rates to devalue their respective the deal is implemented through bilateral consultations,
currency. China also agreed to publicly disclose its foreign starting at the working level and escalating to top-level
exchange reserves and quarterly imports of goods and officials.
services.  If these negotiations fail to resolve the ongoing dispute, there
 Last year, the Trump Administration labelled China a currency will be procedures for imposing tariffs or other punitive
manipulator, arguing that China was deliberately suppressing measures.
the value of its currency to give its exports a competitive
advantage; this label was dropped just ahead of the signing
of the phase one trade deal.
 WHAT’S NOT COVERED IN PHASE
ONE DEAL?
 INDUSTRIAL SUBSIDIES AND 'MADE IN CHINA 2025'
 The deal doesn't address Beijing's ambitious 'Made in China 2025' programme, which is designed
to help Chinese companies excel and become world-class leaders in emerging technologies.
 It also doesn't address the subsidies that China gives its state-owned enterprises.
 US sees "Made in China 2025" as a direct threat to its supremacy in tech, because they get unfair
and outsized assistance from the Chinese government in the form of subsidies.
 But this has been pushed to the phase two process along with "market access in sectors such as
cloud services, cyber security and data governance issues".
 HUAWEI
The trade deal won't reduce US pressure on Huawei, the Chinese telecom giant that has been caught
in the crossfire of the trade war.
 ACCESS FOR FOREIGN FINANCIAL SERVICES FIRMS
While the agreement does talk about opening up market access for financial services firms, some
analysts have said it doesn't go far enough to ensure they have equal market access, because China's
financial services sector is now dominated by domestic digital payment players.
 PROBLEMS THAT MIGHT
ARISE
CHINA COULD DIVERT IMPORTS AWAY FROM OTHER FOREIGN SOURCES TO
TRY TO MEET SOME US TARGETS
To overcome the shortfalls anticipated, Beijing might shift purchases away
from other foreign suppliers and toward the United States.
 Take oilseeds, which includes soybeans, the largest US farm export. US
exports to China in 2017 were $13.9 billion.
 Expanding US soybean exports could come at the expense of countries
like Brazil and Argentina. Increased US exports of cereals, wheat, and
corn—could hurt Australia, Vietnam, or Thailand. Export of seafood
products like fish and lobster could pull Chinese demand away from
Russia or Canada.
 Considering the manufacturing products covered by the agreement, US
exports of motor vehicles to China in 2017 were $13 billion.
 The United States could expand car exports at the expense of the
European Union (EU) or Japan.
 Additional US industrial machinery exports could reduce Chinese trade
with the EU, Japan, and Korea.
 Additional US exports of coal could affect Australia and Indonesia.
 More US liquified natural gas to China could hurt exporters in Australia
and Qatar.
This agreement may test the exports of many countries to China, several of
which are traditional US allies.