Written By: Tanya Singh
The US-China trade relationship has expanded immensely after China’s reformation of its economy and liberalization in 1979.The world’s two largest economies have persevered bitter rivalry locked by a trade battle for a year now. The onset of the pandemic revealed new dynamics in the US-China trade wars, overshadowing the agreement made in January that was meant to draw President Trump’s policy still endeavours to encourage domestic production and purchases leading it to impose more than $360bn worth of tariffs on Chinese goods. According to the “phase one” deal signed in January, China vowed to boost US imports by $200bn above 2017 levels and extend intellectual property rules, however, Trump seems to have delayed the upliftment of tariffs and with the recent indictments regarding Covid-19, it seems that both the countries are back to square one. Here’s how we can break this situation down:
What do the accusations look like?
The US denounces China of unfair trade practices and for a breach of its intellectual property and demands some major changes in its economic policies to call a truce. It also holds allegations against China pertaining to mixed records on implementation of WTO obligations, establishment of procedures for impacting the value of its currency and restrictions on FDI. US demands that China must increase its US-based imports to clear its $321.2bn trade deficit with China. Tariffs on $200bn worth of Chinese goods was due to rise to 25% form 10% this year but this hike halted amidst the breakout of a pandemic. China on the other hand has targeted most US goods ranging from chemicals and vegetables to whiskey, while also targeting alternative imports for goods like soybeans.
What does the policy failure look like for both countries?
The United States had been pursuing a containment policy marked by a three-tier strategy of the trade war, technological blockade, and ideological attacks, which failed to create a significant impact against China. This was mostly because, the principal cause of a dip in the Chinese economy is caused by the differentiation in the domestic supply and demand, the financial bubble caused by land financing. Hence, both times China’s GDP growth rate surpassed its target of 6 percent, majorly unaffected by the US’s policy against it.
With the omission of these policies amidst the pandemic outbreak, the US has been a victim to severe economic losses, American stock markets saw the successive triggering of their circuit-breaker mechanisms in 10 consecutive days in March. The Dow Jones, S&P 500, and the Nasdaq indexes leaked to the levels they were at before Trump’s term began. This delivers it almost impossible for the US to launch new large-scale suppressive policies.
What does the fate of this conflict look like, who is the beneficiary?
The International Monetary Fund declared that this war has led to a “significantly weakened global expansion” as it cut its 2019 global growth forecast. This trade war has led to a chain reaction of trade wars amongst other nations as well. Rising tensions in the market have led to a mutual downfall of both the nation’s demand in the market. The yuan fell over 5% versus the US dollar last year, before stabilizing in 2019, reported by Reuters. A huge shift in the outsourcing culture is anticipated to occur, for example, last year Enphase (solar energy firm) based in California stated that it would shift some of its production to Mexico, to dodge tariffs. Furthermore, Apple plans on moving its assembly from Taiwanese manufacturing company Foxconn’s facilities in China to its facilities in India. Exports out of Vietnam have risen to $290.4 billion last year, according to the International Trade Centre, and Mexico grew to replace China as the largest trading partner for the US. Amidst these rising tensions south-east-Asian nations such as Thailand, Philippines, India, Vietnam, etc., are bound to benefit, with large firms such as Nintendo, sharp, Apple, Kyocera announcing their shift of production from China to other nations.
It is expected that, Donald Trump, who is seeking re-election, will definitely adjust his China policy to supress the Chinese high-tech enterprises and educational institutes, as the technological competition between the two nations would continue to grow. This would spread the economic plans for giant firms to other nations, however, these giants would also need to account for the time and money it takes to establish new production sites in other nations and the opportunity cost involved in the same. While the struggle to curb a pandemic continues, the questions still remains if these nations are doing more harm than good for their economies by engaging in a trade war.
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