The U.S.-China Trade War

Abstract

For the past few years, concerns have been evident over the ongoing U.S.-China trade war, which has greatly disrupted international trade in the global market. While the United States has experienced the effects of the conflict through its exports and imports, China, through its economy, appears to be the greatest victim of the trade war. Information and statistical data utilized in this paper confirm that the ongoing economic conflict between the two largest economies has adversely effected their revenues, imports, and exports. In particular, the trade wars have affected China’s car and smartphone sales and hindered penetration of its giant techs in the United States’ market. Thus, to avoid the lose-lose scenario caused by the retaliatory tariffs, the paper recommends that the United States’ government should reroute its exports to other countries, exploit underutilized resources, develop new and enhanced products for China’s market, and contract its traveling restrictions to secure a broader market base for its industrial products and services.

Introduction

U.S.-China trade war has been a source of concern among individuals and businesses because the effects have been translated across the countries’ economies. Compared to previous trading patterns, economic activities across the two nations appear to have deteriorated over the past few years. Regrettably, what ought to have been a bilaterally beneficial trade treaty has, in recent years, become a platform for retaliatory tariffs and sanctions. Consequently, the involved parties, including domestic and foreign corporations and consumers, have been subjected to huge financial losses, as the trade conflict has not only made market penetration difficult but also triggered unbearable prices for consumer goods among buyers.

Unfortunately, very little has been done by respective authorities to ensure the existing issues are solved. Given that the U.S-China economic conflict has an adverse effect on the countries’ imports and exports, it is high time that the two trading partners adopt alternative win-win measures to settle their misunderstandings, including holding diplomatic talks, rerouting exports to China to facilitate a balance of trade, exploiting the underutilized resources to create demand for new and enhanced products, and contracting traveling requirements to secure a broader market base for United States’ products and services.

Background

Initial Trade Deals

Before the emergence of the most recent economic conflicts, the United States and China had a remarkable trade relationship regardless of few issues that policymakers identified in their trade agreement. In 1979, the two nations signed a bilateral trade treaty and provided mutual most-favored-nation treatment (MFN), which saw a rapid growth in U.S-China trade (Morrison 2). The MFN status implied that the United States had accorded China the most favorable trading terms. In turn, U.S-China imports and exports skyrocketed, amounting to approximately -$4, $20, $116.4- billion in 1980, 1990, and 2000, respectively (Morrison 2). Being the world’s largest national economies, China and the United States could import and export goods and services freely across their boundaries without incurrence of unfavorable tax duties.

Factors that Facilitated U.S-China Commercial Ties in the Past

To greater extent, China’s decision to join the World Trade Organization (WTO) played an essential role in boosting its commercial ties with the United States and other international partners. WTO is a “neoliberal institution entrusted with ensuring smooth, predictable and free trade flows” (Jain 57).  In particular, China’s compliance with WTO principles and trading guidelines was of much interest to the United States, especially considering that the latter’s administration by then had begun to finalize the trade agreement. Hence, the United States had great expectations from China’s accession to the WTO since policymakers anticipated the adoption of favorable trading terms and less stringent Foreign Direct Investment (FDI) procedures. China’s compliance with WTO guidelines was the cornerstone of its past positive trade deals with the United States.

The other factor that fostered the U.S- China trade deals was the latter’s significant commitment to WTO’s policy on non-discriminatory treatment of the institute’s members, including the United States. According to Irshad, the principle of non-discrimination means that “both foreign and national companies are treated the same way, and it is unfair to favor domestic companies over foreign ones ” (19). In light of this, China agreed to accord all foreign individuals and enterprises located in the country similar treatment as that granted to firms invested and registered in the nation (Jain 59). Often, non-discriminatory policies serve two purposes in international trade: fostering or restricting free trade across various industries. For instance, by adopting the discriminatory policy, China would be expected to promote open competition between United States’ and China’s firms. Alternatively, the country’s administrative body could impose high tariffs on all companies, foreign and domestic, to restrict certain practices within the industry. By complying with this policy, the U.S- China trade deal was facilitated, as the United States was assured of positive outcomes of establishing firms in China through FDI.

China’s decision to eliminate dual pricing practices was also a source of success for its initial trade deals with the United States. The term dual pricing had previously been studied in the context of the tourism industry, whereby it referred to a two-tier pricing practice used by governments to set higher prices for foreigners than domestic visitors (Apollo 41). Before accession as a member of WTO, China indulged in aggressive tactics of restricting competition to its local firms, such that different prices were set for similar products and goods provided by foreign enterprises. As a result, a considerable portion of international companies have shied away from China’s market. Following the signing of the deal, China committed to preventing use of price controls to protect domestic industries (Jain 59). Consequently, the U.S-China deal was enhanced as the trade partners were guaranteed similar pricing for goods and services produced for export and local consumption.

The fourth factor that facilitated favorable trade agreements between the two nations was China’s compliance with the free trade policy. WTO provided that within three years of China’s accession to the institute, its administration would have to give all enterprises, domestic and foreign, the right to import and export all goods and trade them throughout the customs territory with limited exceptions (Jain 58). Hence, China-based United States’ firms, which mainly focused on export-manufacturing industries, were guaranteed a diverse market for its products because they could trade within and outside the country’s boundaries. The move would create a constant flow of revenue for the corporations, some of which could be reinvested in China, while the rest would undergo repartitioning. Besides, both the United States and China could easily import the required workforce for companies that were established on foreign land. China’s agreement to comply with free trade regulations boosted the success of the economic deal with the United States in 1970s.

China’s decision to adhere to the law prohibiting export subsidies also enhanced its economic relationship with the United States. WTO’s guideline on export subsidies is aimed at preventing the distortion of international trade, which can severally hurt trade and economic practices in other countries (“Anti-dumping, subsidies” par 13). Based on this guideline, WTO members are expected to abandon practices that facilitate higher exports and lower domestic consumption by imposing lower prices on foreign importers and high charges on local consumers. Hence, China agreed to avoid export subsidies on agricultural products (Jain 58). As a result of this compliance, the U.S.-trade deal was fostered as the two nations could easily balance their exports and imports by indulging in favorable economic practices.

Categories of Trade Agreements Between China and the United States

As a result of the trade agreement of 1979, the United States and China entered into several investment ties, which facilitated their finances. For instance, since the commercial tie was created, China continually invested in United States’ assets, including securities, FDI and non-bond investments (Morrison 17). In particular, China’s MFN status enabled the country to capitalize on FDI flow in the United States. For instance, after China relations Act of 2000, the nation’s annual FDI in 2006 stood at $21 billion and has increased steadily in recent years (Morrison 18). Thus, China has been able to directly invest in the United States and take opportunity of the existing resources while avoiding unfavorable policies that may be subjected to imports into the country. Besides, China was able to invest in U.S. treasury securities, which rose from $118 billion in 2002 to $1.24 trillion in 2014 (Morrison 18). By doing so, China’s administration was assured of a relatively low-risk investment, which would yield significant amounts of principal and interest to the nation’s finances.

Similarly, the United States was able to boost its finances through bilateral commercial ties with China. Studies show that since China began to open its economy in 1979, United States has progressively invested in the nation in the form of FDI, particularly to export-oriented manufacturing sectors (Morison 18). Notably, the United States may have chosen the industry to seize the opportunity of utilizing diversified and low wage labor from China in its industrial companies. Additionally, investment efforts were also directed to China’s domestic market, following the profound growth in the country’s demand for goods and services (Morison 18). Apart from investments, United States has, for years, benefited from U.S-China security holdings, which enable the nation to finance budget deficits (Morison 18). When U.S. revenues cannot sustain its national expenditure, it relies on sale of securities to its trading partners, including China, to fund its expenses. The above information shows that United States finances are boosted through its commercial ties with China.

While the established trade agreement was valuable to both countries, China’s economy appeared to benefit the most from the bilateral treaty. IMF and Chinese National Bureau of Statistics reports indicated a significant growth in the nation’s GDP between 1979 and 2000, with a record of 7.6%, 15.2%, 14.3%, and 8.4 % rate of growth in 1979, 1984, 1992, and 2000, respectively (“China’s Economic Rise” 4). The trade agreement allowed China to open its markets to international trade with the United States and other countries, thus facilitating the production of more goods and services for export and domestic consumption. China became the “United States’ largest merchandise trading partner, third-largest export market and largest source of imports” (China’s Economic Rise” 1). China’s GDP growth and status in the global market were a blatant indication of the positive effects of its economic deal with the United States.

Apart from enhancing its GDP, China also fostered higher exports than imports to the United States, a practice that enhanced its currency in the global market. For instance, the United States exported merchandise worth $3.8 billion, $4.8 billion, and $16.3 billion in 1980, 1990, and 2000 to China (Morrison 2). On the other hand, its parallel imports were valued at $1.1 billion, $15.2 billion, and 100.1 billion in the same period (Morrison 2). An evaluation of U.S. activities within the three years indicates excessive imports than exports from its trading partner. As such, the country incurred negative trade balances averaging to -10.4 in 1990 and -83.8 in 2000 (Morrison 2). A similar trend has also been noted in recent years, where U.S. trade balances in comparison to China have deteriorated from one year to another. Hence, this has been a clear indication that their trade relations have yielded unequal economic outcomes.

In my opinion, the U.S-China past trade deal significantly benefited both countries. United States seized the opportunity to indulge in FDI in China’s export manufacturing industry, while China secured a broader market for its goods and services. In addition, treasury securities held in China were an ideal source of finance for United States’ administration. However, the current statistics also indicate an imbalance of trade between the two nations, where China’s exports are higher compared to United States’. Thus, China appears to have benefited more from the economic agreement between the two world’s national economies. Consequently, some of these trade imbalances have been the root causes of recent trade wars between China and United States

 The U. S-China Trade Wars

While the U.S.-China trade war began a few years ago, the matter has escalated most recently under Donald Trump’s administration. One of the main issues of concern by the United States’ policymakers has been the continuous deterioration of the country’s balance of trade in comparison to its trading partner. For instance, a 2017 report issued by the U.S department of trade revealed a trade deficit of USD 375 billion, while statistics by China’s Ministry of Foreign Trade and Commerce (MOFCOM) indicated USD 276 billion deficit for the same period (Hosain and Hossain 22). The two reports indicated a great variation in the trade deficits, which could not be explained by the responsible departments comprehensively, except for the provision that China was gaining considerable surpluses in the technological and manufacturing industry. However, Hosain and Hossain theorized that the discrepancy was a result of the differences in timing of departure of goods from one country and arrival into another (24). For instance, if there was a one-month delay in arrival of goods dispatched from the United States to China, they would not be accounted for in China’s imports within the same period, thus creating a discrepancy in exports and imports. Although the above reason can be used to justify the variation, similar trends have been identified in current years, thus compelling the United States to adopt abrasive trade measures against China.

Trade Measures by the United States

One of the most recent trade measures taken by the United States president is the imposition of severe tariffs against solar panels and washing machines. On January 22, 2018, President Trump imposed 20% and 30% duty taxes on washing machines and solar panels manufactured and imported from China (Mayes et al.). This implied that U.S. based importers would incur additional tax costs while shipping the targeted products into the country. The main objective of the new tariff was to discourage massive imports into the nation and to protect U.S. corporations against stiff competition from Chinese firms, which manufactured and sold similar products at lower prices. One of the companies that benefited greatly from the tariffs was Whirlpool Corp, a U.S. based manufacturer of washing machines, which experienced a steep growth in its stock price following introduction of the levy (Mayes et al.). Although the tariff benefited the U.S. manufacturing sector, it was a huge blow for China’s industry, which relies heavily on the U.S. market for its manufactured goods.

United States administration also implemented and reinforced tariffs on steel and aluminum importation from its trading partners, including China. In March and June 2018, 25% and 10% tariffs were imposed on aluminum and steel respectively (Mayes et al.). According to Mayes et al., the tariff accounted for approximately $48 billion in imports from other countries. The tax rate was aimed at preventing importation of low-quality steel from other nations. In addition, the United States administration regarded the move as a necessary measure against threats to the country’s national security (Mayes et al.). While the policy was not primarily directed to Chinese imports, it adversely affected the country’s revenue, as China is a key player in producing metals such as aluminum. Besides, the trading relationship with U.S provides a ready market for its steel and aluminum.

The trade war between the United States and China also led to additional imposition of tariffs on Chinese goods. As proposed by Trump, new tax rates were instituted on $34 billion and $200 billion of goods from China on July 6, 2018 (Borzykowski). The move implied that all the commodities listed by U.S. trade representatives would be subject to additional tax duties. President Trump regarded the move as a necessary measure against China due to its failure to address some of the issues that had been highlighted, including unfair treatment of China-based U.S. companies (Borzykowski). In addition, 15% tariffs were imposed on approximately $300 billion of Chinese imports on September 1, 2019, with anticipated increase in the rate in subsequent years (“Trade War”). According to Smialowski, the 15% tariff would potentially raise the prices of clothes, shoes, sporting goods, and several other consumer goods among U.S. customers. With the new tariffs in place, Chinese companies would incur huge losses in revenue as Americans searched for alternative cheaper sources of consumer goods.

Trade Measures by China

In retaliation of the abrasive measures adopted by the United States, China has also developed trade policies in recent years to counter the effects of the existing tariffs. By early April 2018, the country’s Ministry of Commerce imposed tax duties of up to 25% on 128 U.S. products, including pork, soybeans, aluminum, and seamless steel pipes (Buckely). This was a retaliation to U.S. tariffs, which were imposed against China’s aluminum and steel imports. According to China’s Ministry of Commerce, the tariffs were purposed to pressure the U.S. administration into refraining from its trade war (Buckely). In addition, China’s administration effected a 25% levy on 545 U.S. products, worth $34 billion, on the same day that U.S. effected levy on $200 billion value of imports from China (“China hits Back”). Regardless of the motive behind the tariff, it greatly affected U.S.-China exports. 

Furthermore, China has progressively targeted U.S agricultural products in its institution of tariffs. In one of its efforts to counteract U.S. tariffs, China’s Ministry of Commerce proposed implementing a 15% duty on 120 goods, mainly comprised of agricultural products such as fruits and wine (Buckley). This would significantly affect the United States export revenue, considering that China is the largest U.S. agriculture market. For instance, statistics show that approximately 16% of U.S. agriculture export in 2016 was sold in China, with the rest being consumed in other countries (Hansen 1). The imposition of 15% tariff on the same would increase the prices of the commodities in China, thus lowering its demand as consumers sought alternative and cheaper sources of agrarian products.

Considering the above information, it is evident that China and U.S. have been at a constant state of trade war, since both countries appear to impose retaliatory tariffs on each other. For instance, when the U.S. effected tariffs on Chinese goods worth $20 billion, China imposed levy on imports valued at $34 billion. Unfortunately, such decisions have had adverse effects on the two countries’ finances, considering that they had initial trade agreements in the 1970s. To a greater extent, the two world national economies have had to seek alternative economic partners to avoid some of the abrasive sanctions. However, to determine whether some of the most recent tariffs were necessary, it is essential to have a better understanding of the factors that facilitate the economic conflict between the two nations.

Reasons for Imposition of Tariffs and Economic Conflicts

China’s reluctance to comply with WTO guidelines on local content requirements in the automobile sector has been a justification for the imposition of levies and sanctions by the United States. Local content measures refer to the policies put in place by the ruling government, requiring foreign companies to purchase raw materials from the local sector to grow and develop the country’s domestic industries (Hestermeyer and Nielsen 554). For a while now, China has been using the policy to force foreign automobile firms from foreign countries, including United States, to procure products from the local market. Notably, this practice has had a negative effect on employment in the United States, as very few automobile parts are imported into China for use in companies. In addition, manufacturers and exporters of automobile parts suffer huge losses and great competition from their counterparts in China. Besides, some of the products purchased in the country are of low quality and unfavorable prices, which may affect a multinational’s production capacity. As such, President Trump deems it necessary for the United States to reciprocate the unfair practice by China, through imposing high levies on Chinese products.

The adoption of discriminatory policies has also been a root cause for the imposition of tariffs by the United States administration. In a case filed to the WTO, U.S. addressed the issue of discriminatory taxes imposed by China in the integrated circuit sector (“2018 USTR Report” 8). Notably, semiconductors and other electronic components are among the major U.S. exports to China. For instance, the country exported integrated circuits worth -$6,686, $6,88- million in 2016 and 2017, respectively (Morrison 3). This implies that the United States depends highly on its trade relation with China to acquire a market for its integrated circuit products. Unfortunately, China has in the past indulged in unfair practices, whereby it implemented preferential taxes on local manufacturers to boost their competitive advantage against American firms that manufacture similar components. Apart from the above move being a disadvantage to U.S. corporations, it is also a form of non-compliance with WTO guidelines for member countries. To protect its firms, U.S. has, in recent times, introduced tariffs and banned the sale of electronic components to Chinese telecommunication companies.

The other reason for the imposition of tariffs by United States has been China’s decision to implement biased subsidies. A compliance report issued to WTO indicated that China prompted hundreds of prohibited subsidies in several manufacturing sectors (Morrison 8). In China, government subsidies are policy instruments used by the administration to redirect resources into industries and firms that it supports (Lim et al. 40). Hence, China has been directing financial aid to the manufacturing industry to facilitate activities in domestic firms and to keep their prices lower to boost their competitive advantage against foreign companies. In light of this, the United States has instituted progressive import tariffs on Chinese goods and services to pressure the administration into abandoning some of the subsidies that affect U.S. and other overseas manufacturing firms operating in China.

The case of intellectual property has also been a topic of debate and a source of unfavorable tariffs and trade conflicts between the two countries. In one of the past reports, President Trump remarked that China seeks to “obtain technology from American companies by intellectual property theft” (Charnovitz 7). It has also been alleged that Chinese security agencies are the masterminds of theft of U.S. technology, such as the cutting-edge military blueprints (Charnovitz 7). While some of the claims mentioned above lack solid proof, others are depicted in China’s intellectual property policies, which are inadequately enforced, while others comprise several loopholes. As a result of this inadequacy, the U.S. administration has, in the past, proposed introduction of tariffs to prevent supply of essential commodities to China until the above matter is addressed.

Unfair treatment of U.S. electronic payment service providers in China has also led to the imposition of trade tariffs. Reports reveal that China blocks U.S. suppliers of electronic payments, such as Visa and MasterCard, from penetrating the market in attempts to protect its domestics firms, including China Union Pay, from competition (“2018 USTR Report” 8). While it is legal for WTO member countries to protect their domestic industries from stiff rivalry, China’s case appears to be biased as it prohibits the firms from launching their operations in the country. The practice has also been branded as non-compliance with initial commitments to WTO membership, which included readiness of China to open its market to foreign suppliers (“2018 USTR Report” 8). Besides, China has greatly benefited from FDI in United States, which ought to be an equitable practice between the two economies. Considering the discrepancy in the trade relations, the U.S. has resolved to implement retaliatory tariffs to China’s discriminatory practices.

Forced technology transfer has also been a central issue of conflict between China, the United States, and other global trading partners. A European Union Chamber of Commerce survey in China showed that about 10% of foreign firms and individuals operating in the country are compelled to transfer technology in the local industry to retain market access (Wernau). This may be considered an unfair practice, especially considering that WTO membership ought to guarantee open and unrestricted market access to nations. Additionally, U.S. executives have long viewed China’s condition to have foreign firms share their technology in exchange for access to China’s market as an attempt to jeopardize their competitiveness. The above measures have led Washington to impose heavy tariffs on multiple products from China worth billions of dollars to pressure the latter to amend its forced technology transfer policies.

An opaque and protectionist form of administration has also been a source of economic conflicts between China and the United States. According to a report by USTR, China has, for a while, been involved in prohibited subsidies in several manufacturing industries. Notably, the provisional and local governments have to larger extents, played a role in facilitating the subsidies (“2018 USTR Report” 9). As such, the practice significantly affects foreign companies that operate in the country. The fact that China indulges in such acts discretely has provoked political attacks against the country, with United States implementing trade measures to offset China’s consistent flow of revenue.

Discriminatory regulations on technology licensing have also been a basis of the conflict between United States and China. In 2018, U.S. filed a request with WTO to address the issue of licensing requirements in Beijing (“US drags China to WTO”). According to U.S. Trade Representative, China had been imposing mandatory adverse contract terms on China-based American technological firms concerning imported foreign technology (“US drags China to WTO”). In addition, China’s administration had been reluctant to protect U.S companies’ patent rights, which could be done by preventing Chinese entities from using patented rights after the licensing contract ended (“US drags China to WTO”). While China has made considerable steps to change its licensing policies in favor of both domestic and foreign firms, loopholes in regulation still exist, which have fueled the ongoing economic rivalry between the two nations.

In analyzing some of the causes of trade conflicts between the two countries, one cannot overlook the issue of agricultural commodities. Among other countries, the United States has filed complaints concerning China’s excessive domestic support of essential farm products in the country (“2018 USTR Report” 8). According to the U.S trade representative, China had remunerated farmers approximately 100 billion dollars to facilitate their activities and to lower the global prices of farm products (Miles and Daly). This action by the administration was viewed as an attempt to offer indirect incentives to farmers to inhibit agricultural exports to the country. Prior to the issue being resolved by WTO, there had been prolonged economic conflicts between the two nations over the matter.

Furthermore, China has been associated with the repetitive use of abusive trade remedies. Often, trade remedies are considered essential policies instituted by the ruling government against imports to protect domestic firms against unhealthy competition. Contrarily, China’s remedies have been branded as threats to reprisal because the administration utilizes them in a coercive manner. For instance, a study conducted by a U.S. industry revealed that foreign companies received multiple threats from Chinese government officials, warning them against indulging in retaliatory actions, which would be met by severe repercussions on the firms’ business prospects (“2018 USTR Report” 9). Such trade threats by the administration have been a source of conflict between U.S. and China, as the former has been compelled to adopt stringent measures to protect its companies from abusive remedies instituted by its trading partner.

Unfortunately, a significant number of the addressed sources of economic conflict between China and the United States remain unsolved to date. While the United States has filed several cases with the WTO against some of China’s non-compliance practices, very few have been solved comprehensively. Consequently, the lack of clear solutions and failure of both countries to hold diplomatic talks on the issues that affect trade relations have adversely affected their imports and export revenues.

Effects of Trade Wars on China’s Revenue (Imports and Exports)

In China, the ongoing trade war has greatly affected the revenue generated in the automobile industry. According to Lee, car sales in the country have slowed down at a rate of 11.7% year-over-year due to lack of confidence among consumers. This trend has had a significant implication on the country’s finances, considering that China is one of the largest markets for motor vehicles; thus, it greatly benefits from the increased demand for the commodity among its population. For instance, studies by the National Bureau of Statistics in 2018 revealed that manufacturing and export of automotive parts comprised approximately 10% of the country’s domestic output (Magramo). Notably, a large fraction of U.S. automotive manufacturers sell their products in China. For instance, the United States exported $8,317 million worth of motor vehicle parts to the nation in 2016 (Morrison 3). This statistic has steadily declined due to the ongoing tension between China and the U.S., which triggered the adoption of drastic measures by China’s administration to devalue its currency. As such, motor vehicle imports have slowed down, as exporters fear to incur huge losses on their shipments. If the ongoing economic tension between the two countries is not resolved, China’s finances from the automobile industry may continue to contract.

U.S.-China trade war has also greatly affected China’s electronic and smartphone market. Reports indicate that by the third quarter of 2018, the country shipped 100.6 million smartphones, a 15.2% decline from the first two quarters of the same year (Lee). This slowdown has been associated with the ongoing retaliatory tariffs imposed by the United States government against China’s imports. In particular, some Chinese smartphone manufacturers have primarily been affected by President Trump’s decision to blacklist some of their products. For instance, Huawei, one of the largest telecommunication equipment makers in China and globally, has, in the most recent years, encountered difficulties in penetrating the United States market following the administration’s sanctions against its smartphone devices (Markman). Given that such tech companies contribute significantly to China’s output through revenue streams from imports, delayed diplomatic talks regarding the state of the two countries’ trade relations may result in further shrinkage of finances from the technological sector.

Imports of semiconductors and other electronic components in China have also been affected by the U.S.-China economic conflict. Tariffs imposed by the U.S. administration in 2018 have led to a decline in the quantity of integrated circuits and chips exported to China. In October 2018, China imported $29.18 billion worth of integrated circuits, a 16.4% drop from September the same year (Lee). This decline has impacted technological companies, such as smartphone manufacturers, that rely on imported chips to use in phone assembly. The effect has also been translated into the country’s economy, as the production process had to slow down while manufacturers sought alternative suppliers, reducing the national revenue generated from the sector.

Among China’s revenue streams that have greatly contracted as a result of the trade war is income from steel products to the United States. As mentioned earlier, U.S. has been a huge market for China’s aluminum and steel. However, exports to the country have shrunk following the implementation of 10% levy on steel exports from China. Research shows that THE United States was not among the top-five export destination for steel products from China in year-to-date 2019, after being replaced by Vietnam, South Korea, Thailand, Philippines, and Indonesia (“Global Steel Trade” 4). While China sought alternative markets for it’s stainless, semi-finished, long products, and flat products, the revenue from these markets may not be enough to sustain the capacity of steel produced in the nation. Hence, failure of the administration to reach a favorable deal with United States over their trade relations may adversely affect finances obtained from steel exports.

In general, the volume of exports and imports of goods and services from China has declined since the United States began using levies to target its commodities. As data in the Forbes article reveals, China’s exports to the United States fell by 6.5% in July 2019 (Wallace). This drop accounted for all goods and services shipped to the United States that month. A similar market evaluation confirmed the data by Shilling, which showed that the country’s exports had drastically declined, falling by approximately 1.3% in June 2018, and 4.2% in May, the same year. In the face of the growing tension between the United States and China, similar trends may be experienced in the coming years, with merchandize exports being expected to contract even further.

Effects of trade wars on United States Revenue (Imports and Exports)

While the effects of the economic conflict between the U.S. and China have mostly affected China’s economy and finances, United State’s export and imports have also fallen victim to the trade war’s repercussions. Notably, U.S. tech companies, whose revenues are national income sources, have suffered huge losses since the two trading partners began imposing tariffs and sanctions against imports and exports. For instance, China’s recent tariffs against U.S. products have lowered income for U.S. tech organizations that sell their memory chips, semiconductors, peripherals, and software licenses to Chinese giant techs, such as Huawei (Markman). As tension between the two countries continues to escalate, export revenue from electronic and integrated circuits in the United States may continue to decline, affecting the country’s external finances.

The United States is also on the verge of losing its most significant market for treasuries and securities amid the ongoing tension with China. As mentioned earlier, China holds a significant fraction of U.S. treasury, with a record of $118 billion worth of securities in 2002 and $1.24 trillion in 2014 (Morrison 18). Regrettably, it appears that China is already dumping some of the treasury bonds as a result of the existing economic conflict. The 2019 reports by CNBC show that China holdings in the U.S. bond market had fallen by approximately 4% within one year (Cox). China’s decision to dump U.S. Treasury bonds may have a diverse implication on the country’s economy. To some, it may trigger an increase in interest rates and eventually damage production, distribution, and trade in the United States (Cox). As China resells its holdings in the international market, it may offset interest rates, such that United States would have to pay higher interests on loans acquired through sale of bonds. Contrarily, others believe that China’s decision to dump the treasury bonds would benefit the United States because the move would weaken the dollar and enhance U.S. multinationals’ competitiveness in the global market (Cox). Regardless of the perspective that one may choose to take, it remains evident that the enduring economic conflict between the two nations will have a detrimental effect on United State’s finances.

As can be seen from the above information, the trade war between the world’s two largest national economies has a huge effect on their revenue, imports, and exports. To greater extents, the conflict has largely disrupted international trade, as both nations attempt to interrupt with each other’s activities by imposing tariffs and trade sanctions over issues of trade deficits. However, as most scholars have noted, imposing tariffs to counter the imbalances in trade may not be an ideal measure, especially because of the possibility of retaliation actions by China and United States as well (Hosain and Hossain 25). Given that trade war proves to be a lose-lose scenario for both nations, it is high time that policymakers and administrators seek alternative solutions to bring an end to the ongoing U.S.-China economic conflict.

Alternative Solutions

A potential solution to the United States’ trade deficit, which has been the basis of the ongoing trade wars, is re-strategizing the way export activities are conducted. Researchers suggest that the United States should increase its exports to China by rerouting existing exports to other countries (Hosain and Hossain 25). Evidently, United States ships some of its merchandise to other nations. For instance, data shows that -$282, $243, $68, and $56 billion worth of goods were exported to Canada, Mexico, Japan, and UK in 2017 (Morrison 8). To eliminate the trade deficit with relation to China’s imports, the United States can reduce the quantity of commodities it exports to countries such as Canada and redirect them to China. While this may be a viable alternative to the tariffs, scholars view it as a political measure, as it may not resolve the issue of employment and GDP, which are the main reasons for Trump’s decision to impose tariffs against Chinese products (Hosain and Hossain 26). Besides, while the United States may successfully increase its exports to China, it may not maintain a balance of trade with its other trading partners, leading to further trade deficits. As such, rerouting exports to China may not greatly assist the United States’ trade balance in the international market.

Alternatively, the U.S. can choose to introduce new products for sale to China. Scholars suggest that the country possesses a large portion of underutilized resources that can be used to generate export output (Hosain and Hossain 25). Examples are agricultural products, which comprise United States’ major exports to China. Given that China also participates in agricultural production, U.S. agrarian industries can enhance the demand for their products by improving the value-added content on products such as beef, pork, poultry, corn, and soybeans (Hosain and Hossain 26). By doing so, they can maintain competitiveness in the China market and foster more exports into the country. Besides, studies show that China ranks as one of the largest economies in terms of purchasing power parity (“China’s Economic Rise” 10). This would be an excellent opportunity for United States to introduce new and enhanced products in its counterpart’s market since it would be assured of higher export revenue arising from the difference in the currency value between the two nations.

Apart from agriculture, the United States can also opt to optimize its utilization of energy resources. Research shows that in recent years, growing demand for energy in inland China has been recorded, which can be met by U.S. liquid gas manufacturers located in Alaska and crude oil companies in Texas (Hosain and Hossain 27). Unfortunately, such potential exporters have not been operating at full capacity to satisfy the aggregate volume of energy imported into China. If the United States can fund activities in liquid and crude oil manufacturing corporations, it would boost the quantity of energy exported to China, enhancing its effort to attain a balance of trade. The move would also benefit the country long-term, as it would create employment in U.S. industries and enhance the country’s GDP, thus creating a win-win situation for the two trading partners.

In addition to the commodity industry, the United States has the potential to exploit China’s service sector. Scholars assert that the services market in China has been rapidly growing, making it an ideal destination for U.S exporters (Hosain and Hossain 27). For instance, a growing number of transfer students in the United States majority being Chinese natives, is evident. While the students travel to the country in search of education and employment, they also become a potential market for U.S. products. Based on this aspect, Hosain and Hossain (27) believe that the United States administration should contract its stringent traveling requirements to allow more foreigners into the country to provide its industries with a wider capacity of consumers. Besides, such moves by policymakers can facilitate the country’s GDP and increase employment, as additional human resources would be required to meet the growing demand for goods and services.

The third solution for the ongoing trade war between China and the United States would be diplomatic talks. Rather than adopting further abrasive measures, which affects their economies, the two trading partners should agree to settle their trading differences in a diplomatic manner. For instance, President Trump and President Xi Jinping may decide to declare a ceasefire over all previous tariffs and sanctions imposed against imports and exports. This would be an ideal start for the two nations to have a clearer picture of the trade practices that need to be amended, some of which would be difficult to address under the existing tension.

Fourthly, it would be essential for the United States and China to review their trade agreements per WTO guidelines and principles. Notably, China should declare its willingness to adhere to matters related to the protection of intellectual property rights, adoption of transparent and reasonable tariffs across all firms regardless of their country of incorporation, seize from the alleged abusive use of trade remedies against foreign companies, and abandon discriminatory taxes in the integrated circuit sector. China’s administration should also be willing to reinforce some of the existing regulations that govern and protect copyrights. I believe these issues account for the several tariffs that United States has imposed on Chinese products. Therefore, if China and United States can sign and commit to observe such matters in their trade relations, it would be possible to bring an end to the economic trade war.

Conclusion

The ongoing trade war between the United States and China has adversely affected both countries’ revenue, imports and exports. Notably, the economic conflict has significantly affected China’s economy, which appears to be slowing down. Since President Trump began imposing tariffs against Chinese products, China’s revenue streams have contracted, its car and smartphones sales have declined due to lack of consumers’ confidence, initial exports to the United States have dropped drastically, and majority of its giant tech companies have experienced difficulties in penetrating the United States market. Similarly, U.S. has experienced a decline in the number of treasury bonds held by China, which is anticipated to affect the country’s economy. Given that the trade war is a lose-lose scenario for both nations, alternative solutions, such as rerouting exports and exploiting underutilized resources to produce new and enhanced products, should be sought. In particular, the United States should exploit its energy resources in Texas and Alaska to satisfy the growing demand for crude oil and liquid gas in China, to balance its exports against China’s imports. The government should also consider enhancing participation in the service industry by contracting its travel requirements into the country to exploit the growing demand for services in China’s market. Alternatively, the United States and China should indulge in diplomatic talks to address matters that affect their trade relations and review their trade agreements according to WTO guidelines to foster compliance.

 

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