September 27, 2020

US and China Trade War

The US-China trade war effectively started on June 15, 2018, when US imposed a 25% tariff on $50 billion worth of chinese goods, and by May 2019 the tariffs expanded to 25% on $200 billion worth of Chinese products.

The whole thing started because Trump believed in trading on the basis of equality. Stats show that the US is importing $500 billion worth of Chinese goods, whereas China imports $145 billion worth of American goods. Trump saw this as a trade deficit, and argued that a trade deficit of almost $365 billion is something that his administration would not tolerate. So, started the US-China trade war.

These tariffs mainly benefitted the aluminum industry of America as Trump imposed an import duty on all the imported aluminum, hence making the market more competitive in the US. China in retaliation started imposing duty on imported soya beans from America. This step by China hit the $13 billion worth of soya bean imports from US to China.

The Chinese spokesperson for foreign affairs, Hua Chunying said that, “China will take necessary actions accordingly when legitimate rights and interests are hurt”. China repeatedly argues that there can be no winners in this trade war. The president of People’s Republic of China, Xi Jin Ping said that, “US-China trade wars will produce no winners”.

The real surprise came when Trump started imposing tariffs even on America’s allies, namely the EU and even Canada. The tariffs were imposed because of the same mindset of trade deficit. In retaliation to this, Prime Minister of Canada Justin Trudeau, said in a statement, “It is not something we relish doing, but it is something that we absolutely will do. Canadians are polite and reasonable but we will also not be pushed around”.

From January 2018 the tariffs on the EU were on only 18 products worth $4 billion and they expanded to 10,000 products worth $400 billion. But, when US started putting tariffs on the cars imported from the EU, they (EU) finally came to the table and a ceasefire in the trade war was negotiated.

Economist Laura Tyson, Bill Clinton’s head of Economic council along with hundreds of economists, which included 15 Nobel laureates, signed a letter, decrying trump’s trade policy. They argued that trade deficit is not something bad. On the contrary it is good for economy, she said that they needed us and we needed them, and that is simply how it works. She argued that trading on equal basis is not mandatory and trade is mutually beneficial.

According to Laura Tyson, majority of jobs in the US are lost not because of the cheap imports in the US market, but due to the high degree of automation in the manufacturing industry. Factories are producing twice as many goods with the third of the labor as compared to the productions in 1980s.

Arthur Laffer, former economic advisor to trump said that, “Trade deficit is the most beautiful thing, you get foreign capital coming in which is used to employ Americans”. He further added that, “protectionism is a killer, it kills your industries that are protected and it kills your economy”. He said that China is America’s best friend. He said that, “without China there is no Walmart and without Walmart there is no middle class or lower class prosperity in America”.

Now, even the supporters of Trump, like Senator Bob Corker are speaking against the tariffs, he said that, “You (Trump) have got to come to congress after you negotiate the tariff, so we can approve it because again it’s an abuse of his authorities”. Another point is that, Corker was the one who introduced the Bipartisan bill that would give congress limited oversight of Trump’s trade policy. He said that, “Intellectually there would be 51 senators who would say that this is not coherent to the republicans, but politically the issue is that we have a very popular president in the republican base and challenging that, currently with midterm elections coming up, is not something many of them would want to do”.

Add comment