Trump administration 2018 sanctioned China with a 25% tariff on imports worth $ 34 billion. The tariff imposition was considered a war on Chinese imports, which caused the Chinese side to retaliate. Since then, a trade war has ensued, hurting companies and consumers in the United States. The succeeding Biden Administration never made trade better. They increasingly sanctioned Chinese companies and maintained the tariffs imposed by Trump’s Leadership. Countries are racing to dominate the technology industry, and this may show that no deal will arrive soon. Economic decoupling in a bid to outsmart rivals may further the sanctions and increasingly widen the trade tension between both countries. The economic concerns that culminated in tension have linked China to a deal to steal the intellectual property of the United States, and the U.S is questioning China’s huge trade surplus (Huang & Smith, 2020). President Joe Biden has further curbed China’s access to U.S technology, marshaling it against growing its military prowess.
China is among the leading U.S trade partners. Through the World Trade Organization, china has been able to grow its GDP from $1.2 Trillion $17.5 in 2021 and increase its trade exports to the USA to over $600 billion in 2021. China is strategically the leading manufacturing country globally; destabilization of its trade could weaken the country and disrupt global trade. The United States imports technology hardware, semiconductors, textile, and electronics from China, which has dropped significantly since the tensions escalated. The U.S deem its sanctions as protectionist, but they tend to decouple their economy than redeem their objectives (Council on Foreign Relations, 2022). The tension has also indirectly affected other trading partners of both countries who depend on the services of the trade to improve their economies. A loss in direct investments of the United States in China would cost its global competitiveness, and a loss in its GDP and the American investors would be grounded. This report looks into the major issues of the trade war and tactics deployed to manage it, as well as its impacts on the economy, resource allocation, employment, and foreign policies of the United States. It answers the questions about international trade relations with other countries, the effects of the trade war on foreign exchange rates, and the impacts on the economy if the war continued for five more years.
Major issues in the war
Following the imposition of tariffs, U.S Healthcare is greatly affected. Raw material from china is not accessible, and consumer goods are not produced. Prices of such commodities, in return, go up due to the interplay of demand and supply. China’s retaliation has also affected exportation, and thus selling to China U.S finished products is jeopardized. For the United States, this means a loss domestically and globally because countries would opt for countries with ease of supply and affordability. The trade also created global uncertainty, which could disrupt the global trade flows due to slowed CAPEX spending. The U.S has plummeted in trade deficits with China and other countries, and this could shift the importation focus of these other countries if it is not fixed. Investments are disrupted in uncertain times of war, and the lack of investments hurt the economy, including cutting the global GDP growth rates. The trade wars are anchored on four pain points highlighted by President Donald Trump. He cited China for currency manipulation, which affected the exchange rates, forceful entry and technology transfer, theft of intellectual property rights and subsidized exports, labor tax, and environmental degradation by China (Fajgelbaum et al., 2021). In 2020, the United States’ trade deficit with China stood at $285.5 billion, and the U.S exported goods and services worth $164.5 Billion against the importation of $450 billion. This shows that the U.S relies much on China to grow its domestic industry, and it could be impossible without China to perfect its economy.
Impact on Trade
Following the trade wars, the U.S has reduced imported goods from China. Tariff impositions cut the flow of imports to the United States. Global trade collapsed in 2020, and the effects of this decline went further. Compared to other parts of the world, China has felt a reduction of 4% of imported goods from the United States, unlike an increase of 38% in imported goods the U.S has enjoyed from the other parts of the world. Aggregate demand and supply may not be badly affected by the imposition of the tariff, but generally, it decreases the global GDP, finance markets, bonds, and securities. The Spread of technology would also be affected, and it is expected that the global supply chain would be dented (Eurasian Research Institute, 2020). This would affect domestic factors that play out in the markets and disrupt nations’ labor supply, productivity, and welfare.
The economy slowed down during times when the United States and China couldn’t agree on tariffs. The pandemic that hit China and slowed its economy are trends to watch for in times of trade standoff. The United States lost $550 billion in the four years of trade standoff due to import tariffs. China has a reactionary trade policy that is always hard-hitting in times of crisis, which is what happened when Trump imposed heavy tariffs on Chinese goods. Beijing also targeted countries that operate within the U.S Sphere of influence. Australia and Japan were the first culprits as China stopped importation from Australia and enacted an antidumping campaign aimed at japan, slapping them with hefty fines (Council on Foreign Relations, 2022). Regional Comprehensive Economic Partnership (RCEP), a pacific trade agreement, favored China despite its stance on imports. It managed to export $648 Billion in goods to the three countries it was fighting.
On currency fluctuations, the Yuan was three times higher than the dollar in 2021. It is presumed that Beijing could be operating an opaque currency adjustment mechanism and was one reason the Trump-led administration reached the new deal. This could be targeted on the financial markets with Chinese banks believed to be working proxies for the People’s Bank of China. In cases of limited transparency, China would fight an exchange rate adjustment that places its currency ahead. The exchange rate mechanism could be compromised if Chinese agencies lack enough information to adjust the rates (Fajgelbaum et al., 2021). On a good note, the tension between the two nations has raised U.S independence from China, and they no longer need to rely on China for most of its imports. The United States went ahead and began diversification of its supply chain.
As an adjustment measure, the United States offered incentives to companies to develop domestic potential and operate within the United States to limit the drain on intellectual property. China also responded to the tension by building internal production capacity and cutting reliance on the United States, which ensured that the United States did not control the future. People’s movement and capital flow are also majorly affected by the tension. Foreign direct investment and data flow across the countries are constrained in most technology sectors. The United States has improved scrutiny in the processing of visas as they consider people’s movement a national security concern that threatens the movement of human capital, thus creating unemployment (Eurasian Research Institute, 2020). Data is thoroughly scrutinized, too, to ensure that their intellectual property is not manipulated for the benefit of China. Hong Kong is advantaged as not much of its activities have been disrupted following the trade tension.
Impact of Trade Wars on healthcare
Chinese goods worth $200 billion were slapped with a 25% tariff, up from 10% in 2018. Such included surgical products and chemicals made for the healthcare industry. The U.S healthcare is equally burdened, and an imposition of tariff on imported healthcare products made inconvenience to the industry. The burden would go to consumers, who would pay more for the products and services. It also included losses of jobs in the industry as the imaging sector dependent on imported hardware would suffer. Salaries were cut in the sector, and job losses could also affect research and development, an essential component of the healthcare industry. The United States spends more on reimbursements to health providers, and targeting healthcare with tariffs would disrupt payment, supply, and access to healthcare. With tariff impositions having such negative bites, other countries separately traded with China and the United States (Fajgelbaum et al., 2021). New opportunities were created based on the pre-trade war economic capacity and reallocations, which ensured aggregate supply.
None benefits from the U.S – China tension as both countries will identify substitutes to lower reliance. Even so, they may not be able to meet their domestic and export needs as they were before the trade wars came up. Decoupling is inevitable, and the pandemic has catalyzed that. Trade agreements will erode, and the global supply chain will be majorly displaced. The future is unpredictable, but most assuredly, the policy environment is volatile, and investment risks await both countries. Due to distrust and economic sabotage, China and the United states may never have the same bilateral relations in the future. Divestiture is possible in the long run, too, to counter China.
Council on Foreign Relations. (2022, March 1). The contentious U.S.-China trade relationship. https://www.cfr.org/backgrounder/contentious-us-china-trade-relationship
Eurasian Research Institute. (2020). US-China trade war: Economic causes and consequences. ERI – Eurasian Research Institute. https://www.eurasian-research.org/publication/us- china-trade-war-economic-causes-and-consequences/
Fajgelbaum, P., Goldberg, P. K., Kennedy, P. J., Khandelwal, A., & Taglioni, D. (2021). The US-China trade war and global reallocations (No. w29562). National Bureau of Economic Research. https://openknowledge.worldbank.org/handle/10986/36815
Huang, Y., & Smith, J. (2020, June 24). In U.S.-China trade war, new supply chains rattle markets. Carnegie Endowment for International Peace. https://carnegieendowment.org/2020/06/24/in-u.s.-china-trade-war-new-supply- chains-rattle-markets-pub-82145