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Tuesday, November 23, 2021

U.S – China Trade-War: The Scenario Behind

Introduction: The economy of China and the USA

The economy of China can be defined as a developing market-oriented economy, with its economic planning facilitated by industrial policies and five-year plans. It has the world’s second-largest economy (measured in nominal GDP), and the world’s largest if measured in Purchasing Power Parity (PPP). Since its economic reforms in 1978, China has become the world’s fastest-growing major economy and one of the biggest exporters in the world. Among its exporting portfolio are the US (biggest trade partner), EU, Japan, India, Taiwan, among more.

On the other hand, the economy of the US can be categorized as a highly developed mixed economy and has been a superpower since the 1940s, being at the forefront of technological, economical, and political fields on a global scale. The largest US trade partners are China (biggest trade partner), Canada, Mexico, India, Japan, UK, among many other nations.

As we can see from both their economies, China is the US’ biggest exporter and the reverse is also true where the US is China’s biggest exporter. This led to them creating a bilateral trade agreement to further nurture the growth and trade relations between the two countries to strengthen their trade bond.

Bilateral Trade Relations

While the world is influenced by the West more and more due to their high developmental index serving as a benchmark for other developing nations to see, China is a country with a culture and a subculture that pre-dates all the western modernization and is vastly different from their practices. As the ties have grown, and along with it the trade dependencies, so have US concerns regarding China’s political, technological, economical, trade and investment practices

China’s heavy censorship and its blurred line between what is being controlled by the government and what is being controlled by the private sector has plagued its image for decades now. Over these decades, however, nothing was being done due to the global economic driving force that China commanded as it was a leader in manufacturing and exports.

Long-standing concerns about unfair trade practices and unjust barriers to entry into the Chinese market are what put the nail in the coffin. Before Trump, a lot of US presidents including Obama tried to diplomatically solve the situation and ease the tensions. This did not work out too well, instead, it gave China a new sense of confidence that a global superpower like the US was so dependent on its trade, that it would be willing to make sacrifices just to keep its largest exporter happy.

Trump Administration Complaints

US had a higher ratio of imports than China did from the US. What this means is that China exported more to the US and imported less from it, while the US imported more from China and exported less than its imports. This created a trade deficit over the years where the US was always behind in trade when compared to China. This is the main front that the Trump administration targeted and attributed the deficit as a result of China’s questionable political and economic practices and their government’s manipulation to stroke the trade in their favor.

According to US allegations, China would employ a practice called “forced technology transfer”, where the Chinese only allow a tech firm to operate in its borders if it shares the trade secrets of how the tech works, along with the practice of “State Capitalism”, which included China buying U.S technology companies and using cybertheft to obtain US-owned technology.

Technology is the driving force is considered as the most important aspect of the US economy and as a result, starting in early 2018, the Trump administration started taking steps to prevent Chinese State-Owned Companies from buying US tech firms (State Capitalism) and were also trying to prevent American companies from handing their technology to China as a cost to enter their market (Forced technology transfer).

Trade War

These complaints would later compound with other problems and effectively start a trade war as the US started placing barriers and high tariffs on Chinese goods while also banning some of their popular products (which they believed were owned by the Chinese govt. and thus were used for espionage). One of the biggest companies in China, Huawei, which gained a position as the 2nd best-selling smartphone company in the US, was also banned due to this proposition and suffered a huge setback.

The US used its full leverage and advantage of Google, Microsoft, and Facebook being the global digital behemoths and persuaded them to strategically cut the Chinese out from accessing their technology or services, which severely hampered Chinese companies operating in the US, and in effect harming not just China’s but America’s economy as well.

Although China responded with its sanctions, they were not as severe as the US, as they believed that a Trade War would be harmful to both the countries and many other countries involved. China tried taking a diplomatic step towards the situation while Trump remained persistently aggressive following his “America First” campaign. The reason for China’s diplomacy is also a matter of power. Even though both are permanent members of the UN, on a global scale when it comes to numbers like GDP and Trade deficits, China might be a giant, but in terms of alliances and strategic pacts involved, the US is way ahead with organizations such as NATO.

US Perception of China

China was never overly favorable as a country when asked about Americans. However, recently it has dipped down even more as the public persona has shifted from tolerance to despisal due to the political agenda being pushed against China by the US. US claims that China is engaging in malpractices and unfair trade to create a surplus in its favor, while China alleges that the US is trying to hamper its growth.

The story is two-fold, however, as trade deficits in US import exports are not something recent that has started happening due to China, as claimed by Washington. Trade deficits were long present since the 1970s, way before China’s rise as the US’ largest trade partner. Not only this, but the trade deficit in the US balance of payments was multi-lateral and not just bi-lateral.

This sentiment is omitted from American propaganda however as it would dampen the drive against cutting out the Chinese from the forefront of technological and economical fields.

Conclusion: Global Effects

Not only did the trade war not achieve its primary objective in reviving the US manufacturing sector to recover its trade deficits, but it had major implications and wide varying effects across the world. When two superpowers who are engaged in global multi-lateral trade relations engage in a trade war, other countries connected in the network feel the effects too in forms of reduced investment and less capital inflow from the said countries which started the war.

The trade deficit of the US decreased in 2019, but then undid itself and reached back pre-trade war levels in 2020, showing that the strategy behind it was flawed. Not only this, but the US trade deficit is larger now compared to the pre-trade war. The trade war has also hurt the European economy, where foreign investment and trade relations were dependent on both China and the US. 

A prime example is Germany, which has good relations with the US as well as China, yet it suffered a major drawback in global direct investment as it slowed down due to the two countries being embroiled in a technological and political battle, leading to several sanctions and changes in where and how it invests (of which Germany was heavily effected as collateral damage).

From World War 1 to World War 2, and now onto the 21st-century war where it is fought over technology and trade, the adage rings true where “there is no true winner in a war, only true destruction”. This is evident in this case as well, as both the countries have not achieved anything particularly big ever since the trade war escalated. The US, being the country that initiated the war has suffered the bigger setback in its economy with its growth rate now stagnating.

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Josie Patra
Josie Patra is a veteran writer with 21 years of experience. She comes with multiple degrees in literature, computer applications, multimedia design, and management. She delves into a plethora of niches and offers expert guidance on finances, stock market, budgeting, marketing strategies, and such other domains. Josie has also authored books on management, productivity, and digital marketing strategies.

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