Standing Toe to Toe: The World Watches to See What will be the Effects of the Trade War Between the United States and China
By: Seth Bickett
The schism between economics and politics is one that is well documented, but in no area are the debates larger than in the world of international trade. Although economists believe with near consensus that international trade is a positive good in the world, every country in the world has imposed restrictions on trade between other nations and itself (Phiri). Now, with the two largest economies in China and the United States seemingly entering into a trade war, the world can only watch to see how large the fallout may be. With all of the evidence showing support for free trade, many question why the United States, and then China in retaliation, would wager the futures of large industries in what appears to outsiders as a contest of flexing muscles. In reality, these policies have very specific political reasons. However the question still remains: do the benefits outweigh the consequences?
It is difficult to go a day in America without using something that was made in China. Chinese made goods are ubiquitous in the United States, and while we certainly export many goods to China, the number is not nearly as high. This has created a trading deficit in the billions of dollars, as shown in the figure below. China has also been under fire from the United States
for unfair trading practices including the theft of trade secrets, and internationally for having a
fixed exchange rate (Landler). All of this led to the signing of the executive order by president Trump shown in the video, and the subsequent imposition of tariffs by China. The effects of all of this are yet to be seen, but the damage could completely change the outlook of the world economy.
Although the connotation of a trade war has brought a negative light on the imposed tariffs, there are some positive political and economic implications. On the economic side, tariffs can protect domestic industries by allowing prices to rise as competition falls. In many cases, the cheap labor that is used by many Chinese markets allows them to produce goods at a cost well below that of their American counterparts. The tariffs will also allow American competitors to catch up in highly advanced markets such as semiconductors and self driving cars, with the hope that soon domestic businesses may develop the competitive advantage in these industries (Landler). Politically, Trump has sent a message that this country will no longer stand by and accept attacks on businesses in the United States by Chinese parties to reverse engineer or steal products. However, as purposeful as these decisions may seem, there is no war without casualties.
The first casualty of any trade war is the consumer. The same thing that protects American industries hurts the American consumer, rising prices. While estimates about when and how much prices will increase are yet to be know for sure, it can be certain that prices will wise, which could create a ripple effect in the supply and demand of the economy as well as the in the money market. However, American businesses, specifically large exporters, will not be left unscathed, as the tariffs placed on the United States by China will hurt industries such as farming and manufacturing. However, as an article from the Guardian by Linda Yueh reports, the repercussions will not only be felt hear in America. Not only would numerous international car manufacturers with plants in the United States be hit by these sanctions, but “in the worst-case scenario, companies may have to relocate factories or distribution centres,” (Yueh). The end result could be rising prices globally as companies maneuver themselves from the blast zone and production costs increase, all in the name of American pride.
Will the tariffs placed by the United States end in a more stable nation, or a more unstable world? The answer will only come in time, and it will be decided by the moves made in the next few months. If the impending impacts bring the two nations to the table to hammer out a deal where both economies come out in the positive, these harsh sanctions will be seen as simply a mean to a worthwhile end. However, if each new set of sanctions simply brings on more retaliation, the global economy could be looking at a war more impactful than any trading of bullets could be.
Works CitedCensus Bureau, US Global Investors. “US Faces a Widening Trade Deficit with China.” Seeking Alpha, 12 Apr. 2017, seekingalpha.com/article/4062061-trade-war-u-s-china-yet.
Landler, Mark, and Alan Rappeport. “Trump Plans Stiff Trade Tariffs and Other Penalties on China.” The New York Times, 21 Mar. 2018, www.nytimes.com/2018/03/21/us/politics/trump-china-tariff-trade.html.
Phiri, Desmond Dudwa. “Why Nations Impose Trade Restrictions.” The Nation Online, 5 July 2013, mwnation.com/why-nations-impose-trade-restrictions/.
“Trump Announces Tariffs and Other Measures on China.” Fox News, FOX News Network, 22 Mar. 2018, video.foxnews.com/v/5756362433001/#sp=show-clips.
Yueh, Linda. “How a US-China Trade War Would Hurt Us All.” The Guardian, Guardian News and Media, 5 Apr. 2018, www.theguardian.com/commentisfree/2018/apr/05/us-china-trade-war-supply-chains-consumers.