U.S. China Trade War: The Unstoppable and Immovable

1523 words (6 pages) Business Assignment

17th Apr 2020 Business Assignment Reference this

Tags: Business AssignmentsBusinessEconomicsPoliticsInternational BusinessIntellectual Property

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China’s efforts to require American companies to resign their technologies prompted retaliation from the Trump administration with the intention of reducing Chinese influence on the American economy. President Trump implemented tariffs on more than 50 billion dollars worth of goods, in which China replied with an equal amount of tariffs in retaliation. Additionally, part of the strategy on reducing Chinese influence is to prevent Chinese investments on certain sensitive technologies, primarily located in Silicon Valley, protecting American ownership on technologies which majorly impact the U.S. economy. The tariffs instigated by the Trump administration act to punish China for the theft of U.S. technology taking place within China. The losers of the trade war at the moment are both countries and their trading partners as the tariffs influence the demand for refined materials necessary for developing final products; some Asian countries have received increased business due to American companies needing alternatives to China. The trade war has impacted the global economy through fluctuation of prices in industrial and agricultural resources because of the tariffs which decrease the global demand for such resources; the end of the trade war will either incentivize large global investments into China at the expense of the current Chinese regime or end in a stalemate with no winners and a global economic slowdown.

The U.S.’ leverage on China within the trade war is advantageous because of the difference in imports each country receives from each other and gaps in the development of innovative technologies. Recently,

“On August 1, Trump announced new tariffs of 10% on $300 billion of imports from China to take effect on September 1. These are on top of those already imposed on $250 billion in imports, and mean that almost all imports from China will be included.

China can’t match this total since it imports only $178 billion in U.S.products, so it retaliated promptly by letting the yuan slide below the previous boundary of 7 per dollar.” (Shilling).

The winning leverage the U.S. possesses relative to China’s is a significant factor in the

Trump administration’s persistence in continuing the trade war in the hopes of reaching a fair deal for the protection of U.S. intellectual property. To illustrate this point, Trump’s latest round of tariffs will affect the American consumer because of the focus on industrial supplies which consist of approximately $900 bn worth of China’s total exports; on the other hand with Chinese tariffs, American business owners have suffered profit losses from increased costs for raw materials and decreased sales for product exports to China. While China is balancing out their losses with currency manipulation, the Trump administration has responded to this action by designating China as “currency manipulators” which undermines their economic legitimacy, and in turn their future standing with international creditors. More significantly on a global impact, it could begin a currency war between the U.S. and China which negatively affects trade.

In Canada, the most affected country and importers of steel from the U.S., has lost business due to the increased prices from tariffs;  Canadian farms’ net incomes have dropped 21% since 2018 and continues to fall since China has halted all agricultural purchases from the U.S. in August 2019. (Powell & Edmiston) The agricultural industry worldwide is heavily affected by the war because “Farmers depend on catching price rallies due to crop issues” (Powell & Edmiston), yet price rallies are thwarted when demand is at an all time low. An economically connected world means that lowered demand in China will affect the price in other countries as well, which is what supply and demand reflects.

Near China in the South Eastern Asia region, the tariffs will affect the business of producers in the South East Asian region who rely on China’s trade for the device production; however, they see increased exports into the U.S. due to the American businesses’ demand for cheaper resources increases. Thailand officials in May 2019 report “Malaysia’s exports to the U.S. increased 11.7% on the year to 7.8 billion ringgit ($1.88 billion)” (Nakano). Vietnam has seen a 7.1% net increase in exports as well. Boosts in Asian economies other than China are prevalent right now as American producers scramble to find tariff-free resources.

In the long term and abstract point of view, while a reform in China’s intellectual property laws would result in the end of the war and a step closer to Chinese free markets and prompt explosive global investment into China, China may continue to be reluctant to agree on reform due to the agenda of its regime. China’s lack of intellectual property protection laws remove incentive for Chinese technology companies to develop innovations. China’s dual track system does not create an ideal free market on the level of the U.S., and despite readily available financing for major innovators, the limited competition within the market encourages inefficiency.

To comment on the possibility of intellectual property reform from China, China’s market does not operate as a truly free market due to intense regulations to conform to the CPP’s agenda and the large advantages party connections give to business owners. China has no intention of reforming their economic regulation policies to match the U.S’ free market due to the party’s incentives to provide laws which further elites’ entrenchment in the political sphere. The trade war signifies China’s desire to exploit the U.S. free market because they don’t want to reform their own market yet desire growth. China will not reform their markets and have a strong agenda to overtake the U.S. in power, meaning that China will readily not back down in fear of looking weak from an ideological perspective and losing future opportunities to exploit the U.S. The paradox within the trade war is that China’s aim for growth and the U.S’ demands have the same resolution yet China’s regime is hard-pressed to reach this resolution which creates a binary question of whether the global market will see prosperity from China’s market reform or a long-term economic slowdown where prices fluctuate due to diminished trade.

In summary, the U.S. seeks the benefits of fair intellectual property protection laws for American companies in China and leverages trade to reach a fair proposal. Despite having more leverage, the U.S. surmounts large risk of a stalemate and a long-term economic slowdown due to the Chinese regime’s agenda to remain entrenched through uncompromised values and exploit the U.S. market for large growth. The immediate consequences are tariffs from both sides and further currency manipulation from China. The global economy as been impacted through fluctuations in prices due to lowered demand for resources, resulting in the prosperity of certain countries and lowered business in all others. In conclusion, the trade war globally fluctuates the price of resources due to lower demand; the deal in which the U.S. desires which would end the war would boost the global economy but requires major reform within the Chinese regime otherwise the trade war will continue slowing down the global economy.

Citations

  • Palmer, Doug. “What Does Winning the US-China Trade War Look like for Each Side?” South China Morning Post, 24 Jan. 2019, www.scmp.com/news/china/money-wealth/article/2183400/what-does-winning-us-china-trade-war-look-donald-trump-and.
  • Shilling, A. Gary. “Why The U.S. Will Win The China Trade War.” Forbes, Forbes Magazine, 12 Aug. 2019, www.forbes.com/sites/investor/2019/08/12/why-us-will-win-china-trade-war/#388182534139.
  • “Did China Think Trump Was Bluffing? How Beijing Got It Wrong.” South China Morning Post, 31 July 2018, www.scmp.com/news/china/diplomacy-defence/article/2157028/did-china-think-donald-trump-was-bluffing-trade-how.
  • Writer, Staff. “Southeast Asia Exports to the US Surge as the Trade War Smolders On.” Nikkei Asian Review, Nikkei Asian Review, 4 July 2019, asia.nikkei.com/Economy/Trade-war/Southeast-Asia-exports-to-the-US-surge-as-the-trade-war-smolders-on.
  • Powell, Naomi, and Jake Edmiston. “No Other Sector in Our Economy Is Getting Slammed as Hard as Farmers in the Global Trade War.” Financial Post, 15 Aug. 2019, business.financialpost.com/commodities/agriculture/trade-wars-bring-deep-uncertainty-disrupted-supply-chains-battered-bottom-lines-to-farming-industry.

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