Trade War on Steel Between China and the U.S. (Mathematics & Economics Essay)

Trade War on Steel Between China and the U.S.
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Trade War on Steel Between China and the U.S.
In the last two decades, there has been a significant rise in globalization. In this period, China has risen to become one of the greatest world economies, thereby undergoing tremendous industrialization. This led to increased production of steel to match the high demands. The steel demand then started facing a period of decline that made China explore international markets, the U.S. being one of the leading importers. Data from Worldsteel in May 2017 indicated that China produced 808.4 million metric tons of steel in 2016, making it a global leader accounting for 33 percent of the world's total steel. On the other hand, in 2017, the US was the biggest importer of steel, importing 34.6 million metric tons of steel (Steel Imports Report: The United States, 2018). In 2018, the U.S. initiated tariffs on Chinese steel, which made the price go up by 25 percent, thus triggering a trade war between the two countries.
Theories of Trade War between China and the U.S
Theory of imperfect competition
The imperfect competition theory states that countries often seek market opportunities overseas where they can trade their products. These countries usually come up with strategic decisions to capitalize on their competitors' capabilities. The capabilities rely on the advantage of nations in terms of market imperfections and factors of production. The theory dictates that countries produce homogeneous products while at the same time enjoying aspects of production (Morgan & Katsikeas, 1997).
In April 2016, the BBC News released an article on why China was a dominant steel industry force. The main reason behind China's dominance was that their steel was relatively cheap compared to other countries' countries. During this period that the Chinese economy was growing, there was a great steel demand. This prompted the Chinese government to invest more in steel to keep with the growing demand in that period. The demand for steel in China suddenly diminished, thereby leaving the country with a surplus supply of steel. The demand for steel in China was projected to be at 808.4 million tons, yet they only produced 672 million tons leaving them with a huge deficit.
China ended up selling their steel in the international market at meager prices. Critics of China suggested that they were selling their steel at a loss, a suggestion that China thoroughly disputed. China's move to sell their steel at low prices made it difficult for steel from other countries to find its way into the international market. The U.S., one of the leading importers of steel, remained with only one option, to impose higher tariffs on Chinese steel. This meant that if a Chinese manufacturer offered a ton of steel at a lower price, the U.S. government would add tax on the original price, making it expensive for the importer. The move would make Chinese steel more expensive; thus, the Americans will have no option but to resort to domestic steel. Another option would be to buy steel from countries where the government had imposed no tariffs.
Factor proportion theory
The theory states that countries produce and export goods and services that harness large amounts of abundant production factors. At the same time, they import those that require large quantities of production factors that may be relatively scarce (Hecksher and Ohlin, 1933). This theory provides an economic advantage by taking into consideration the costs of factors of production and endowment. This theory supported China's rise and dominance to become the world's largest exporter of steel in the world, with a total share of 13.5% of global steel exports in 2018 (Sarma, 2019). China currently produces 50% global steel output. Locally, there is a high demand for steel products fueled by the high economic growth rate and high domestic income. The production factors, such as local market demand, raw material availability, cheap skilled labor, good infrastructure, and favorable industry, made China the largest steel producers.
China's main export destination is the U.S. Chinese steel exports to the U.S. have been on an upward trend since 2008. In2018, the U.S. imported 7.9 million metric tons of steel from China. However, the imposition of 25% tariffs on Chinese steel products by the U.S. government led to a 5% decrease to about 7.4 million metric tons of Chinese steel imports in the U.S. (Worldsteel Association, 2019). U.S. tariffs impacted the volume of Chinese steel imported into the U.S. market. This has forced China to change its trade directions, leading to raising their steel products exports to develop countries, mostly Africa. The steel demand in developing counties was expected to grow by 2.9 % in 2019 and 4.6% in 2020, providing an opportunity for Chinese steel products (Sarma, 2019). 
Theory of comparative advantage
 The theory states the economy's ability to produce goods and services at a lower opportunity cost than its trading partners. This theory provided the basis of opportunity cost as a factor of analysis in production. The production factor, such...