The USA-China Trade War Mathematics & Economics Term Paper

The USA-China Trade War
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The USA-China Trade War
What is a trade war? How does it affect the economic growth of the countries involved? Is it beneficial both in the short and long-term performance of the economy? Is the trade war the best strategy to protect domestic industries from being overpowered by international corporations? These are some of the questions that will be answered in this paper. Proper evidence will be given to support the arguments made and where possible statistical data will be provided. In particular, a trade war occurs when a country imposes quotas or increases tariffs on imported goods, and the affected nations retaliate by increasing their duties as well. Indeed, its primary objective is for trade protectionism. For example, President Donald Trump increased tariffs from 10% to 25% in 2018 on imports from China. Besides, China responded by raising duties on American imports, which resulted in a trade war between the two countries. The United States of America (USA) and China have the largest economies in the world. As such, a trade war between these two economies affects the entire world. For instance, Trump encouraged Americans to use goods manufactured locally so that they can promote their domestic industries. Although the USA-China trade war’s primary purpose was to facilitate trade protectionism of American domestic industries, businesses in both countries are likely to suffer the most in the long-term since they depended on products and services from each other to operate smoothly.
A trade war entails an economic conflict that occurs due to the extreme protectionism of local industries between countries. The state creates or raise tariffs or introduce new trade barriers against one another as a retaliation strategy. In the scenario at hand, the USA raised tariffs on imports from China. Notably, China retaliated by increasing the duties of imports from the USA (Carvalho, Azevedo, & Massuquetti, 2019). Specifically, China is the largest producer of consumer goods globally. The country sells its products at lower prices than many of its competitors, such as the USA. Since customers are attracted to affordable and high-quality goods, Americans prefer to buy products from China as opposed to those produced locally since they are expensive. China’s competitive advantage in the international market is that it offers cheap and quality products. As a result, the nation has penetrated into many territories in the world, both developed and developing countries. The two primary reasons why Chinese products are cheap is because of the partially fixed exchange rate against the dollar and a low standard of living that allows domestic companies to pay low wages to their employees (Itakura, 2019). In reality, some of the largest American companies, such as Apple Inc., outsource their assembling services to Chinese technology firms. China has been known in the world to be the only country that produces affordable consumer goods. As such, the USA is bitter about the rising demand for Chinese products globally. In other words, China appears to be taking the economic position of the USA since some decades ago; the American products were the ones in high demand.
The move by President Trump to introduce or increase tariffs on imports from China was meant to ensure that many Americans will start buying products from local industries and save domestic firms from collapsing or going bankrupt. The government wanted citizens to be left with the only option of consuming locally produced goods despite their higher prices. In the last few decades, the USA has been importing more products from China than it is exporting. Specifically, it means that many Americans have realized that they can save money by buying Chinese products, which have similar functions with locally produced commodities that are expensive. If this trend continues, many American companies might close down their operations since their products are not selling domestically. Others are likely to reduce their workforce so that they can decrease expenses (Hoekman, 2020). If many companies fire their employees, the rate of unemployment is likely to increase in the USA. On the contrary, Chinese firms will expand their operations due to the rising demand for their products in the USA and other countries. China’s currency will become powerful, particularly since the country has adopted a fixed exchange rate. For instance, when Yuan’s value decreases, China purchases dollars from the USA Treasury to ensure that no significant fluctuation will occur. The production of cheaper goods by China is a strategy for expanding its economy that might overtake that of the USA, which has remained at the top for many years. For this reason, President Trump believes that increasing tariffs on imported goods from China will discourage many people from buying these products so that they can promote local manufacturers. However, the most significant problem with this move is that a significant percentage of USA companies already use resources from China. Consequently, the increase in tariffs of imports from China might make the USA’s locally produced goods to increase in price.
Even though President Trump increased tariffs on imports from China with the objective of reducing the trade deficit, the China-USA trade war hurts American manufacturers and consumers. The rising USA trade deficit is caused by the increasing demand for imported consumer goods from China by Americans. For instance, in 2018, the country imported electronics, drugs, household items, and clothing worth $648 billion. In exchange, the USA exported products worth $206 billion. The trade deficit in that year alone was around $442 billion. The importation of automobiles and spare parts amounted to $372 billion. In 2019, the trade deficit of the USA with China was $345.6 billion. That was about 18% lesser than the deficit in 2018. The USA exported goods worth $106.6 billion, and its imports were valued at $452.2 billion (Amadeo, 2020). Figure 1 in the appendix section shows the total exports to China and imports to the USA in 2019 and their associated cost. The primary categories of products imported from China included cell phones, toys, computers, sporting, and apparel goods. Many of these imports were from companies in the USA, such as Apple Inc., which sent raw materials to Chinese firms due to their low cost in assembling. For instance, Apple Inc. outsources assembling services to Foxconn Technology Company in China. When finished products are shipped to the USA, they are perceived as imports. The primary products that the USA exports to China are semiconductors, soybeans, and aircraft. One of the things that make it hard for Americans to stop consuming Chinese products is because they have realized that these commodities are affordable and are customized to meet their specific needs. Notably, the dominance of low-priced Chinese consumer goods in the USA started a long time ago, and many American firms rely on them to run their operations smoothly (Onyusheva, Naing, & Zaw, 2019). Therefore, increasing tariffs on imports from China might only work in the short run, but it will limit the growth and expansion of the American economy in the long run. 
The China-USA trade war has been escalated by President Trump’s accusation of China’s involvement in intellectual property theft and the engagement in unfair trading practices. According to BBC News, both countries have suffered significantly, particularly since the USA has imposed duties on Chinese goods worth over $360 billion, and China has introduced tariffs on USA products of over $110 billion (Palumbo & Costa, 2019). Since these instances have happened shortly after a China-based company, Huawei Technologies Company, launched the fifth-generation network, China perceives as if the USA wants to curb its growth and expansion to prevent it from being the next global economic leader. Although there might be some truth that the USA wants to remain as a superpower, the trade war between these two countries will have adverse effects on the global economy. Negotiations between China and the USA have reached a dead end, and despite the implementation of the “phase one,” many issues remain unresolved, which will continue to affect both nations negatively. China has pledged to strengthen its rules on intellectual property and boost its exports to the USA. Nevertheless, President Trump has not made up his mind and asserted that the remaining issues would be addressed in “phase two,” which no one knows when it will occur, particularly due to the current issue of the coronavirus pandemic that has affected the global economy adversely. For example, the introduction of 25% duty on steel and 10% on aluminum products might make many people employed in that industry to lose their jobs. The USA is one of the greatest importers of metal. Notably, its steel industry employs about 147,000 people (Amadeo, 2020). By raising the tariff on steel and aluminum products, the cost of aircraft, vehicles, and military weapons is likely to increase. Consequently, a trade war might have adverse economic impacts on the USA in the long run.
If the China-USA trade war remains unresolved for an extended period, the USA is the one likely to suffer the most both in the short and long-term. In other terms, the USA trade deficit cannot be decreased by raising tariffs on imported goods from China. For example, automakers might hike the prices of vehicles and aircraft as a way of responding to the increase of tariffs on steel and aluminum products. In that case, Americans are likely to spend more money to purchase things that used to be cheaper before the trade war (Itakura, 2019). Additionally, more money will be used to import raw materials that are not present in the USA. In contrast, China has developed a reputation for producing affordable consumer goods in the world. Although the USA provided a significant market for the country, the Chinese government might enter into business deals with other countries. For instance, in the past few years, China has been undertaking infrastructural development projects in some developing countries such as Kenya. Chinese contractors were the ones who constructed the Standard Gauge Railway (SGR) that connects Nairobi and Mombasa. By doing so, it means that the country is generating more revenues despite its trade wars with the USA. As such, in the long run, the USA companies will not be competitive in the global ma...