China-US Trade War and Global Economy Free Essay Example

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Introduction

The global economy is at the brink of damage emanating from a Sino-US trade war. China recorded the fastest growth in the economy in recent decades and is now the second-largest economy in the world behind the US. With the fast growth in the economy in China, the US has taken a protectionist stance to maintain dominance on the global trade. America-First' is a code name of United States protectionist policy. President Trump's imposition of hiked tariffs in response to the growth of the trade deficit with China has sparked an escalation of trade tensions.

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The protectionist move by Trump has become the source of an unhealthy bilateral trade relationship with China.

The Chinese administration set up retaliatory measures by raising taxes on US products. Given the debilitating effects of deteriorating Sino-US bilateral trade ties, the poor results of protectionist measures can be averted through adopting alternative measures of retaliation. An example of an alternative measure is a continuation of negotiations in an aim to settle bilateral trade wars.

Since China and the US trade hold a massive share of the global GDP, it would lead to a decrease in global trade volumes as an effect of Sino-US trade wars.

Strategic Positioning The US is the largest economy in the world followed by China. As of 2019, the US economy accounted for 40.75% while China had 34.27% of the world's total GDP (World Bank, 2019).

World Bank estimated that China had an approximately 11% of US GDP in 1960 but grew to approximately 63% in 2017 (World Bank, 2019). In terms of Nominal and PPP respectively, the per capita income of the US is 6.38 and 3.32 times greater than the Chinese. The two countries are ahead of the third-placed Japan by a huge margin as Japan accounts for 4.13% of worlds total GDP (Statista, 2019). This huge gap makes the US and China the only competitors for the first place in global GDP share. Bilateral trade ties between China and the US have increased significantly as a result of the rapid growth of the Chinese economy. However, some US policymakers have claimed that the emergence of the Chinese as a major economic power is as a result of unfair trade practices. Some protest that the Chinese practices pose a threat to US jobs, living standards and wages. These claims have led to the escalation of trade tensions between the two countries based on trade protectionism.

Protectionism

Trade protectionism is a key element in efforts to protect the domestic economy. Ordinarily, trade protectionism involves protecting domestic markets from foreign competitions and foreign compromise. This is usually achieved by means of tariffs, subsidies, import quotas and manipulation on imports by foreign competitors. Protectionism is beneficial in several ways including; distribution of wealth, rebuking subsidies set by foreign governments and any other unfair trade deals, protection of jobs, reduction of trade deficits and supporting upcoming industries. The essence of protectionism is to prevent cheaply available products from foreign industries, from taking over locally manufactured products. Protectionism in the United States can be traced back before the nineteenth century through mercantilist ideals which were meant to regulate international trade by offsetting imports, balancing trade, protecting and promoting local industries through offering subsidies.

Following the end of World War II in the 1930s, global nations including the United States of America entered a multilateral free trade agreement encouraging members' transitioning from domestic economy into the global economy. This agreements under the framework of the General Agreements on Tariffs and Trade (GATT) and later the World Trade Organization (WTO) saw integration in trade in services and policies regulating the governance of trade, investments, intellectual property, sanitary and phytosanitary measures. In 2016 however, with the presiding over of Trump, saw the United States pull out of the multilateral trade system and introduced protectionist policies that would prioritize the United States' trade interest against international trade invasion.

Unfair Trade Practices

To justify his protectionism of the US economy from China's competition, Trump and his administration have embarked on a series of arbitrary trade tariffs and sanctions against Chinese commodities. To evaluate the unfairness of Trump's protectionism, it is important to establish a metric. Here, a more relevant metric is a definition of protectionism as understood within the context of mainstay economics. Protectionism is meant to protect domestic producers from external competition. Here, the question is if Trump's protectionism is in the sole interest of US domestic producers or other existential factors. Scholars and economic pundits have come to a consensus that Trump's trade tariffs and sanctions are borderline absurd. First, the motives that inform Trump's trade practices against China are largely political. During his presidential campaign, Trump alluded to China as a threat in many fronts including security, global geopolitics, ideologies, and trade among others to appease his voter base. Therefore, Trump was motivated by factors beyond trade.

The recent ban on Huawei and the subsequent reversal in most aspects of the ban point at unconsidered justifications of Trump's protectionism. The sanctions were meant to punish China rather than real trade tariffs that serve to protect the domestic industries. The primary basis of the sanction against Huawei that the company is a security threat to the US has remained unfounded. Instead, scholars perceive Trump's action as a measure to curtail Huawei's 5G premier technologies that no other company in the world has come up with.

Therefore, Trump is propagating unfair competition practices since there is no equivalent of Huawei's 5G technologies in the US domestic market to protect. Conversely, China is also at fault. Scholars have opined that China's exponential growth has been on a backdrop of unethical conduct. For instance, it is largely agreed that China has repeatedly devalued its money against global reserve currencies. Devaluation is meant to afford China currency benefits that make its exports cheaper and imports expensive.