When it comes to recent major events that have been occurring over the past year that can relate to macroeconomics, the biggest one that comes to mind is the trade war between China and the United States.The trade war is a perfect example of how trade policy affects the economies of both China and the U.S. on a macro scale which has had immediate negative effects on both countries. In an article for Foreign Affairs magazine, Matthew P. Goodman and Ely Ratner go over the ineffectiveness of tariffs as a means of achieving better trade practices from China.
Not only does the article go over how tariffs overwhelmingly hurt the United States, but also ways that Trump could have achieved the end of better trading practices of China by other means as well.
The article begins by talking about how the only thing that is positive in regards to the tariffs is redressing harmful trading practices by China in the short term, but effectively damages the economy and job growth of America.
Goodman and Ratner go over how the only real winner in the tariffs is the American steel industry, but effectively destroys jobs for almost all other manufacturers resulting in a ratio of 18 jobs lost for every one gained. The tariffs set not only were on China, but our global trading partners as well. Trump ended up exempting some trading allies of America after threats of retaliation from the European Commission in regards to American goods, and South Korea’s foreign minister essentially saying they’d take a less cooperative stance on North Korea.
While the article goes over the ineffectiveness of tariffs, it also speaks of how fruitless negotiation and a return to the status quo aren’t the only other option. Instead of having tariffs that hurt America, the U.S. could begin by taking advantage of the Committee on Foreign Investment in the United States (CFIUS) to bolster Chinese investment on American soil and their technologies. Not only that, but according to Goodman and Ratner, the U.S. must work with key trading partners to file joint WTO cases against China in order to hold them accountable for their unfair trading practices.
This article from start to finish is pretty much precisely how I feel in regards to the current trade war with China. The authors speak of how ineffective tariffs are and how often times they end up hurting you more than what you’re to gain, which is true. In a poll by Reuters, nearly 80 percent of economist respondents responded saying that the tariffs would do more harm than good, and not a single one said it would benefit America’s economy (Sarkar). This fits into the world view of mainstream economic thought of how tariffs should essentially be seen as a last resort weapon in regards to issues of trade between two nations or more. Not only that, but the article is correct in its assumption of the idea that there are alternatives to tariffs in order to stop China’s trading practices of intellectual property theft.
The article goes over one of the main ways which is to create joint WTO cases with key trading allies against China and to take advantage of the CFIUS, but it doesn’t go over why there hasn’t been any ruling in the first place against China for their forced transfers of intellectual property and tech. The main issue at hand as to why the WTO hasn’t taken a strict stance on China yet is mainly because China improperly publishes their subsidies to the WTO, which makes it hard for the WTO to make a subsidy case against China. If America and other trading partners can pressure the WTO to take a much harder stance on publication requirements, they could easily show through joint cases that China is taking part in IP theft of trade secrets from several international countries. As it currently stands, China also happens to be the biggest culprit of counterfeit goods imported into America. According to the Associated Press, Chinese imports account for roughly 87% of all counterfeit goods in America, which costs the American economy anywhere from $29 billion to $41 billion (Wiseman). This could be countered by having additional layers of inspection on Chinese imports in order to take these counterfeit goods out of the U.S. economy and further damaging those Chinese companies who are hurting the U.S. economy. Lastly, we need more pressure from the Treasury Department to begin sanctioning Chinese companies who willingly take part in IP theft from American businesses and prevent them from accessing America’s financial system as a whole if they’re unwilling to play fair. These are just a few suggestions on top of the very good ones from the people of Foreign Affairs as a way to combat the IP theft done by China against America and its trading allies around the world.