The China–United States trade war

The China–United States trade war

The economic confrontation between the United States and the Republic of China has done tremendous damage to the global economy. Its consequences are so great that now many researchers suppose that by the end of 2020 we expect losses of $850 billion, which is equivalent to 1% of world GDP. It is worth noting that the trade war between China and the United States affects the economies of other countries and the whole world. According to the gloomiest forecast of experts, a new round of the trade war could become a trigger for the global financial crisis, as a result of which all countries, including the United States, will suffer. For example, IMF reviews regularly present a warning about the risk of a “domino effect” that could trigger new US duties.
The consequences of the trade war carry a number of risks for the global economy; first of all, they are associated with a decrease in demand for resources. First, China’s demand for oil will decrease, and since it is one of the main buyers of this raw material, a decrease in demand will entail a reduction in the price of hydrocarbons. Following oil, demand for coal, iron ore and metals in the global market will decline.


Despite this, investors see some encouraging prospects in the future. This is due to negotiations scheduled for October at the level of the US Department of Commerce and the PRC. This is official information, since the side of the Republic of China itself personally confirmed that they had a telephone conversation with the United States, which stipulated details of preparations for the October negotiation process. The exchange reacted immediately: the Dow Jones index rose by 350 points in anticipation of significant positive developments in the trade confrontation.
New events await impatiently both the business community of the United States and the Republic of China. Hu Xijin, editor-in-chief of the China Times, the official newspaper of the Communist Party of the Republic of China, shared his opinion on the upcoming meeting of trade ministers of the two countries: «With a high probability we can talk about a breakthrough between our sides».
Information about the new round of the trade negotiation process between the US and China has been leaked to Chinese social networks, such as We Chat. Taoran Notes, a blog posting the events of the trade war between the United States and China, published a 1,200 character note. It also reports on “new developments” that can be expected “with high probability” at the Washington talks. Many financial publications, including the American Bloomberg News, follow this news blog to find out the Chinese point of view of the upcoming meeting.


In general, relations between the United States and the Republic of China are a complex set of economic and political interaction between countries. As you can see from my article, at present their relations are considered by the expert community as one of the most important in the entire world community. And this topic is so relevant that often their bilateral relations are called “the big two” because of the enormous political and economic weight of these countries. In other words, their relationship is seen as the relationship between a superpower and a potential superpower, which really deserves special attention. (United States China Talks End With Key Differences Still Unresolved ИА Bloomberg).


It should be noted that the history of American-Chinese trade and economic relations is rooted in the XVIII-XIX centuries, and at the turn of the XIX-XX centuries, the United States pursued a policy of «open doors», which was to create and maintain at least formally equal position of all competitors in China in the struggle for the Chinese market and influence on it.
After Mao Zedong came to power in 1949 and until R. Nixon's visit to Republic of China in 1972, the two countries were in confrontation and had no economic ties. It was only in the second half of the 1970s that economic, interstate and cultural ties were restored between the United States and Republic of China, which coincided with Deng Xiaoping's economic reforms, which also contributed to the development of US-Chinese relations. This became the starting point of trade and economic cooperation between the countries.


Of course, both countries have always been extremely interested in economic cooperation with each other, which is directly related to the increased interdependence of the economies of both countries. However, as we see, today everything has changed not for the better.
Speaking about the beginning of this trade war, the US President Donald Trump has complained about Chinese trading practices ever since he took office in 2016.


In 2017, the United States launched an investigation into China's trade policy. Last year, the government introduced billions of dollars in tariffs on Chinese food. Beijing answered in the same way.


After several months of active confrontation, in December the parties decided to suspend the introduction of new tariffs and sit down at the negotiating table.
There was hope that an agreement could be reached, but this was not destined to happen. In March 2019, the United States increased tariffs more than doubled. Chinese products worth $200 billion were hit.


Three days later, Beijing responded in the same way and raised tariffs on US goods worth $60 billion.


The duties imposed relate to a wide range of goods, including medicines and chemical products, automobiles, motorcycles, railway equipment, industrial and medical equipment, aviation parts, and satellites. This list in total includes more than 1.3 thousand names of goods. It is important to note that although the duties will affect a number of consumer goods such as dishwashers, televisions and auto parts, they do not affect key retail goods such as clothing, shoes, furniture and mobile phones (Journal of Humanities and Natural Sciences, vol.5, part 2).


There are a number of major factors that led to such a tough measure on the part of the American government. Consider each of them in more detail. First, there is a significant imbalance in bilateral trade. If we analyze the dynamics of exports, imports and trade balance between the United States and Republic of China, we can see that this problem has existed for more than 30 years, and moreover, from year to year it gets worse (United States. International Commission (USITC) Data Web).


Second, it’s the accusations from the United States about the theft of technology by Republic of China. One way to obtain United States technology is to pressure through verbal communications for technology transfer (for example, as a condition for investing in China), without using written requirements, in order to avoid accusations of violating WTO rules. It is also possible and illegal access to American technology through cyber espionage.


It is obvious that American technology is necessary for China to increase economic success and thus achieve world leadership, which the United States does not intend to allow.
China and the United States have accumulated a lot of questions in bilateral relations. In the future, they will certainly continue to escalate, for at least one reason — the United States is a wilting hegemon and is gradually losing one position after another. They are losing their positions in the economy, and in technology, and in politics, and in military affairs. But China, on the contrary, is becoming increasingly stronger in its status as a leading world power, which is developing rapidly and is beginning to bypass the United States in all respects.


Of course, for Americans, this is all like a sharp knife, because no superpower can calmly bear the loss of its power. In the future, the rivalry will continue to escalate and expand, so the deal, which can be concluded within the framework of the 13th round of negotiations, will give only temporary relief, becoming Trump’s salvation in the pre-election period. Regardless of who wins the election, Washington will continue to impose sanctions and duties on Beijing. (China, United States reach agreements on some economic and trade issues ИА).


Neither the United States nor China will obviously benefit from the escalation of this trade war. Therefore, sooner or later, the situation around this trade conflict will normalize. I assume that there will be several rounds of negotiations, but ultimately an agreement will be reached, because this conflict is essentially not beneficial to both parties. By the way, the US and Chinese economies suffer significant losses from this, and their competitors are discovering new markets, for example, Airbus can significantly expand its influence on the Chinese market, while Boeing will have its missed opportunities. So I think the issue of resolving the trade conflict between the two world powers is a matter of time.