INDIVIDUAL ASSIGNMENTS

Based on what you have learned about China and the USA, please give an in-depth
analysis of the current trade war between the two giants.
What is a trade war?
A trade war is a side effect of protectionism that occurs when one country (Country A)
raises tariffs on another country’s (Country B) imports in retaliation for Country B
raising tariffs on Country A's imports.
Some US-China trade war events:
22/1/2018: The US implements ‘global safeguard tariffs’ – placing a 30 percent tariff
on all solar panel imports, and a 20 percent tariff on washing machine imports.
23/3/2018: Under “Section 232”, citing national security considerations, U.S. imposes
a 10% tariff on imported aluminum and a 25% tariff on imported steel.
02/4/2018: China imposes tariffs (ranging 15-25 percent) on 128 products (worth
US$3 billion) including fruit, wine, seamless steel pipes, pork and recycled aluminum
in retaliation to the US’ steel and aluminum tariffs.
03/4/2018: The USTR releases an initial list of 1,334 proposed products (worth US$50
billion) subject to a potential 25 percent tariff
04/4/2018: China announces 106 more U.S. products targeted for a 25% tariff
06/7/2018: The US begins collecting a 25% tariff on 818 imported Chinese products
valued at US$34 billion.
China takes retaliatory measures by imposing a 25% tariff on 545 goods originating
from the US (worth US$34 billion), including agricultural products, automobiles, and
aquatic products.
What are the causes of the US-China trade war?
There are several reasons behind the trade war between the US and China:
- The US government argued that the substantial trade deficit the US has with
China is hindering economic growth.
U.S. trade in goods with China for the last decade, Table 1:

Month Exports Imports Balance

TOTAL 2009 69,496.7 296,373.9 -226,877.2

TOTAL 2010 91,911.1 364,952.6 -273,041.6

Page 1/11
TOTAL 2011 104,121.5 399,371.2 -295,249.7

TOTAL 2012 110,516.6 425,619.1 -315,102.5

TOTAL 2013 121,746.2 440,430.0 -318,683.8

TOTAL 2014 123,657.2 468,474.9 -344,817.7

TOTAL 2015 115,873.4 483,201.7 -367,328.3

TOTAL 2016 115,545.5 462,542.0 -346,996.5

TOTAL 2017 129,893.6 505,470.0 -375,576.4

TOTAL 2018 120,341.4 539,503.4 -419,162.0

NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally
adjusted unless otherwise specified. Details may not equal totals due to rounding
What causes this goods trade imbalance between the two nations? There are several
reasons to be considered:
 American consumers, businesses and governments have been spending more
than the economy can produce. “The productive capacity of the economy can’t meet
consumption needs, so you have to import the difference,” said Simon Baptist, global
chief economist at the Economist Intelligence Unit in Asia. Consumer goods in the US
have been sold at extremely low prices for many years and since China can produce
many consumer goods at lower costs than other countries can, they have exported a
vast amount of goods to the US at remarkably low prices.
 Since the dollar has become the primary tool for global transactions and its role
as the global reserve currency, its value has appreciated which leads to a reduction in
export and increase in import.
 According to Mr. Robert J. Samuelson on The Washington Post: “The
proximate cause of the trade deficit for any country is an imbalance between domestic
investment and domestic saving. If capital is highly mobile, it will move from
countries where saving exceeds investment to those whose investment exceeds saving.
This can happen only if the receiving country has a trade deficit and the lending
country a trade surplus. Notice, this will occur independently of the international status
of its currency”

Page 2/11
- Accusation of theft of intellectual property, technology and trade secrets and
forced technology transfer.
In July 2018, the US government imposed a 25 percent tariff on $50 billion of Chinese
imports. The action is initiated due to the accusations of China’s intellectual property
rights protection laws, forced technology transfer and alleged cyber theft which cost
the US economy billions of dollars in revenue and thousands of jobs. In December
2018, U.S. Assistant Attorney General John C. Demers stated at a Senate hearing that
from 2011 to 2018, China was linked to more than 90% of the Justice Department’s
cases involving economic espionage and two-thirds of its trade secrets cases. Law of
the People's Republic of China on Chinese-Foreign Joint Ventures requires any
multinational enterprise which seeks to conduct business in China to partner with a
local entity. These relationships often include explicit technology transfer
requirements, transfer of advanced foreign knowledge and trade secrets, which leads to
intellectual property vulnerability.
My opinion about the cause of the trade war: The idea of imposing high tariffs on
goods imported from China in an attempt to tackle the trade deficit between two
nations would likely be inefficacious. As a report released by the International
Monetary Fund stated that “countries looking to reset trade imbalances should address
their own macroeconomic issues instead of launching barriers to trade…Attempts to
target one bilateral trade balance through tariffs or other distortions are likely to be met
with offsetting changes in the trade balances with other partners,”. The tariffs on
Chinese imports would likely reduce the bilateral trade imbalances between two
nations, but the change in the overall deficit of the U.S would be highly unlikely. With
higher tariffs, fewer goods would be imported which means the number of dollars
flows into global markets would decline, as a consequence, the exchange rate of dollar
to other currencies would hike. With a stronger dollar, Americans can buy more
foreign goods but other countries will find US products more expensive, hence exports
would fall and import would rise. The cause of the imbalances in trade between the
U.S and China came from the U.S structural problems. The U.S blamed the trade
deficits with China for the decline in manufacturing, but the sound reasons for the
reduction in manufacturing employment are mainly rapid technology progress, such as
A.I, automation, and robots.

Page 3/11
Imposing trade sanctions in order to reduce trade deficit with China is not a convincing
reason behind the trade war between the world’s two economic superpowers. The
unofficial reason is to contain China’s upgrade on the global technology ladder.
Despite the fact that Chinese companies rely heavily on US technology and intellectual
property in their supply chains, especially semiconductors, they are being told by the
Chinese government to cut reliance on US companies and replace them with
alternatives from Europe, Japan, Korea, Taiwan and elsewhere. U.S administration is
aiming at Made in China 2025 plan of Chinese government, which is an initiative
comprehensively upgrading the Chinese industry in an attempt to halt China’s
technological dominance. According to the Financial Times, there are ten sectors on
which U.S government intend on imposing tariffs, which matches the ten areas of
Beijing’s “Made in China 2025” initiative perfectly
To fully comprehend the trade war between U.S and China, we also need to
understand the cultures of both countries. The trade war commenced due to a clash of
two different cultures. Throughout history, Western people and the Chinese do not
always behave the same way. The business operating model of the west is founded on
a concept of honesty, integrity and transparency. The westerners believe that Chinese
people conduct businesses which are based on “advantage, deception, and power”,
which is one of the main reasons why U.S administration accused China of unfair
trade practices.
The following chart is Hofstede’s model of national cultural differences between
China and the U.S.

Although the U.S has a higher score on Uncertainty Avoidance than China does, I
believe that people from Confucian society want negotiations than taking risks of
Page 4/11
extending the trade war with the strongest economy of the world. Nevertheless, in case
of a protracted war, as the chart indicated, China has a high score on Long Term
Orientation which means they are “long-term thinkers and keen readers of history.
They think in terms of centuries instead of decades or – as in Trump’s case – every
two years”. In my opinion, if the trade war prolongs, the U.S’s economy will suffer
more than China’s.
The score of the U.S and China on Masculinity are 62 and 66 respectively. But from
my point of view, Americans tend to share the value of “winner-take-all” and Chinese
are more for talking, seeking balances and having win-win situations.
Economic impacts of the US-China trade war.
- The impacts of the trade war on the U.S economy:

As indicated in figure 1, Chinese stock market reacted to the events in the trade war
between two giants more negatively than the U.S did. This happened because of the
overreaction of the stock market in China to the possible economic impacts of the
trade war on China whereas misjudging the consequences on the U.S.
With the imposed tariffs on Chinese goods, prices of consumer goods in the U.S will
be higher and the available quantities of goods and services for U.S. businesses and
consumer will decline. This will raise the cost of materials and parts meaning higher
input costs, which results in hurting manufacturer profit margins. In the long term,
increased tariffs will force supply chains to be reorganized and consumption patterns
to be altered. Due to interruptions in regional and global supply chains, importers in

Page 5/11
both countries will have to prepare to look for substitute suppliers, this, hence, creates
new opportunities for other countries to invest.
According to the Tax Foundation model, Table 2 shows the economic impact of the
tariffs imposed so far by the U.S administration.
Table 2: Impact of Trump Administration Imposed Tariffs
Tariff Revenue (Billions of 2018 Dollars) $41.95
Long-run GDP -0.12%
GDP (Billions of 2018 Dollars) -$30.43
Wages -0.08%
Full-time equivalent Jobs -94,303
Source: Tax Foundation Taxes and Growth Model, April 2018
- The impacts of the trade war on China economy:
The significant economic consequence of the trade conflict on China economy is the
decline in stock market as shown in figure 1 due to fear, uncertainty, and doubt of an
imminent all-out trade war between China and the U.S, which could lead to a recession
and according to Minxin Pei, a professor of government at Claremont McKenna
College and a non-resident senior fellow at the German Marshall Fund of the United
States: “The next recession will become the worst in recent Chinese history”.
With the implemented and threatened tariffs by the U.S, the prices of targeted products
which are exported to the U.S from China will be exorbitantly high and ultimately lead
to a significant downturn in export of those commodities to the U.S
Not just the U.S’s businesses were forced to transform in order to cope with the
ongoing trade conflict; other nations also had to adjust the supply chains as indicated
in the chart below:

Page 6/11
93% of Chinese businesses have reassessed investment plans in response to the trade
war; only 7% do not announce any intention to make adjustments at the moment.
Despite the tariff war with the U.S, according to General Administrator of Customs of
the People's Republic of China’s statistics, total export values to the U.S rose 11.3%
year on year in 2018, meanwhile imports to China from the U.S rose just 0.7% during
the same period.

- The impacts of the trade war on the ASEAN economy:

The trade initiatives initiated by the U.S are not aimed for China only, other countries
are also on the list. China and the U.S are the countries which have the most influence
politically, strategically and economically in Southeast Asia and both nations are
entering a strategic battle in the region. ASEAN is “becoming the arena of major
power competition”. Consequently, sustained trade tensions between China and the
U.S will create adverse impact on regional growth. Nevertheless, the region economies
could benefit from the conflict due to diversions of investments and relocations of
productions and imports from China as an approach to avoid tariffs.

*source: OCBC Bank

Page 7/11
According to AMRO experts, the trade war could wipe out about 0.2%-0.3% of the
ASEAN region’s GDP.

China is presently ASEAN’s largest trading partner and the protracted trade tensions
will accelerate China’s investments in ASEAN from $150 billion in 2018 to $500
billion in 2035 and drive ASEAN’s investments in China from $60 billion in 2018 to
$200 billion in 2035, according to Asean+3 Macroeconomic Research Office
(AMRO).

- The impacts of the trade war on the European Union economy:

In case the current trade war between China and the U.S extend, there would be
competitors, which come to take over the market share voided by Chinese and U.S
companies as they are got involved in the trade conflict. The EU as one of the largest
economies in the world will be the most likely potential winner. In 2018, China and
the U.S are the two largest trade partners of the EU in terms of exports and imports.

According to data from the World Bank, U.S is the largest consumer market of the
world, but with the current trade war, the EU will benefit more from China’s market
than the U.S’s because of the sectors and products imposed tariffs on. This, however,
will happen if the EU keeps a neutral position in the trade war.

At the end of May 2018, the U.S imposed a 25% tariff on U.S steel imports and a 10%
tariff on U.S aluminum imports from the EU, and the U.S has intentions to impose
duties on EU cars and auto parts. Since Machinery and vehicles contribute to the
largest share in total exports/imports EU to/from the U.S, EU GDP growth could
decline by 0.1% if a 25% tariff is imposed on cars and vehicle parts.

Conclusion: At the time of this writing, two nations still have not agreed about the
truce of the trade war, which have cost both economies billions of dollars. There is no
winner in this trade war, but in short-term there will be a third party like EU which
will benefit from the trade conflict. In long-term, overall global impact of China and
the U.S trade tensions is adverse for the world economic growth.

Page 8/11
References:
Chen, J. (2019). What is a Trade War?. [online] Available at:
https://www.investopedia.com/terms/t/trade-war.asp [Accessed 23 Apr. 2019].
Mourdoukoutas, P. (2019). US-China Trade War: The Official And Unofficial Reasons
Behind It. [online] Available at:
https://www.forbes.com/sites/panosmourdoukoutas/2019/01/24/us-china-trade-war-
the-official-and-unofficial-reasons-behind-it/#2dedd64d46da [Accessed 21 Apr. 2019].
Ft.com. (2019). The US cannot halt China’s march to global tech supremacy |
Financial Times. [online] Available at: https://www.ft.com/content/cd681f3e-a5ff-
11e8-926a-7342fe5e173f [Accessed 21 Apr. 2019].
https://www.quora.com/What-do-you-think-about-the-Trade-War-between-the-United-
States-and-China-in-2018
https://www.quora.com/What-is-the-US-China-trade-war-exactly-What-are-the-
causes-of-US-China-trade-war-What-will-be-the-global-impact-on-trade
Yen, W. (2018). China vs Trump: how the trade war highlights a culture clash.
[online] Available at: https://www.scmp.com/comment/insight-opinion/united-
states/article/2165202/how-trade-war-highlights-culture-clash-between [Accessed 22
Apr. 2019].
Makinen, G. (2018). The real cause of the trade deficit. [online]
https://www.washingtonpost.com. Available at:
https://www.washingtonpost.com/opinions/the-real-cause-of-the-trade-
deficit/2018/06/01/144d3a90-64ee-11e8-81ca-
bb14593acaa6_story.html?utm_term=.90cd3a2a66a1 [Accessed 22 Apr. 2019].
Jiang, K., Keller, W., Qiu, L. and Ridley, W. (2019). China’s Joint Venture Policy and
the International Transfer of Technology. [online] Voxchina.org. Available at:
http://www.voxchina.org/show-3-115.html [Accessed 18 Apr. 2019].
Pham, S. (2018). How much has the US lost from China's intellectual property theft?.
[online] CNNMoney. Available at:
https://money.cnn.com/2018/03/23/technology/china-us-trump-tariffs-ip-
theft/index.html [Accessed 20 Apr. 2019].

Page 9/11
NOLASIA. (2016). Joint Ventures in China: Advantages and Disadvantages -
NOLASIA. [online] Available at: https://nolasia.net/joint-ventures-in-china-
advantages-and-disadvantages/ [Accessed 23 Apr. 2019].
Tang, F. (2019). US-China trade war will not reduce trade deficit, IMF finds, in
rebuke of Donald Trump’s tariff policies. [online] Available at:
https://www.scmp.com/economy/china-economy/article/3004532/us-china-trade-war-
will-not-reduce-trade-deficit-imf-finds [Accessed 23 Apr. 2019].
https://www.census.gov/foreign-trade/balance/c5700.html
Lee, Y. (2019). China may be ready to buy more US goods — but economists say that
isn't what matters. [online] Available at: https://www.cnbc.com/2019/01/24/us-china-
trade-war-do-bilateral-trade-deficits-matter.html [Accessed 24 Apr. 2019].
York, E. and Pomerleau, K. (2018). Trade Analysis: Tracking the Economic Impact of
U.S. Tariffs. [online] Available at: https://taxfoundation.org/tracker-economic-impact-
tariffs [Accessed 24 Apr. 2019].
García-Herrero, A. (2019) ‘Europe in the midst of China-US strategic economic
competition: What are the European Union’s options?’ Bruegel Blog, 08 April.
Bollen, J. and Rojas-Romagosa, H. (2018) ‘Trade Wars: Economic impacts of US
tariff increases and retaliations: An international perspective?’ CPB Netherlands
Bureau for Economic Policy Analysis, November.
Brown, S. (2018) ‘The Economic Impact of the Trade War?’ Advisor Perspective, 24
September.
Reinbold, B. and Wen, Y. (2018). Understanding the Roots of the U.S. Trade Deficit |
St. Louis Fed. [online] Available at: https://www.stlouisfed.org/publications/regional-
economist/third-quarter-2018/understanding-roots-trade-deficit [Accessed 25 Apr.
2019].
Pettis, M. (2018). The U.S. Trade Deficit Isn’t Caused by Low American Savings.
[online] Available at: https://carnegieendowment.org/chinafinancialmarkets/77009
[Accessed 26 Apr. 2019].
He, L and Moon, L. (2018). China’s stock market ends 2018 as the world’s biggest
loser, again. [online] Available at:
https://www.scmp.com/business/markets/article/2179765/hong-kong-shares-steady-
early-trading-after-wall-streets-wild [Accessed 26 Apr. 2019].

Page 10/11
Lau, L. (2018). If the US-China trade war escalates, how will the Chinese economy
respond? Here are the numbers. [online] Available at:
https://www.scmp.com/comment/insight-opinion/united-states/article/2156470/if-us-
china-trade-war-escalates-how-will [Accessed 27 Apr. 2019].
Guillar, N. (2019). Poll: Southeast Asians See America’s Decline and China’s Rise.
[online] Available at: https://www.thetrumpet.com/18881-poll-southeast-asians-see-
americas-decline-and-chinas-rise [Accessed 28 Apr. 2019].
Ec.europa.eu. (2019). China-EU - international trade in goods statistics - Statistics
Explained. [online] Available at: https://ec.europa.eu/eurostat/statistics-
explained/index.php/China-EU_-
_international_trade_in_goods_statistics#EU_and_China_in_world_trade_in_goods
[Accessed 29 Apr. 2019].
Schuiling, A (2019). Trade Wars – is the EU next in line? - Insights. [online]
Available at: https://insights.abnamro.nl/en/2019/04/trade-wars-is-the-eu-next-in-line/
[Accessed 29 Apr. 2019].
Iseas.edu.sg. (2019). [online] Available at:
https://www.iseas.edu.sg/images/pdf/ASEANFocus%20FINAL_Jan19.pdf [Accessed
27 Apr. 2019].
Unescap.org. (2019). [online] Available at:
https://www.unescap.org/sites/default/files/publications/Survey%202019%20Final_1.p
df [Accessed 30 Apr. 2019].

Page 11/11