New world order is about to emerge following the sudden rise of China’s economy to international prominence. The US economy, which has dominated the world since the onset of the 19th century, feels threatened. This is probably the most significant reason for a trade war between China and the USA. The two countries governments have used tariffs against importing goods from either. This is ironic, given that the two are the world’s largest trading partners. This report recaps an in-depth exploration of the likely impact of the tariffs on the trade between the two countries and the world at large. Furthermore, the cause of the trade war, which is now manifesting through the recently imposed tariffs by the two countries against each other, is investigated. The report demonstrates that tariff policies have far-reaching consequences, and besides, the cause of the trade war transcends the struggle for economic supremacy.
In the 1900s, world powers engaged in civil wars with each other to prove their supremacy, especially concerning political ideologies. The onset of a new century and millennium seems to have changed how these world powers confront each other. Precisely, the civil wars have metamorphosed into trade wars which are aimed at demonstrating economic supremacy. Currently, the USA and China are the world’s largest economies. Early this year, President Donald Trump was vocal about China’s insincerity in seeking to dominate the world, especially in Africa, through trade. China hit back by alleging that its trade motives in Africa and other regions were based on a win-win principle. This confrontation between the two countries has escalated into battles involving tariffs. On September 24, Washington imposed tariffs on Chinese goods worth $200 billion (Kuo, 2018). This was in addition to the tariffs on $34 billion worth of Chinese goods, which took effect in July (Kuo, 2018). In November, Trump’s administration passed a tariff of $16 billion on the trade data. In now what seems to be tit-for-tat taxes, Beijing retaliated by imposing tariffs on $60 billion worth of US goods and services. Like Trump’s administration, The Chinese government has accused the USA of harboring unknown interests that threaten to shatter the global multilateral trading system (Kuo, 2018). There are no signs that the trade war between China and USA will end soon, which means that more tariffs between the two countries will likely be quickly exchanged shortly. This report aims to investigate and demonstrate the effects of the tariff policy on the economy of the US, China, and the world. Besides, a profound investigation into the cause of this tariff war will be dealt with. The objective is to demonstrate that the policy has far-reaching consequences and that there are hidden causes of the tariff that do not directly affect economic supremacy.
An economy brings together different agents who engage in producing, distributing, and consuming various goods and services (Munim & Schramm, 2018). These “agents” could be the government, traders, consumers, or organizations. The distribution of goods and services is often facilitated by currency exchange. However, transactions in the economic domain are not necessarily through money exchange. Production in an economy is facilitated by using natural resources and the four factors of production: labor, capital, land, and entrepreneurship. Technology, though not classified as one of the factors of production, is nowadays unavoidable in producing, distributing, and consuming goods and services. Notably, the “production, distribution, and consumption” of goods and services occurs in certain industries and markets within an economy.
Meanwhile, an economy is determined, influenced, and shaped by a set of processes, including education, culture, technological evolution, political system, social structure and values, geographic location, and resource endowment. This set of processes influences the type of economy and how it must function. That is why China has an entirely different economy compared to the USA. This detailed examination of what an economy entails demonstrates that it is multifarious, and, hence, the impact of the policy on the economy of the US, China, and the world at large is heterogeneous. To adequately explore the specific impacts of the tariffs, it is necessary to look at the economies of the two countries separately before narrowing them down to the effects. That is a critical approach as it will lead to precise effects.
As outlined before, the USA has the world’s largest economy based on nominal GDP. Concerning purchasing power parity (PPP), the economy is ranked as the second largest (“World economic outlook databases,” 2018). Per capita GDP is the most popular measure of economic development in any particular economy. For the case of the USA, it has the 7th largest per capita GDP in the world, which indicates that the economy is highly developed, especially concerning living standards (“World economic outlook databases,” 2018). This amply developed and mixed economy has a significantly diversified industrial sector that is the largest globally. Concerning technology, it has a high industrial output ranked second after China (“The world factbook,” n.d.). The economic dominance of the USA is partially proved by using the country’s currency as the international standard legal tender. The US dollar is mainly used as a common currency worldwide due to its stability in value compared to other currencies. The US dollar is used as the official legal tender in a few countries.
The hegemony of the USA’s economy is primarily reinforced by its unparalleled science and technology, the system of government, and the country’s central role in international affairs. In the global spheres of trade, the US trades with other major economies, including China, the United Kingdom, Germany, Taiwan, France, and Canada, among other first-world countries (“Top trading partners,” 2016). Notably, USA’s largest trading partner is the People’s Republic of China (“Top trading partners,” 2016). In its trade with China in 2016, the USA exported and imported goods and services worth $115.8 billion and $462.8 billion, respectively (“Top trading partners,” 2016). Considering that the USA has already imposed tariffs exceeding $50 billion worth of goods from China, it is apparent that the tariff policy could potentially harm the country’s trading relationship with China. Besides, the domestic economy is likely to suffer as well.
Like the USA, China has an economy that is robust and leading internationally. This highly diversified socialist market economy has been ranked as the world’s second-largest economy, after the USA, based on GDP (“The changing of the guard,” 2013). Based on purchasing power parity (PPP), China’s economy leads internationally. China and the USA are currently engaged in a tough trade war, which could be explained by their position as the world’s leading economies. For the last 30 years, China has experienced the highest economic growth rate of about 10% (Schwartz & Abrams, 2017). This growth has catapulted the country from developing into one of the leading first-world countries. Unlike the USA’s economy, where the private sector dominates over the public sector in contributing to the exchequer, China’s public sector has dominated the national economy. Still, the flourishing private industry might change the order in the near future. The public sector-dominated economy is a result of the political ideology (socialism) that has been embraced for over a century. A report by the International Monetary Fund (IMF) ranked the country in the 71st position based on nominal GDP per capita and 78th based on GDP (PPP) in 2016. This ranking, of course, took into consideration the more than 2 billion Chinese citizens and, hence, the reduced per capita figures.
Concerning natural resources, China is adequately endowed. Its natural resources are valued to be worth $23 trillion. Most of these natural resources (90%) are coal and rare earth metals. Interestingly, China is the leading economy regarding banking sector assets, valued at $39.9 trillion (“China banking sector’s total assets reach 252 trillion yuan,” 2018). A few other interesting facts about the Chinese economy make it supreme at the global level. For example, it has the world’s largest manufacturing sector. Besides, it is the leading exporter of goods and the second largest importer after the USA (Barnett, 2017). It is the largest importer of service products, mainly from the USA economy. Given its position in exports and imports, China’s economy is the most influential in international trade. In recent years, its increased efforts to reach out to other countries for trade and signing treaties have elevated its economy to a leading position in the international arena. Though it is not as industrialized as the USA, its coastal provinces have morphed into industrial parks, and the same trend is creeping into the hinterland regions.
The USA’s export industry is estimated to be worth about $.2.2 trillion (Wile, 2012). In 2008, the country experienced a historical recession dubbed “the 2008 financial crisis.” The Export Nation 2012, a report by Brookings, outlined that exports played a critical role in catapulting the economy back to a recovery path (Wile, 2012). For the first time since 1997, exports grew by 11% in 2010. The employment rate also started increasing by 6% during the same year. Approximately 61% of the country’s exports are from the manufacturing industry. According to Workman (2018), in 2017, the USA exported goods worth $1.547 trillion to various destinations worldwide, but, of course, the most significant proportion went to China. This was an increase of 6.6% in 2016. Exports account for about 12.2% of the GDP (Workman, 2016). The following figure indicates the most critical goods exported by the country.
Figure 1: American Exports (data from http://www.worldstopexports.com/united-states-top-10-exports/)
Over 80% of the imports received in the USA are goods, and they are estimated to be worth about $2.4 trillion (Amadeo, 2010). About 27% of the imports are capital goods worth more than $641 billion (Amadeo, 2010). Capital goods refer to computers, electrical and electronic equipment, and semiconductors used in the manufacturing of integrated circuit technology. Consumer goods are the most significant imports, costing about $602 billion (Amadeo, 2010). In this context, consumer goods mean cell phones, televisions, apparel and footwear, and pharmaceuticals. Notably, these low-cost consumer goods are the foundation of the country’s consumer spending. Less than 25% of the country’s imports are industrial machinery and equipment (Amadeo, 2010). Petroleum, the most significant product to be imported under this category, accounts for over $183 billion. Automotive vehicles, parts, and engines, which are worth over $359 billion, are the fourth most significant category of imports in the USA (Amadeo, 2010). About 18% of the imports are services which include travel and transportation services, business and computer services, and banking and insurance (Amadeo, 2010). It is worth noting that the USA imports more than it exports; hence, its economy operates at a trade deficit.
It is not by surprise that China is the largest export economy internationally. Besides, it is among a few countries whose economies operate in a trade surplus. In 2016, China’s exports were worth $2.27T compared to imports worth $1.23T (“OEC,” n.d.). The trade balance, hence, was $1.04T. The flowing table summarizes the country’s key exports to the rest of the world.
Table 1: China’s primary export goods
As highlighted before, China’s largest trading partner is the USA. Out of its exports worth $2.27T, $436B went to the USA(“OEC,” n.d.). This is equivalent to 19%. The following table illustrates China’s export to the rest of the world.
Table 2: Exports Destinations
In 2016, China imported goods worth $1.23T. The huge Chinese population means that the country has a vast consumer market. The following table gives a snapshot of the critical goods imported in 2016.
Table 3: Import goods by value
China’s largest trading partner is the USA. This means that majority of the country’s imports are sourced from the USA. The following table shows China’s imports’ origin.
Table 4: Origin of the Imports
Tariffs are taxes and duties levied on imports as a percentage of the total value of goods (Mishkin & Serletis, 2016). Unlike sales tax, tariffs levied on imports vary depending on the types of goods. Although they are perceived as protective measures for the domestic economy, tariffs rarely fail to hurt the economy that imposes them, given that the costs which ensue outweigh the benefits realized. Recently, the USA and China, the largest economies and great trade partners, have waged war on each other based on tariffs. The impact of these tariffs is multifaceted in that trade between them will be affected, and, as a result, the trickle-down effect will lead to their economies suffering. The effects will likely disseminate to the rest of the world’s economies. The following section explores the likely effects starting from the trade between the two countries, the effect on the domestic economies, and the impact on the world.
It has been highlighted that USA and China are great trade partners. The USA’s most significant imports come from China (21.1%). For exports, the USA ships approximately 8% of its goods to China. In total, 15.9% of the trade the USA engages in is with China. In the case of China, a similar picture is portrayed. About 19% of the exported goods from China are shipped to the USA. Approximately 25% of imports are shipped from the USA. These figures were recorded in 2016 when the two countries enjoyed cooperation characterized by insignificant tariffs.
So, what do the current tariffs mean to the highlighted trade between USA and China? Well, a tariff acts as a trade embargo. The most obvious impact is that tariffs will discourage exporters since they will incur extra costs to accept their goods in the importing country. Today, the two countries have imposed tariffs against each other exceeding $50 billion. This is more than 10% of the goods exported by each country. Concerning imports, local traders will be discouraged from sourcing their merchandise from a foreign country since they will incur higher costs. In brief, the net exports will significantly reduce, which means a big blow to the bilateral trade between China and the USA.
The exchange rate is another aspect of the bilateral trade between China and the USA that is set to suffer from the effects of the tariffs. When an extra tax or duty is adopted on imports in the USA, Americans will use more dollars to buy a commodity that could have been purchased at a lower cost. If a currency buys lesser goods with time, its value depreciates (Mishkin & Serletis, 2016). The same scenario is expected on the Chinese side. More yuans will be required to purchase fewer goods than before. In the long run, the exchange rate will eventually increase, and any speculation in the money market will likely endanger people from spending. Hence, the overall trade between the two countries will subside.
If imports become expensive, their demand will decrease, and consequently, the exporting country will have to cut its total exports. For example, suppose the costs of consumer goods being imported into the USA from China become expensive due to the tariffs imposed on them. In that case, the Americans will be compelled to cut their consumption, and imports will become less desirable to them. China will be forced to cut down its value of exports destined for the USA. This is the same case that will happen to USA’s exports destined for China. In the long run, bilateral trade between the two economies will be hindered.
For the consumers in the two countries, tariffs will technically reduce their buying power. As highlighted above, tariffs increase the price of imports. The consumers acquire the imports through their disposable income. An increase in price while the wages remain unchanged means that the purchasing power will decrease (Mishkin & Serletis, 2016). Imports will consequently lose demand. None of the countries will be willing to export large volumes of goods due to the decreased demand. Eventually, the bilateral trade will crumble.
It is sad to highlight that the trade war between China and the USA might flop international trade. To start with, the USA is a leading economy that not only dominates the economies of other countries but also influences them. If China continues to enact tariffs directed at American imports, the dollar’s value will depreciate. As a currency used as the standard legal tender in almost every country, its loss of value is likely to have far-reaching effects. Meanwhile, the trade war between China and the USA will likely discourage manufacturers from producing goods since their most important markets are no longer favorable. For instance, China is a leading manufacturer of low-cost cell phones and computers. Tariffs in the USA will decrease the demand for the two commodities, and given that America is the largest buyer, manufacturers in China are likely to cut down their production. As a result, an acute demand for low-cost cell phones and computers is set to increase steadily at the international level leading to supply shortages. In brief, the trade war will likely disrupt the global market forces leading to a collapse of international trade. Last but not least, the trade war on tariffs between the two countries is likely to degenerate into a global political and social disharmony, especially along the lines of allies. With a tense international atmosphere, there is no doubt that global trade will suffer a blow.
To ordinary Americans and Chinese, their ability to buy imported goods will decrease due to their high cost resulting from tariffs. When a government imposes tariffs, there is an expectation that the local industries will produce goods without fierce pressure resulting from the external competition (Mishkin & Serletis, 2016). While this is true, the ensuing demand following the unaffordability of imported goods will entice local producers to increase their prices. An increase in prices across the board will lead to inflation (Mishkin & Serletis, 2016). Such an outcome harms the domestic economy as it reduces its production capacity. Meanwhile, reduced imports and exports imply that the trade balance will be negatively affected. The USA operates on a trade deficit. The decrease in exports will worsen this deficit. In the case of China, the country has a trade surplus. The reduction in net exports will propel the economy toward a trade deficit. Overall, the ability of the two countries to trade will diminish.
The world is witnessing an escalated tariff war between two of the world’s largest economies, China and the USA. The US side has initiated the trade war in almost all incidences. Much of China’s tariffs on US products come as a retaliation measure. President Trump is obsessed with protectionism. As a result, he is determined to keep imposing massive tariffs on countries he believes employ unfair international trade practices with the US. China has been a victim of this trade barrier on numerous occasions. It has almost become routine for the US to impose particular tariffs on China and for China to retaliate with similar measures. Analysts cannot tell for how long this trade war will last. While the US imposes tariffs on a host of other nations, it behooves us to note that the US-China tariff war is motivated by certain factors. Protectionism, the widening US-China trade deficits, prevention of “dumping,” the need to stop US intellectual property theft by China, and revenue generation are known motivators on the side of the US. In addition, the inevitable retaliation by China has increasingly heightened the trade war.
It is worth noting that president trump based his campaigns on the promise of bringing fair trade practices to the US. In pursuing his promises, Trump has found himself at odds with long-term trade partners, particularly China. Trump subscribes to the notion that protection will result in prosperity. Protectionism applies higher import taxes to shield domestic industries from the excessive competition (BBC News, 2018). The idea of charging higher border taxes on China products immensely appeals to Donald Trump. Owing to the increased levies, Chinese products have become expensive in the US markets, making them undesirable relative to local items. As a result, US-made products gain a competitive advantage as they are cheaper and more appealing to the local populations (Mishkin & Serletis, 2016). Tariff adherents, a discourse to which Trump belongs, believe that imposing higher tariffs helps bring back jobs overseas countries would otherwise drain.
As a president, one can understand Trump’s efforts to boost the US industries by preventing their exposure to foreign competition. Besides, the Americans will judge him on what good he has brought to the US and not the world. Guided by the desire for a fairer trading environment for US businesspersons, firms, and manufacturers, Trump views tariffs on imports as the ideal solution. The steel and aluminum tariffs are excellent examples of Trump’s protectionism. The US announced an increase in tariffs for aluminum and steel imports at 10% and 25%, respectively, in March of 2018 (BBC News, 2018). While the US produces a substantial quantity of steel products, it does not make enough steel to sustain its domestic demand. Experts project that in the event of war, the US would struggle to make enough steel for auto and weaponry production. For this reason, the US resorts to importing steel from Canada, Mexico, South Korea, Brazil, China, Japan, and the European Union (EU) (BBC News, 2018). With about $90 million of Chinese steel exports to the US, China is a significant trade partner as regards steel importation. Although China is not individually targeted in this tariff case, it still suffers considerably. The high influx of steel has flooded the US market to the extent that American steelmakers are severely strained business-wise.
Figure 1: Major exporters of steel to the US
Trump’s policy of higher tariffs is expected to persuade US companies to prefer US-produced steel over imported steel. In the long run, it is projected that the US steel and aluminum industries will improve performance as more local steel gets sold (BBC News, 2018). The reduced influx of foreign steel will cause a shortage in the supply of steel products in the US markets as more Chinese and abroad steelmakers hesitate to export their steel to the US in fear of loss-making. Consequently, prices of steel products will adopt an upward trend, something that Trump believes will work to increase profit margins for local steelmakers (BBC News, 2018). According to Trump, this relief will be critical to the opening of closed mills, the revival of idled steel-production facilities, the reduction of US dependence on imported steel, and the preservation of steelmaking skills in the US as more workers get employed in the new mills (Reed, 2018). Moreover, Trump believes that the inability of the US to produce adequate steel poses a significant national security threat. For these reasons, Trump is convinced that tariffs on steel and aluminum imports are necessary. On the one hand, the tariff policy has worked in favor of the US steelmakers, who have obtained a significant boost in terms of new job opportunities and higher profits. On the other hand, the demand for steel by big brands such as airplanes and carmakers may increase production costs (Reed, 2018). End consumers may become victims of higher prices for cars and planes. Trump’s main objective is to eliminate every factor that hurts the US manufacturing industry. To him, the tariff approach is a means of tackling the elements that continue to cripple the US manufacturing sector.
The US takes issue with the large trade deficit between the US and China. Essentially, the US consumes more China-made products than it exports to China. Although some economists question the figures, there is no doubt that China has the edge in this case. Analysts claim that the high trade deficit is why American jobs are relocating to China. The US Census Bureau shows that in 2017, the US-China trade deficit stood at $376 billion (Amadeo, 2018). This discrepancy is due to the vast importation by the US relative to the small exportation of products to China. With a value of $130 billion in 2017, the exportation rate of the US was dwarfed by its Chinese counterpart, which stood at $506 billion in the same year (Amadeo, 2018). When critically analyzed, the US ought to have the edge concerning the trade deficit. This “imbalanced” feeling may motivate President Trump to keep imposing tariffs on China products.
Major imports from China include computers and accessories valued at $77 billion, cell phones at $70 billion, and apparel/ footwear at $54 billion (Amadeo, 2018). Notably, most of these imports are manufactured by US brands that have relocated to China in search of low-cost production. Many US companies are considering stationing their production and assembly plants in China, where labor and raw materials are cheap and readily available (Amadeo, 2018). Some US enterprises that have outsourced to China include IBM, Access Electronics, AIG, and AMD, to mention a few. Although the products made by these companies are supposed to be classified under the US inventory, they are considered imports once they land in the US ports of entry (Amadeo, 2018). Exports from the US to China include commercial aircraft valued at $16 billion, autos at $10 billion, and soybeans at $12 billion. The total of these notable exports, alongside many others, is not enough to match the many products coming from China. President Trump states that the values do not represent the actual export proportions between the US and China. His move to impose tariffs on Chinese products is intended to restore some equilibrium the US finds hard to find with their reduced exports. Even worse, Chinese retaliation has resulted in the cancellation of soybean exports to China thanks to Trump’s tariffs on Chinese steel exports (Amadeo, 2018). Unfortunately, if Trump’s attitude to go the tariffs remains, and more US companies migrate to China, the trade deficit can only widen.
The root cause of China’s higher edge in the case of trade deficit is its ability to produce many products at a relatively lower cost. In the end, they can manufacture cheap products without compromising quality. To the Chinese delight, low prices appeal to all populations across the globe. This competitive pricing is predicated upon the stable Chinese Yuan against the dollar and the relatively lower standards of living of the Chinese people (Amadeo, 2018). China is labeled the largest economy in the world. In addition, there is no labor force shortage as China’s population is approaching the 1.5 billion mark. Companies in China are, therefore, justified to pay their workers lower wages. In contrast, the US has wage laws that all employer companies must adhere to. Consequently, the high salaries paid to workers in the US tend to increase the cost of production and, subsequently, the cost of US-made products (Amadeo, 2018). It is improbable that the trade deficit will dwindle in the near future. With the prevalence of President Trump’s protectionist policy, the US population will be compelled to purchase expensive “made in America” products. Even so, most people would instead opt for the cheaper Chinese options even with the jobs of their fellow Americans hanging on the line.
China’s triumph over the USA does not impress Trump’s administration. Several moves have been implemented to give the USA the much-needed competitive edge in the international platform. By way of example, the USA has already imposed tariffs on steel and aluminum products, most of which come from China (Amadeo, 2018). That being the case, Chinese steel and aluminum products that penetrate the US market sell at a comparatively high price, making them the undesirable option. It should be noted that the tariff on steel and aluminum products is just one among many others. Previously, Trump had imposed tariffs on imported solar panels (Amadeo, 2018). Markedly, China is the top manufacturer of solar panels. In a way, Trump’s tariffs seem to target China significantly. Trump’s administration is currently working on more anti-china protectionist measures (Amadeo, 2018). Through the many tariffs, Trump intends that China scraps the need for US brands to transfer their technological advancements to their Chinese firms (Amadeo, 2018). On the other hand, China would love for this requirement to stand so it can easily access the technology market. Once again, it seems unlikely that the trade deficit will soon reduce.
President Trump views the stiff tariffs on Chinese goods as a payback means for the harmful and unfair acquisition of US technology. US-based analysts suggest that China’s theft of intellectual property (IP) costs the US economy massively (Saady, 2018). The scope at which China is accused of misappropriating US IP is shocking, yet, there are numerous aspects of truth in these accusations. For example, a federal judge recently ruled that Sinovel, a Chinese wind turbine enterprise, stole instrumental IP from American Superconductor (AMSC), a tech company based in Massachusetts (Saady, 2018). The Theft of American Intellectual Property (IP Commission) claims that the US loses a lot of billions to China, estimated to be between $225 and $600 billion per year (Saady, 2018). President Trump did not hesitate to mention these “facts” when announcing the $34 billion tariff on Chinese products in July 2018 (Kuo, 2018). Americans have continued to suffer as their technology illegally falls into the hands of the Chinese, who utilize it to make “counterfeited” items that rival US-made products. Although the evidence to prove these accusations has been readily available, previous regimes have been hesitant to confront China uncompromisingly. Be that as it may, things have drastically changed after president Trump assumed the US presidency in 2016. Trump has resolved to use tariffs to minimize Chinese interference with American IPs. Notable leaders praise Trump’s aggressive tactics in countering China’s IP theft (Saady, 2018). Daniel McGahn, the CEO at AMSC, publicly uttered that Americans are proud to have a president who dares to take decisive actions against the deceptive Chinese.
Owing to its interest in the issue, the Chinese government has no reason to get tough on the crime of IP theft. In most cases, the US authentic technology benefits the Chinese government, registering a vibrant manufacturing industry within its borders. It is often argued that China’s current stature as a manufacturing hub resulted from prior IP thefts (Saady, 2018). Unscrupulous agents and characters who have access to foreign trade secrets receive bribes from influential Chinese people who use the acquired technology to imitate American products. In the Sinovel case, AMSC had allowed Sinovel to use its software at a fee conditionally. After abiding by the signed contract for several years, Sinovel bleached the initial agreement by failing to pay for its software. It was then discovered that Sinovel had unscrupulously acquired the source codes to AMSC’s software by bribing one of the AMSC tech officials. The subsequent events devasted AMSC, forcing it to scale down its labor force by 70%. Its market value was also heavily dented with a $1.4 billion reduction (Saady, 2018). Eventually, AMSC relocated to a smaller locality for sustainability purposes. Disgusted by the high cost accrued by the US for illegitimately losing IPs to China, Trump stays put when it comes to making the Asian giant country feel the pinch.
Sinovel’s example is just a drop in the ocean. According to Chris Wray, the FBI director, most investigations seeking to unveil IP thefts lead back to China (Saady, 2018). Instances of counterfeit products by the Chinese have grown too familiar in the US. In another significant episode, Xiaolang Zhang, a former employee of Apple, was arraigned in July 2018 on his way to China (Saady, 2018). Having worked as an engineer in the field of autonomous cars, Zhang had planned to use Apple’s secrets to set up a motor company in China. In yet another incident, Huawei, a well-known Chinese telecom company, was found guilty of stealing T-Mobile’s technology (Saady, 2018). While on tour to T-Mobile’s headquarters, a Huawei engineer was responsible for this crime. While some IP theft cases have been punished, others do not abide by the tenets of justice and international intellectual property law. China is hungry for US technologies, and the most troubling aspect of IP theft is that the Chinese government has zero incentives to spark an intensive crackdown on perpetrators (Saady, 2018). With this knowledge, Trump’s administration is ready to impose more tariffs on China-made products as a strike back tactic. Unfortunately, China’s retaliation means that Trump’s efforts do not achieve the desired results.
Trump’s move to impose higher taxes on imported Chinese goods is partly premised on the US IP theft by China. In numerous episodes, Chinese companies have been found guilty of counterfeiting products. Theft of trade secrets, pirated software, and counterfeit goods made in China are why the US continues to lose hundreds of billions (Shaner, 2018). Trump’s primary goal is to ensure that the Chinese steal no US IP in the future. A reduction in future losses made from fake goods is also on President Trump’s plan. Trump has accused China of counterfeiting US-made products triggering huge losses and catastrophic reputational damage to many US brands. Indeed, there are aspects of truth in Trump’s indictments. China is the source of many counterfeit products (Abbey, 2018). Mainland China is known to be the largest source of counterfeits in the world. 63.2% of the goods seized in 2013 came from mainland China (Abbey, 2018). Although Trump’s main objective is to protect US businesses, he also minds the welfare of Americans by imposing stiff tariffs on products emanating from China. Americans who buy counterfeit products that manage to penetrate the US market obtain no value for their money. Tariffs work to discourage counterfeiters from exploring the US market, and, as a result, consumers enjoy genuine products made in the US or from other legitimate sources.
Despite being a secondary motivator, revenue generation is part of the factors amplified by the US-China trade war. Experts argue that the primary purpose of imposing tariffs on foreign products is to attain free and fair global trade in the long term. These economists also add that tariffs are a poor means of generating government revenues. Even so, the scale at which President Trump has imposed tariffs on China and other countries suggests a hidden agenda. Small tariffs would no doubt generate insignificant revenues.
In contrast, massive tariffs would result in substantial financial gains on the US side. Since implementing the steel and aluminum tariffs, the Trump administration has accumulated revenue of over $1.4 billion in four months. Notably, this new revenue would otherwise be absent if not for the tariffs. The Congressional Research Service (CRS) valued the revenue collections between March 23 and July 16 to be $1.1 billion and $344.2 million, respectively (Dhue & Tausche, 2018). These earnings are at a record high owing to Trump’s hiked tariffs. CRS contends that Trump’s trade barriers in the form of tariffs would bring over $7.5 billion to the US economy. Steel imports are projected to generate about $5.8 billion, while its aluminum counterpart makes the remainder of $1.7 billion (Dhue & Tausche, 2018). The fact that Trump already has a purpose for the projected revenues proves that the US intends to capitalize on tariffs to make as much monetary income as possible to supplement its budget. Trump envisages a situation where the tariff income is used to reduce the widening US-China trade deficit (Dhue & Tausche, 2018). Furthermore, the increased funds from Chinese imports will be devoted to paying US debts that Obama’s administration left Trump claims. Having witnessed the monetary benefits of imposing more tariffs, Trump has a credible reason to keep imposing more tariffs on China-made products.
The US-China trade war continues to hit global headlines in economics. These two countries are trapped in a never-ending battle of trade restrictions on each other. Trump holds on to the promise to fix China’s unfair trade practices. He has unleashed a wave of tariffs on China-made products in his quest to bring sanity to the global trade that he believes China operates unfairly. In return, China hits back at every extra tariff imposed on her. In other words, no single US tariff goes scot-free. As one would expect, this inter-country fight brings about particular influences that affect the nations in question and many other economies. The overall trade between China and the US suffers as more people opt not to spend their currencies on expensive imports. The bilateral trade relationship between the two superpowers, which has existed for decades, is also likely to be severely damaged as “selfish interests” reign. International trade at large will also experience a decline since the US and China are the two most significant economies. The stature of these nations exceeds ordinary as they have the power to influence their allies. Although the US and China think that aggressive tariffs are the solution, the resultant implications may prove too costly for both economies in the long run.
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Published On: 07-11-2018
