Assignment Sample on MMN324978 Global Finance
Trade war is a major issue of globalization that aims towards the destruction of the economic stability of a country by imposing higher tariffs on cross border trade. In this article, the trade war between China and the United States is used in detail. The United States has been facing constraints from China since ancient times. These challenges of cross border trade have been enhanced during the pandemic of covid-19. This article aims toward a detailed discussion of major barriers of cross border trade between the United States and China. Recommendation and alternative methods of trade between these two countries are also discussed in this article.
Background
Economic conflict between the United States and China has provoked trade war between these two countries and it reduces scope of international trade among these two countries. The United States has imposed higher tariff rates on Chinese products (Lau, 2019). As a result, China cannot export its products into the United States and the economic stability of China is highly impacted. During this pandemic of covid-19 When countries were allowing free trade across borders, United States did not allow flexibility in export of foreign products from China. As a result, trade conflicts are increasing between China and US, which is leading to an adverse impact on economic condition of both countries. China-US trade war was mutated and revenues earned from US-China trade amounted to $579 billion in 2016. However, after election of Donald Trump as president, trade war was enhanced as 45% punitive tariffs was levied upon Chinese products (Li et al. 2018). As per government of United States, higher tariff rates in China are imposed so that Chinese government can be forced to prevent unfair trade practices and intellectual theft of property. China focuses on local products and does not aim to use foreign technologies in Chinese organizations. As a result, US government wants China to accept American technology so that American profit margins could be enhanced. As a consequence, higher tariff rates deployed by America towards China, aims towards forcing the Chinese government to deploy American tech biggies in their business organisations. Economists have reviewed this trade war and its negative impacts. It is evident that China and the United States could have developed their comic conviction by joining hands, rather than deploying policies to prevent cross border trade (Liu and Woo,2018). Moreover, the financial stability of both countries is facing changes due to this trade war.
Context of problem
The major reason behind the US China trade war is the deployment of unfair trade policies. Both the United States and China have not maintained fair policies while conducting cross border trade. Policies deployed by World Trade Organizations were not maintained by China. As a result, unfair trade practises led to the United States accusing China of such unfair treatment in cross border trade (Carvalhoet al. 2019). However, China’s preferences for its local products increased and it further prevented the sale of products from the United States. As a consequence, the United States also enhanced their tariff rate so as to force the Chinese government to prevent unfair trade practices. With passing time, the US-China trade war is converting itself into a cold war that is designing economic growth for both countries. As stated by Chong and Li (2019), China’s economic assets decreased by US$ 938.61 billion as a consequence of the trade war between the United States and China.
A two-stage plan was released by US government to reduce bilateral trade with China. United States raised issues of cross-border trade with China as on June 15, Donald Trump imposed 25% ad valorem tariffs on Chinese products that were imported and were worth $50 billion. In the second phase, 10% ad valorem tariffs were imposed on another bulk of Chinese products worth $400 billion (Everycsrreport.com, 2021). An issue that concerns United States against trade in China is its cyberespionage strategy where Chinese government tries to gain access to a confidential field of United States through a cyber pathway. China has an ineffective record of enforcing the intellectual property right of United States and its interventionist policy impacts US economic stability indirectly. Interventionist policy and industrial policies of China also have an indirect impact on job losses in United States.
Barriers of US-China trade
- Protectionism
The major reason that leads to the issue of US-China trade is the theory of protectionism. As per protectionism, a country does not allow foreign trade to occur so as to promote its local products. In the Case of US-China trade, the Chinese government has put several restrictions on US products and as a result, sales of US projects have decreased considerably in China. On the contrary, United States has enhanced tariff rates for Chinese products and China is also facing loss margins. United States has also deployed ways of restricting China’s products into us-based companies (Sukar and Ahmed, 2019). Similarly, Chinese customers are encouraged to buy local products only. The Chinese government supports protectionism theory so as to enhance the sale of their local products and it also enhances their economic stability. However, this theory is restricting United States from supplying its technology to Chinese firms. As a result, a trade war is creating an adverse situation in both these countries. Local protectionism creates an economic bloc game for countries following it. As an example, China and America are facing economic stability as they are not allowing cross-border trade within each other’s borders.
- Lack of bilateral trade
Bilateral trade is a form of cross-border import and export facility that allows the transport of goods at a lower tariff rate. In this era of globalization, many countries are promoting bilateral trade so as to encourage globalization. International trade enhances economic stability at a higher rate when compared to national trade. However, China and US do not support bilateral trade and United States has imposed higher tariff rates on China, in order to restrict it from exporting products to United States (Evans, 2019). China follows a number of state-based policies that do not allow sales margins of international countries like United States to increase. On the other hand, bilateral can lead to enhancement of cross border trade as tariff rates are reduced and trade barriers are also diminished. However, lack of support towards bilateral theory provokes both Chinese and American governments to make trade rules that can prevent cross border trade. As a result, United States has a trade deficit with China of $310.8 billion in 2020 (Amadeo, 2021).
Recommendations
- Strengthening of WTO
World trade organisations work to resolve trade issues between different countries. Therefore, in this trade war also, we must make policies so that none of the countries can break the rules of international trade. United States should be restricted from enhancing the tariff rate by buying a limit that shall be set by two. Similarly, the Chinese government should be prevented from diminishing the sales rate of United States. Moreover, WTO must take steps to penalize countries that do not follow their international trade rules and regulations (Adekola, 2019). WTO promotes bilateral trade and encourages countries to prevent trade barriers. However, United States and China do not follow these rules. Therefore, world trade organizations must be strengthened in their approach of encouraging free trade across borders.
- Meetings between Chinese and US government
Meetings should be held against the governments of United States and China. These meetings shall be held in a peaceful manner and it shall include discussion of needs and demands of both countries. Similarly, such meetings shall evaluate the major trade goals of these two countries. Negotiations should be done and common terms of cross-border trade must be set during these meetings. Common understandings must be developed among these countries so as to mitigate economic issues in United States and China. The compromise of “buy more” ideology can reduce the conflict between China and US (Lai, 2019). As per this “buy more” propaganda, Trump encourages American citizens to buy more of local products and prevent sale of Chinese products. Exchange of progressive trade plans should be another motive of this agreement as well.
- Establishment of bilateral advanced group
This group must be formed by US and China unitedly. This group must consist of highly skilled military personnel, government authorities, and decision-makers from national security. As a consequence, they would work to remove biases and promote free trade between these two countries. Similarly, this group would find common goals between United States and China (Lin and Wang, 2018). Members of this group must have technical skills to revive data from IT tools of both countries so that efficient decisions can be taken for mitigation of trade war. As a result, this group shall also find out cyber issues conducted by China to spy against United States.
- Analysis of common terms between US and China
There are certain common trade objectives of China and United States that can bring them together and present their war between these two countries. Every country has a need for the enhancement of global trade as it increases economic growth. The common terms must be evaluated to reduce tariff rates and trade biasness. For example, United States is a developed country that wants to invest in several aspects to earn higher returns. China, being a developing country needs investment. Therefore, these two countries must sit together and discuss their common objectives to mitigate an unnecessary trade war.
- Reduction of tariffs and initiation of free trade
Enhancement of tariff traits enhances price of foreign products in China. However, China’s local market provides products at a lower rate, as a result, customers are not attracted towards highly-priced US products.Similar issues are faced by Chinese products in United States. Therefore, bilateral trade must be promoted and both countries should reduce their tariff rates to enhance free trade (Steinbock, 2018). Moreover, China must also prevent deployment of any such rules that can indirectly or directly harm employment status of American citizens. Liberal industrialist and interventionist policies must be implemented by the Chinese government.
Conclusions
Overall, it can be concluded that US-China trade war is turning into a cold war and it will have an adverse impact on the economic stability of both countries. Lack of bilateralism and enhancement of protectionism theory is enhancing trade issues between China and United States. As a recommendation, it must be stated that there is a need for a meeting between these two countries so that their needs and demands can be abused, along with evaluation of their common goals. A clear form of communication can help these two countries to evolve out of their financial crisis. China needs to reduce its support for local products only, whereas, our government needs to reduce tariff trade. United States and China need to understand the importance of globalization so as to enhance their economic growth by a higher percentage.
References
Adekola, T.A., (2019). US–China trade war and the WTO dispute settlement mechanism. Journal of International Trade Law and Policy.
Amadeo, K. (2021). U.S. Trade Deficit With China and Why It’s So High.[online] Available at: https://www.thebalance.com/u-s-china-trade-deficit-causes-effects-and-solutions-3306277[Accessed on 28.12.21]
Carvalho, M., Azevedo, A. and Massuquetti, A., (2019). Emerging Countries and the Effects of the Trade War between US and China. Economies, 7(2), p.45.
Chong, T.T.L. and Li, X., (2019). Understanding the China–US trade war: causes, economic impact, and the worst-case scenario. Economic and Political Studies, 7(2), pp.185-202.
Evans, O., (2019). The effects of US-China trade war and Trumponomics. In Forum Scientiae Oeconomia (Vol. 7, No. 1, pp. 47-55). WydawnictwoNaukoweAkademii WSB.
Everycsrreport.com (2021). China-U.S. Trade Issues. [online] Available at: https://www.everycrsreport.com/reports/RL33536.html [Accessed on 28.12.21]
Lai, E.L.C., (2019). The US–China trade war, the American public opinions and its effects on China. Economic and Political Studies, 7(2), pp.169-184.
Lau, L.J., (2019). The China–US trade war and future economic relations. China and the World, 2(02), p.1950012.
Li, C., He, C. and Lin, C., (2018). Economic impacts of the possible China–US trade war. Emerging Markets Finance and Trade, 54(7), pp.1557-1577.
Lin, J.Y. and Wang, X., (2018). Trump economics and China–US trade imbalances. Journal of Policy Modeling, 40(3), pp.579-600.
Liu, T. and Woo, W.T., (2018). Understanding the US-China trade war. China Economic Journal, 11(3), pp.319-340.
Steinbock, D., (2018). US-China trade war and its global impacts. China Quarterly of International Strategic Studies, 4(04), pp.515-542.
Sukar, A. and Ahmed, S., (2019). Rise of trade protectionism: the case of US-Sino trade war. Transnational Corporations Review, 11(4), pp.279-289.
