US-China Trade War: A Non-Zero-Sum Game

Updated: Aug 4, 2020

Written by Prerak Arora

Trump has criticized China’s ‘unfair’ trade practices way before he became President.

“We can’t continue to allow China to rape our country and that’s what they’re doing. It’s the greatest theft in the history of the world” in May 2016.

His thoughts were brought to action when in March 2018, he imposed 25% tariffs on steel imports and 10% tariffs on aluminum imports. However, first, we should examine why he imposed these tariffs. His primary purpose was to encourage domestic manufacturing and increase employment in the declining steel and aluminum industries in the US. These actions also seem to have resulted from extensive allegations on China for ‘dumping’ cheap steel and aluminum on the US market causing prices to fall, leading American producers who cannot afford to sell at these competitive prices, out of business.

Another reason is the US-China trade deficit; something that he has talked about a lot in his addresses. The U.S. goods and services trade deficit with China was $378.6 billion in 2018 with $179.3 billion in exports; $557.9 billion in imports by the US. He has always strived to decrease this trade deficit, hence, the protectionism.

Michael Bless, CEO of Century Aluminium, a US-based company says that Chinese dumping “nearly destroyed the domestic market”. By raising the price of imports, the steel and aluminum industries have become more competitive and therefore, employment in those sectors have increased, but with massive impacts on China’s producers, this is where the problem arises.

In basic international economics, trade wars lead to an increase in price for consumers by encouraging inefficient domestic producers to produce. These inefficient producers are the ones who cannot afford the low prices that the Chinese provide and are benefited with an increase in price due to such tariffs. These high prices, however, are paid for by the consumers, raising the cost of living.

That’s just the tip of the iceberg. With an enraged government, China retaliated with tariffs on US exports to China (ranging 15%-25%) on 128 products including fruit, wine, seamless steel pipes and pork that amounted to a staggering US$3 billion. These industries seem to have suffered a greater loss than the initial steel and aluminum markets.

US exports from these sectors have declined simply because buyers cannot afford the tariff surcharge that has been imposed. With businesses operating way below maximum capacity and closing down within a matter of weeks, The Trade Partnership projected a job loss of 402, 445 jobs across the United States due to the steel and aluminum trade retaliation.

‘Fresh trade talks” are said to be under review, but with the 2020 Presidential Election approaching, there is no chance that Trump will display weakness in front of his Republican followers. “Trade wars are good and easy to win" he said.

In this trade war between two of the largest economies, total US tariffs applied exclusively to Chinese goods are worth US$550 billion and total Chinese tariffs applied exclusively to US goods are worth US$185 billion. A trade war is a “lose-lose situation”, Chinese President Xi Jinping rightly said.


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