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Business and Finance

President Donald Trump and trade war

President Donald Trump began to rail against the threat of Chinese trade since his campaign. He stated that Chinese investors use unfair trade practices that cause harm to the economy of the United States. Trump further noted these practices are the primary contributors to the massive US-China trade deficits. As a result, he recently imposed $60 billion worth of tariffs on Chinese imports besides limiting the capacity of China to invest in the technology industry in America. Supporters of Trump have defended these actions, saying that they provide the means for reasserting the “sovereignty” of the United States on issues related to international trade and diplomacy. The US government conducted an investigation which has unearthed various Chinese unfair trade practices, especially the forced transfer or theft of intellectual property from US-businesses. Therefore, the action is an indication that Trump focuses on fulfilling his campaign promises.

However, the trade war initiated by Trump will likely hurt the US economy more than China. Experts including Professor Christopher Pissarides, the Nobel Prize-winning economist, said that open trade must result into losers and it is the role of the government to deal with them so that they do not feel left out to enable all people to benefit. Nonetheless, this case points out to the failure of the government to efficiently deal with losers. While the economy has been growing, some people have faced falling standards of living. As a result, the United States is likely to be the big loser if China and its allies shy away from the open trade policy. In this scenario, the people whom Trump purports to be protecting will be the casualties of the Trade war initiated by Trump.

Moreover, despite triggering the trade war with China, President Trump has not been precise on the steps he is taking to reduce the huge trade deficits between the US and China. Further, in spite of asking visiting Chinese officials to generate a master plan for cutting down the imbalance, he did not provide specific parameters for achieving the goal. Thus, according to economic experts, the vagueness and inadequate clarity by the Trump administration is likely to result in protracted trade whose consequence would mostly be borne by the United States. According to Edward Alden, Council on Foreign Relations senior fellow, Trump administration is not issuing any clear demands apart from constantly complaining about longstanding unethical business practices by Chinese businesses. As a result, this provides a retaliatory ground by Chinese officials, which in the end will escalate into a damaging conflict between China and the United States. Economists opine that as long as the trade conflict continues, the US consumers will be the bigger casualties.

Empirical studies show a disparaging picture of trade tariffs in the history of the United States. There is a consensus on the disastrous nature of the broad tariffs of the 1930s to the US economy. Similarly, economists agree on the ineffectiveness of the targeted tariffs imposed by US presidents over 40 years ago to protect the steel industry. Therefore, although some sections of experts opine that the new tariffs may not have a significant impact concerning shaving off the US economic growth, it can be predicted that a broader fight is likely to lead to disastrous consequences that might push the economy of the United States into recession.

Besides, starting a trade war with China is likely to broaden because china forms a substantial export market for many countries across the globe. For instance, according to 2017 data, exports to China accounted for one-third of Australia’s GDP from the exports. It thus implies that Australia and other Chinese trading partners will become part of the crosshairs, with the result of making the conflict global. However, despite the fact that China and its trading partners will find the war quite problematic, China will not feel the biggest brunt of the fallout because the United States needs China more than China needs it.

President Trump must realize that the 80s are long gone. Nearly three decades ago, there could have been a different scenario. By that time, China was still a developing economy, and direly needed access to Western manufacturing techniques and technology. However, at the moment, China has most of what it needs and can acquire whatever it does not have from vendors outside the United States. Besides, although the US market was quite attractive in the previous periods, it has become relatively stable and as a result, has been surpassed by other emerging economies that are more appealing to China. China can sell its best products to fastest growing markets such as Africa, Latin America and India. Contrastingly, the United States can hardly ignore the Chinese market. According to previous statistics, Chinese consumers bought over 131 million iPhones by 2015, but this is only a small proportion of U.S exports. Therefore, these are some of the evidence that the US will be the biggest loser in a case of a trade war with China.




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