US and China Trade War

The US And China Trade War Is Continuing But How Bad Is It Really?

Curiously, the US and China trade war continues to get more intense, but the American economy is currently thriving. So, just how bad is it?

Us And China Trade War

On Friday morning, Donald Trump and China officially kicked off their trade battle, as Trump’s government announced they would be following through with their set of tariffs on Chinese products, valued approximately at $34 billion worth of goods (1).

The escalating trade war between these two powerful economies could potentially hurt both consumers and companies in American as well as in China.

The Chinese responded with their own set of tariffs shortly after Trump’s, imposing restrictions on goods like cars, soybeans, and pork; all major American commodities (1).

In a statement, China’s Ministry of Commerce said the United States government was creating the “biggest trade war” in the history of the world economy (1).

Economists are expecting that the trade war will reverberate throughout global supply chains, raise the costs of doing business for both companies and consumers, affect the international stock market, and add to the growing tension between the United States and China (1).

And Trump has no intentions of backing down either. While on the Air Force One, the president said he would be imposing tariffs on $34 billion of goods, and subsequently would introduce another $16 billion (1).

Additionally, according to The Times, he considered the possibility of imposing another $450 billion worth of tariffs on Chinese products (1). Currently, no one knows how this is going to end.

Nonetheless, every threat made by Donald Trump has been met with retaliatory threats and tariffs from the Chinese government, and there doesn’t appear to be an end in sight (1).

Curiously, all of this is going on in a time where the American economy is booming. However, it’s possible some of this will hurt American industry down the line, as it is has done in the past.

Trade Wars Throughout History Have Typically Worsened International Relations

Historically, trade wars haven’t been good for business (4).

For example, in the following decades after the United States Civil War, the Republican party was the party of protectionism and were adamant on promoting their own economic interests (4).

The United States government rescinded their reciprocity treaty with Canada in 1866, and the Canadian government responded in turn through tariff retaliation (4).

And in 1879, the Canadian government, controlled by the Conservative party at the time, enacted their own protectionist policies (4).

As a result of the tariffs, American companies like Singer Manufacturing, International Harvester, Westinghouse, and American Tobacco, decided to ship their production facilities to Canada to avoid paying the import taxes (4).

At the end of the 1880’s, around 65 American manufacturing facilities packed their things and moved to Canada (4).

The unintended consequences of such protectionist policies were the outsourcing of production: the exact opposite of what they hoped for.

This isn’t all that different from what Harley Davidson had to do, as the company announced they were moving some of their manufacturing process to the European Union to avoid the tariffs.

Trump has introduced tariffs on a number of different countries, including Canada, Mexico, Japan, and the European Union. The administration has penalized products like foreign steel from China, solar panels, and washing machines.

However, the war with China may be even more harmful, considering many American companies rely on China for a significant portion of their products and raw materials.

Trump has singled out China for allegedly engaging in one-sided and unfair trade deals as well as the continual theft of American intellectual property (1).

China Actually Does Steal From American Companies In Sneaky Ways

According to Manufacturing.net, there are significant truths to Donald Trump’s claim about the Chinese stealing American products and inventions (2).

The Chinese government is always trying to acquire American intelligence in any way that they can, legal or not, and the result of this is the continuing need of American companies to innovate (2).

While it’s good for American companies to come up with new state-of-the-art technologies and products, the fact that the Chinese are straight up stealing this technology is a significant concern to both the government and American companies (2).

The FBI considers China as one of the single greatest threats of espionage over the next ten years, and they’ve conducted four investigations and found Chinese espionage in many industries (2).

According to a report from the US National Security and Military Concerns in 1999, officials warned that the People’s Republic of China had stolen information on every thermo-nuclear warhead in their Intercontinental Ballistic Missile arsenal (2).

The United States Army War College claims China has collected information on everything from stealth technology and nuclear weaponry (2). They’ve also stolen information on naval propulsion systems and electronic warfare systems (2).

In a report from The Associated Press, they revealed that the US Justice Department stated there had been around 58 different people charged in Federal Court in relation to Chinese spying since 2008 (2).

Additionally, American manufacturers who have to build their plants in China, face a policy by the People’s Republic of China, where they have to give them their technology in exchange for access to Chinese markets (2). This is a violation of international trade agreements (2).

As for how they go about doing this, China forces them to create joint venture companies as a condition for access to their economy (2).

American organizations frequently complain about this, but end up giving in to their demands because China has a plethora of ways of pressuring them to do so (2).

China has many ways of stealing American products and producing counterfeit versions. In the 1990’s, many of the parts bought by the Defense Apartment were produced in the US, Singapore, Hong Kong, and the Philippines (2).

American companies allowed the Chinese to purchase some of their products, and they began producing counterfeit versions and selling them to whoever is willing to buy (2).

In an issue of Industry Week, the publication stated that government agents had seized counterfeit products estimated around $188.1 million, which, if they were authentic, would’ve been valued at approximately $1.4 billion (2).

One of the problems with this practice is for microprocessors and other electronic products that go into military systems because they break down and cause catastrophic failures in weapons technology (2).

In a report from The Senate Armed Services Committee in 2009, they found 1,800 counterfeit electronic parts and approximately 70% of those counterfeit products came from China (2).

The Chinese have also had people work for American companies, then steal valuable technology for the sake of taking it back to China and selling it to companies (2).

In many cases, they do this by sending large amounts of data and information through email and the internet. There are “innumerable” examples of this (2).

In one case, David Yenb, who used to work for Valspar, downloaded paint formulas estimated at $20 million and wanted to sell them to Chinese companies (2).

And Yu Xiang Dong, an engineer working with Ford Motors, copied around 4,000 documents onto an external hard drive and wanted to transfer that information with an auto company in China (2).

US Intelligence Agencies said to Congress in November 2011, that both Russia and China steal technology regularly over the internet (2).

The two governments want access to communications technology, clean energy, scare natural resources, healthcare systems, pharmaceuticals, military data, and air and space technologies (2).

However, on the other hand, Chinese and Russian officials would probably make similar claims against the United States.

Trump and China

Not only has Mr. Trump introduced tariffs, but he also pushed for restrictions on investment and on travel visas for Chinese politicians and other officials (1).

Trump’s administration claims it’s all a part of their plan to make Beijing reconsider some of their prior trade deals, including the closing of their market to American companies (1).

As well as their practice of forcing American companies to reveal secret technology in exchange for the permission to operate in China (1).

However, like most things, Trump’s trade tariffs have unintended consequences. For instance, Husco International, a company based out of Wisconsin, Illinois, is now dealing with 25% tariffs from products they typically get from China (1).

Husco is a manufacturing company that creates parts for big companies including, General Motors, Ford, Caterpillar, and John Deere (1).

Austin Ramirez, the CEO of Husco International, said the trade war with China would put him and other leading manufacturers at a disadvantage in comparison to their other competitors in Japan and Germany (1).

He isn’t entirely sure how to go about dealing with the additional costs but hopes to pass it on to either customers or suppliers, because his company can’t afford to take on the expenses (1).

China is joining the ranks of other countries to impose tariffs on American goods and services, making the total amount of taxed goods around $75 billion by the end of the week (1).

It’s a small portion of the total number of goods exchanged by the United States, considering the USA exported around $1.55 trillion worth of product last year, but several key industries are feeling the heat (1).

Particularly, in industries such as agriculture, where farmers of soybeans and corn are taking a significant hit. According to The Times, approximately 50% of American soybeans go to China (1).

As a result of the Chinese tariffs on soybeans, Brent Bible, the man mentioned in the report, said he has lost a profit margin of around 8-10% (1).

Because of the loss of profits, farmers aren’t buying tractors and grain storage facilities.

China’s Commerce Ministry said the United States was being a “trade bully” and their actions will only affect innocent multinational companies and other ordinary businesses.

Additionally, economists say that the trade war will have a deleterious impact on the manufacturing sector, jobs the president has vowed to protect over and over again (1).

And the rising costs will be added to the supply chain all the way to American purchasers and customers (1).

The CEO of Llamasoft, Razat Gaurav, explained that many of his customers are looking to restructure their operations, with many of his clients thinking about setting up shop in either Mexico or Vietnam (1).

Companies, essentially, are more cautious about signing long-term contracts with suppliers and building new factories. They’re increasingly risk-averse regarding large investments (1).

According to the New York Times, many American companies – and businesses from other nations – set up their supply chain through China, so hitting the Asian country with trade tariffs will have a domino effect (1).

According to a study from the Federal Reserve Bank of San Francisco, for every single dollar spent on an item with the label, “Made In China,” around 55 cents of that dollar went to services and goods provided for and created in, the United States (1).

Mary Love, a researcher at the Syracuse University, said the long-term effect of such trade tariffs are going to change how nations consider the United States as a potential customer for exports.

She added, “they’re making it much harder for American firms to do business inside the United States, let alone export markets.”

Despite Gloom-And-Doom, The Economy Trucks On

Nevertheless, in spite of media reports, the American economy seems to be doing exceptionally well.

Ever since Trump said he would run for president back in 2016, the media, Hollywood, and seemingly the entire political establishment said that he would tank the country’s economy. The stock market would fall apart, his agenda wouldn’t create jobs, and so on and so forth (3)

However, two years after Trump has been elected, around 3 million jobs have been created, the Dow Jones surpassed 26,000, and there was a 5,000 point boost last year, which was one of the largest annual gains in the history of the American economy (3).

With everything taken into consideration, the stock market has grown by around 40% since Trump beat Hillary Clinton. According to Town Hall, the tax package approved in Congress in 2017 has created a solid path for economic growth (3).

Wages are continuing to rise, and consumer and small confidence is extremely high. Unemployment is currently at an 18-year-low and black unemployment is at a historic low (3).

For the second quarter, the Atlanta Fed reports that the economy will grow by another 4% (3). However, is all of this growth merely temporarily and would’ve happened regardless if Trump was in power or not?

It’s possible that Trump’s trade war will end up hurting the economy in a big way, but as of now, the trade war appears to be making less of an impact as the media portrays, as the strength of the American dollar rises and the creation of jobs continue (3).

Sources

(1) New York Times

(2) Manufacturing.net 

(3) Townhall

(4) The Conversation 

image sources

  • US and China Trade War: WikiMedia Commons

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