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What Is Trump’s Trade War With China

Deficits Arent All Created Equal

Whatâs behind Trumpâs trade war with China

The USCBC studys methods dont add up in other ways. This kind of trade analysis cant distinguish between the employment impact of nineteenth-century U.S. deficits and contemporary deficits. This matters because the two are categorically different. In the nineteenth century when the United States suffered from capital scarcity, foreign capital inflows boosted U.S. investment. But in the capital-saturated United States of today, excess foreign capital inflows and the deficits they trigger end up reducing savings, not boosting investment.

This difference is hugely important. Basic accounting identities teach that net capital inflows must by definition result in either higher investment or lower savings. Because American trade deficits that result in higher investment cannot possibly have the same impact as American trade deficits that repress savings, there are serious problems with a methodology that cannot distinguish between the two.

To sum up, deficits can be either positive or negative for growth and unemployment depending on the underlying macroeconomic conditions. A research methodology that fails to notice or account for this is likely to miss the big picture.

Why Is This Happening

President Trump ran on an America First platform, which aims to advance the interests of U.S. manufacturers, in part by withdrawing from trade treaties and prior trade agreements.

In recent months, the U.S. has put tariffs on foreign steel and aluminum, not only from China but also Canada and Mexico. It has also taxed solar panels and washing machines, primarily from Asia.

The Trump administration is planning another round of tariffs on an additional $216 billion worth of Chinese products later this summer and into the fall, according to reports.

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  • Chinaunited States Trade War

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    ChinaUnited States trade war
    Transcriptions
    Hanyu Pinyin Zhngmi Màoyìzhngdun

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    Why Do We Trade

    President Trump viewed international trade as a zero-sum game where one side wins and the other loses. This is contrary to basic economic theory, which explains that international trade is mutually beneficial. Countries export products they produce at a lower cost than their trading partners and import products that other countries produce relatively cheaply. International trade enables businesses to import raw materials and machinery at lower costs or of better quality than what they could buy in their home markets.

    Moreover, consumers can purchase products and services at lower costs, raising their real income. The increased variety of differentiated products that results from international trade makes both businesses and consumers better off. Finally, opening up an economy to global markets expands the sales of U.S. businesses, which increases employment and profits. Higher profits benefit stockholders. Larger product markets also increase the payoff to investment in innovation, resulting in new and better products.

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    Will Trumps trade war with China ever end?

    Among the key findings of the research:

    – The economists found a long-term decline in U.S. consumer well-being of 7.8%: Our results show that the trade-war announcements caused large declines in U.S. stock prices, expected TFP , and expected inflation largely by moving macro variables, but also by causing declines in the returns of firms trading with China. We find that markets expect the trade war to lower U.S. welfare by 7.8 percentage points. Total Factor Productivity is the portion of output not explained by the amount of inputs used in production, as defined by the Harvard Business School.

    – The decline in stock market value caused by trade war announcements amounted to a $3.3 trillion loss of firm value . That is larger than the $1.7 trillion estimate in the loss of firm value in an earlier paper from the economists.

    The data reveal that there were large and persistent movements in stock prices and inflationary expectations following these trade-war announcements, according to Amiti, Kong and Weinstein. We see that the stock market fell on all of the event dates except one U.S. event date and one China event date, with a total drop of 10.4% over all of the events, and 12.9% over the three-day windows . These drops in the market imply substantial drops in expected profitability for U.S. firmsa factor that . . . suggests will drive decreases in the expected wage.

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    A Deal That Focused On Four Areas

    The 2020 Trump deal focused on four areas where China was supposed to bulk up on American purchases and ultimately boost U.S. employment in those fields: Manufacturing, agriculture, energy and services. The shortfall in services, including travel and education, clearly suffered from COVID. But that was less than 20% of the total purchase commitment.

    Agriculture involved the smallest commitment by China, and those exports rose the most of any of the four groups. But that followed a swine fever crisis in China that gutted domestic pork production and led to a surge in imports from many places. While Chinese food purchases rose following the 2020 deal, they still fell far short of what China pledged to buy from American farmers.

    U.S. automotive and aircrafts exports to China are actually lower than they were in 2017, which is the baseline year for calculating Chinas increased purchase commitments. Thats partly due to the shortage of semiconductors for automobiles and to the fiasco with Boeings 737 Max airliner, which scotched sales for months. Yet critics ripped the 2020 deal at the time of its signing for prescriptive purchase targets allowing little to no flexibility for externalitiessuch as a pandemic or a blockage in one particular sector. Those critics turned out to be right.

    More Pain Than Gain: How The Us

    Editor’s Note:

    The ultimate results of the phase one trade deal between China and the United States and the trade war that preceded it have significantly hurt the American economy without solving the underlying economic concerns that the trade war was meant to resolve, writes Ryan Hass and Abraham Denmark. The consequences that have followed in the wake of the economic clash have served to exacerbate bilateral relations. This piece originally appeared in SupChina.

    As a candidate in 2016, Donald Trump built his argument for the presidency around his claimed acumen as a dealmaker. As the 2020 election draws nearer, President Trump and his surrogates are doubling down on that assertion, including by calling attention to what he has deemed the biggest deal ever seen: the phase one trade deal with China. The agreement reportedly includes a Chinese commitment to purchase an additional $200 billion in American goods above 2017 levels by the end of 2021.

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    What Tariffs Have Been Imposed

    Mr Trump’s tariffs policy aims to encourage consumers to buy American products by making imported goods more expensive.

    The US has imposed tariffs on more than $360bn of Chinese goods, and China has retaliated with tariffs on more than $110bn of US products.

    Washington delivered three rounds of tariffs in 2018, and a fourth one in September last year. The most recent round targeted Chinese imports, from meat to musical instruments, with a 15% duty.

    Beijing hit back with tariffs ranging from 5% to 25% on US goods.

    Building Better Bilateral Relations

    Trump’s Trade War (full documentary) | FRONTLINE

    The key to more harmonious economic relations is recognizing that a more developed China need not threaten the well-being of the West. The United States, Europe, and China have different comparative advantages, which are reflected in the composition of their exports. Europe specializes in high-end consumer goods and machinery the United States in agricultural products, high-tech components, and services and China in basic manufactured consumer goods and inputs. All sides can continue to prosper by operating under a rules-based international trading system.

    U.S.-China tensions, however, are now being driven less by economic realities and more by great power rivalry and nationalismfactors exacerbated by mutual mistrust over each others strategic intentions. In describing the United States multifaceted relationship with China, the Biden administration has emphasized the need to compete, confront, and cooperate all at the same time. But as Chinese President Xi Jinping stressed at the 2021 World Economic Forum, competition is for pursuing excellencenot killing off a rival.

    Punitive trade measures have had little effect in terms of altering economic outcomes, and the experiences of countries worldwide show that sanctions generally do little to get governments to change their core beliefs. Instead, there is more to be gained from leveraging Chinas dependence on a rules-based international trading system as the country seeks to become a more prosperous and modern nation.

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    How It Affects You

    The trade war has raised the prices of consumer goods that use steel and aluminum. Costs have increased on imported clothes hangers, heavy-equipment materials, and computer chip and tool makers.

    The Alliance of Automobile Manufacturers warned that U.S.-produced steel will cost more once cheap foreign imports are eliminated. The tariffs raise vehicle prices for all customers, limit consumer choice, and invite retaliatory action by our trading partners.

    Foreign tariffs on U.S. exports make them more expensive. U.S. exporters may have to cut costs and lay off workers to remain competitively priced. If they fail, they may cut costs further or even go out of business.

    In the long term, trade wars slow economic growth. They create more layoffs, not fewer, as foreign countries retaliate. The 12 million U.S. workers who owe their jobs to exports could get laid off.

    Oxford Economics predicted that the trade war could cost the global economy $800 billion in reduced trade and potentially slow growth by 0.4%.

    Over time, trade wars weaken the protected domestic industry. Without foreign competition, companies within the industry don’t need to innovate. Eventually, the local product would decline in quality, compared to foreign-made goods.

    Trumps Trade War Was A Total Flop

    Donald Trump, the American president from 2017 to 2021, said he knew more about trade than most economists and foreign-policy experts. Trade wars are good, and easy to win, Trump famously declared in 2018. He described himself as a Tariff Man and proved it by imposing new tariffs on hundreds of billions of dollars of U.S. imports, to be paid by the American firms buying those goods.

    Trumps dubious logic was that making imports costlier to Americans would hurt the foreign sellers and give him leverage he could use to demand concessions. His biggest target, of course, was China. Trump added new tariffs on about $450 billion worth of U.S. imports from China, while China, predictably, retaliated with similar penalties on U.S. imports. The escalation rattled financial markets in 2018 and 2019 and ultimately led to the Phase One trade deal between the two countries, signed on Jan. 15, 2020. Under that deal, China would sharply increase its purchases of U.S. goods as a precondition for Trump removing the new tariffs and getting back to normal.

    If there had been no Trump trade war, and no tariffs, U.S. exports to China would have been $119 billion more than actual levels from 2018-2021, if the U.S. share of Chinese imports had simply remained constant. That’s a net loss of business for American companies. And it doesnt include nearly $30 billion in U.S. taxpayer funds Trump doled out to farmers to compensate them for lost sales to China from 2018 through 2020.

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    What Have The Us And Donald Trump Said

    Words turned to action on July 6, 2018, when both sides levied tariffs on $34bn worth of goods.

    This was then increased by $16bn by both sides on August 23, 2018.

    The stakes were raised yet again on September 17, 2018, when the US imposed $200bn at a rate of 10 per cent while China was more cautious imposing the same rate but on $60bn.

    A ceasefire of sorts was then introduced in December 2018 with the two sides agreeing to start negotiations and tariffs were paused.

    But despite numerous rounds of talks no agreement has been reached and the US then said it would raise tariffs on $200bn of China goods to 25 per cent.

    On May 13, 2019, China said it would increase tariffs on £46bn of US exports, which caused stock markets to tumble.

    Trump then declared a national emergency over threats against US technology paving the way for a ban on Chinese firm Huawei.

    On May 15, he signed an executive order effectively barring US companies from using foreign telecoms believed to pose a security risk to the country.

    Trump did not name any company specifically in the order, but analysts suggested it is mainly directed at Chinese telecommunications giant Huawei.

    Is The Trump Trade War With China Back On Not So Fast

    Did Mnuchin Ease Trump Off Trade War With China?  The Forward
    • 04:06 PM ET 05/29/2018

    The White House said it will tee up tariffs on $50 billion worth of Chinese imports by June 15, enabling President Donald Trump to swing away shortly thereafter. So is a Trump trade war with China back on?

    Various news reports gave that impression, even though Treasury Secretary Steven Mnuchin said the trade war was “on hold” barely over a week ago. Yet it’s a premature conclusion at best that the White House is back on a China trade war footing.

    President Trump has acknowledged some misgivings with the tentative deal for China to buy more U.S. energy and agricultural goods. Yet he continued to strike a mostly conciliatory tone for the past six weeks. That includes Trump’s agreement to lift the effective death sentence for ZTE, the Chinese telecom equipment giant that’s been unable to buy key components due to stiff U.S. sanctions.

    Trump may be taking a softer line with China to facilitate nuclear diplomacy with North Korea.

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    Chinas Intellectual Property Safeguards

    Chinas alleged failure to protect intellectual property rights is also mischaracterized. At the extreme, China is accused of stealing foreign intellectual property, especially technology. But after accounting for the size of Chinas foreign transactions and research activities, such events may not occur unusually often or are possibly exaggerated.

    Further, Chinas patent courts have matured in dealing with this problemforeign plaintiffs are now more likely to win their cases than domestic firms. In addition, theft is becoming less of a concern as payments for royalties and licenses by Chinese firms, according to one think tank scholar, have grown almost by a factor of four in the past ten years, making China the second-largest payer of such royalties globally.

    The reality is that it takes generations to develop a sound regime for intellectual property rights, as was the case for the United States. The foundation of Chinas system was laid only two decades ago with reforms that accompanied Chinas 2001 accession to the World Trade Organization. Progress has been notable in recent years as evidenced by the findings of the 2020 Business Climate Survey by the American Chamber of Commerce in China the survey indicated that nearly 70 percent of surveyed U.S. firms in China felt that Chinas enforcement of intellectual property rights had improved, compared with only 47 percent in 2015.

    Political Costs Of The Trade War

    Several academic papers examine whether the trade war had political consequences for Republican candidates during the 2018 midterm congressional elections. The higher costs of imported products from the original tariffs, plus declining sales overseas because of the retaliatory tariffs imposed by our trading partners, harmed certain groups and areas of the country more than others. If voters in these areas blamed Republicans for their economic distress, it is possible that Republicans would have lost votes.

    Complicating matters, countries imposing retaliatory tariffs may have chosen products that are disproportionally produced in Republican areas. For example, they might target industries that are concentrated in states that voted for Trump in the 2016 presidential election. They might also target congressional districts that had close elections that a Republican won in 2016. The idea behind such strategies would be to impose tariffs on U.S. products that would inflict the greatest political damage for Republican candidates. Countries could adopt such a policy to apply pressure to change U.S. trade policy.

    All the papers listed above find that the trade war reduced the Republican share of votes in the 2018 congressional elections. By one estimate, the trade war cost Republicans between five and eight House seats. These papers also provide evidence that the retaliatory tariffs were in fact directed at districts where the previous election was close.

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