Question

In: Economics

Choose a topic of the course and compare what happens in US and what is the...

Choose a topic of the course and compare what happens in US and what is the current situation in China or In your country and how you would change the Chinese (or your country) - or the American - approach based on the esperience of the other country (for example compare the tort system in your country and in USA and tell how you would change your country - or the American - approach to the issue based on how things have worked in the other country).

at the least 5 pages

should have 1-2 pages of description and 3-4 pages of independent,’original analysis.

Solutions

Expert Solution

TRADE WAR BETWEEN US AND CHINA

A trade war is an economic conflict arised from extreme protectionism in which nation impose or rise the tariffs or other trade barriers against each other in retaliation to trade barriers created by the other party. Increased protection causes both nations output compositions to move towards their autarky position.According to the World Bank's Global Economic Prospect, the global economy has slowed to its lowest pace in last years as international trade and investment have been feeble than expected. Global trade scenario has been severely affected by the trade war between the US and China.

The conflict arised between US and China regarding trade tariff imposition on each others goods.This retaliating effects of nations affect the international trade; it also causes the inflationary situation by tariffs increases prices of imports.In short run this tariff imposition may protect the domestic products. But in the long run, a trade war costs jobs loss and depression in economic growth (by suppressing demand for goods as they become expensive) for all countries involved in the trade.On July 6, 2018, the United States administration slapped a tariff of 25% on $50 billion worth of imports from China. China responded immediately with retaliatory tariffs on a similar way. On April 2, China announced tariffs on US goods worth $3 billion on some 130 American products like fruits, nuts, wine and steel pipes, as well as pork and recycled aluminium.

Trade Protectionism

  • firstly it is to enact tariffs that tax imports. That immediately raises the price of the imported goods. If compared with local goods it shows a less competitive.
  • Protecting trade by the government providing subsidizes to the local industries. This makes the products economical even when shipped overseas. Subsidies work more better than tariffs. This method shows best for countries that depend mainly on exports.
  • This method exerts best for nations with a lot of imports, such as the United States.
  • Another initiative is to impose quotas on imported goods. This method is more efficacious than the first two. how low a foreign country stuffs sets the price through subsidies lacking in imports.
  • lastly the trade protectionism is subtle. It is a conscious attempt by a country to lower its currency value. This would make its exports economical and more competitive. It can result in retaliation and arise currency war situation.

Smoot Hawley Act - a lesson for protectionist

This  was designed to protect U.S. farmers from cheap agricultural imports coming from Europe (which was increasing farming output) after the destruction happened after the World War I.

  • The resultant competitive trade war restricted global trade.
  • It forced lnternational trade down by 65 percent, worsened the Depression, and contributed to the formation of World War II.
  • It also raised food prices for Americans who were already possessed by the Great Depression. Other countries retaliated with their own tariffs.

Pros and cons

  • Imposing tariffs protects the economy from foreign competitors. This provides the new companies time to develop their own competitive advantages.
  • Protectionism also temporarily creates jobs for domestic workers.The protection of tariffs, quotas, or subsidies allows domestic companies to hire locally.However, these benefits end once other countries retaliate by erecting their own protectionist measures.
  • In the long term, trade protectionism weakens the industry. Without competition, companies within the industry have no need to innovate.
  • Eventually, the domestic product declines in quality and becomes more expensive than what foreign competitors produce.
  • Increasing protectionism can further slow down economic growth (weak consumer demand owing to inflation). It would cause more layoffs, not fewer.
  • If the country closes its borders, other countries will do the same. This could cause layoffs among the workers who owe their jobs to exports.
  • Trade war in the long term would hamper global economy due to reduced trade volumes among nations. The IMF noted that the US-China trade tension was one factor that contributed to a “significantly weakened global expansion” in 2018, as it cut its global growth forecast for 2019.
  • The trade tensions could result in an increasingly fragmented global trading framework, weakening the rules-based system that has underpinned global growth, particularly in Asia, over the past several decades.

here are many complexities in the goods that are traded between the two or more countries.

For example, A “Chinese” product comprises elements from other countries.The logo on the iPhone notes, “Designed in California, assembled in China”. The iPhone costs Apple $220. It is assembled in China for $6.50, but the rest of the cost is for its sophisticated components made in Germany, South Korea, Japan and the US. In other words, any “trade war” between the US and China will have consequences for many other smaller countries — there will be collateral damage.According to The Economist, 30% of the value of goods that China exports to the US is added elsewhere — Taiwan, Malaysia, Singapore and so on. If the situation worsens, “countries entwined in Chinese supply chains will suffer”.

Criticism towards US approach

  • On January 22, 2018, US imposed tariffs and quotas on imported Chinese solar panels and washing machines. China is a world leader in solar equipment manufacturing. The World Trade Organization ruled that the United States acted unfairly in levying the tariff.
  • The head of the U.S. Chamber of Commerce said Trump's trade war could cost 2.6 million U.S. jobs.
  • Eight countries have filed formal complaints with the World Trade Organization. Many of these countries, like Canada, India, and the European Union, are allies. The countries have argued that the US cannot justify the tariffs on the basis of national security.

China must change their export oriented economy to strong self reliant approach; over dependency on trade shivers the economy and acts as a hurdle for sustainable development of the nation.

  • Even though it is a lengthy and time consuming process, the settlement of disputes through international conventions and rules is the need of the hour.
  • WTO dispute settlement resolution mechanism should be approached instead of unilateral decisions. The benefit of the WTO process is that it prevents the damaging consequences of trade protectionism. Nations can resolve their disputes through WTO instead of raising tariffs.

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