Impact of Trade Wars between China and USA on International Businesses

Running head: INTERNATIONAL BUSINESS STRATEGY
International Business Strategy
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Question 3: What impact may the current “trade wars” between China and the USA
have on international businesses?
During 1979, the trade relationship in between USA and China has accelerates
drastically. However, Li et al. (2018) argued on the ground that Donald Trump’s decision of
imposing tariff on export of steel and aluminium from China to USA has raised greater
trade war. Such trade war in between these two developed countries can have huge impact on
the business sector across the globe. The inclusion of Trade Tension in between US and
China has negatively affected the buying behaviour of global customers. In addition,
Shenkar et al. (2014) also showed that this trade war has also affected the producers of
different countries. Higher rate of tariffs has reduced the rate of trade in between USA and
China, which is posing a greater threat on the global economy.
From the very beginning of 2018, unilateral decision of USA is posing major
challenge for the multilateral trading system to operate effectively. As discussed by Cavusgil
et al. (2014) US has decided to increase the rate of tariff, while trading with some of their
partners especially China. It is imperative to note in this context that during 2017, the rate of
trade deficit in between USA and China has been increased by $363 billion, which is being
considered as one of the highest bilateral trade deficit in the history of international business.
According to the president Donald Trump, the unfair mean taken by China is the fundamental
reason, for which they are facing the trade deficit. Accirding to Vagts et al. (2015) China has
taken unfair mean such as infringement of intellectual property right along with the
protectionist measure. Such illegal activity of China has very negatively affected the trade
relationship in between USA and China. However, China has also decided to impose retailed
action against USA by accelerating the rate of tariff on some of the special American
products such as robotics, information technology, advanced rail and shipping
mechanisms, high end medical and healthcare products and advanced energy vehicles.
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As discussed by Picciotto and Mayne (2016) China has increased the rate of tariff by 25% on
more than 100 products, which accounts to almost $50 billion. Therefore, it can be said that
tit-for-tat is being operated in between China and USA, two of the emerging countries around
the world. The plan of Trump’s administration to pay tax worth $50 billion of the Chinese
import has further accelerated the issue. Moreover, China has also threatened USA to
retaliate the rate of tariff on some of the major products such as chemicals, American cars
and other significant products. As per the regulation of World Trade Organisation, (WTO),
the emerging countries are entitles with the power to execute the non-market practices in
order to promote economic development. The fundamental reasons of USA to take series of
anti-China movements are as follows:
 Driving Beijing to open their market for importing US products and services, which
can pave the way for the USA firms to frame their investment decision.
 Executing the ‘Made in China 2025’ strategy and thereby accessing the state-backed
high-tech segments of China.
Both USA and China are two of the most emerging economies around the world. Thus,
trade war in between two of these emerging economies can have significant impact on the
international business. Cuervo-Cazurra (2016) commented that it is accelerating the global
economic condition, which has amplifying in a rapid manner. In addition, the inclusion of
such harsh trade war has also shattered USA’s way of running business, as the intensity of
business between these two countries was extremely high. At the same time, such trade war
will also escalate the geopolitical complicacy and thus make it difficult for China to solve
the issue with North Korea.
In addition, Bouëtand Laborde (2018) observed that the bilateral trade deficit is also
increasing drastically. Reports are showing that the trade war in between USA and has
disrupted global supply chain, which is restricting free movement of goods and services
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from one country to the other. Moreover, on 10th May, 2019, the rate of tariff has been
increased by 25% on $200 billion annually. This increased tariff rate has further escalated
the trade tension in between USA and China. Lanteigne (2015) opined that both the countries
were directly related to trade. Such rising tariff rate has affected their partnership very badly.
The import of USA from China has dropped significantly after the rate of tariff, imposed on
the imported products.
Figure 1: Decreased rate of import from USA to China
Friedman and McCormick (2015) stated that the trade war happens at the time, when
a nation tries to protect their domestic industry and thus promote growth of their national
economy. The rate of increased tariff plays a major role for the country to acquire
competitive advantage for the domestic producers. Ch'en (2018) stated that this is the way,
through which consistent growth of national economy can be promoted. This is so with the
case of Donald Trump’s decision to increase the tariff rate. China is largest trading partner of
America. During 2017, USA has imported $130 billion. Products such as aircraft, soyabean,
automobile, clothing and machinery are being imported by USA to China. Based on the
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