Trump Administration's Trade Dispute with China

This article evaluates the trade dispute between the Trump administration and China, discussing the key points of disagreement, the current status of the dispute, and the potential for momentum towards free trade. It also explores the adverse effects of the trade war and the reasons behind Trump's trade war with China.

Running Head: International Trade and Competition
3001IBA International Trade and Competition
Evaluate the Trump administration’s trade dispute with China. What are the key points of
disagreement? What is the current status of the dispute? Is there possible momentum toward
free trade?
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Contents
1) Introduction.........................................................................................................................2
2) Trump administration’s trade dispute with China..............................................................3
2.1) Reasons behind Trump’s trade war: Key points of disagreements between the US and
China.......................................................................................................................................4
2.2) Evaluation of the various adverse effects of this trade war............................................6
2.3) Current status of the US-China trade dispute..................................................................7
2.4) Possible momentum towards free trade..........................................................................8
3) Conclusion..........................................................................................................................9
4) References.........................................................................................................................10

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1) Introduction
Free trade is policy of not putting any restrictions on imports and exports by keeping
international free from any restrictions: tariffs or quotas (Irwin, 2015). But Trump
administration’s trade dispute with China has raised many questions on the international trade
practices. This paper evaluates the trade war between USA and China. It explains the main
reasons for this trade dispute such as the increasing trade deficit of USA with China. The
paper discusses the progression of this dispute and its current status. It also discusses the
growing trend of protectionism among nations to boost their economy (Moon, 2000). Finally,
the paper talks about the possible momentum towards the free trade.

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2) Trump administration’s trade dispute with China
One of the main promises that Donald Trump made in his election campaign was to make
trade fairer for the US. In order to achieve this promise, his administration started fighting
with most of the significant trade partners of the USA. This move started a world-wide tit-
for-tat trade battle (BBC News, 2018).
Trade war is the situation when countries attack each other's trade with tariffs and quotas and
indulge in a tit-for-tat practice (Feenstra, 2015). The trade war that has impacted the overall
world economy is between two of the world’s largest economies US and China. The IMF
estimated that this trade dispute if remained unresolved could make the world economy
smaller by 0.5% (approximately 430 billion US$) by 2020 (Huang, Lin, Liu and Tang, 2018).
Countries apply tariffs, tax on imported products to make the foreign goods less competitive
as they become expensive. This may boost local industry by increasing the demand for their
products (Carbaugh, 2015). The US has imposed many rounds of tariffs on Chinese goods.
The Trump administration is further threatening to increase its stake in this trade dispute by
imposing tariffs on another $300 billion of Chinese goods. The China has too issued warning
of reciprocating via new tariffs or other means (Sheng and Geng, 2019).
2.1) Reasons behind Trump’s trade war: Key points of disagreements between the US
and China.
US trade deficit with China: According to Amadeo (2019), the US- China trade deficit was
$419 billion in 2018. China is the number one exporter in the world because of
its comparative advantage as it produces goods at lower costs compared to other nations.
America loses manufacturing jobs as its firms cannot compete with these low costs. Much of
these imports from China to US are the items manufactured in China for the US companies
because of this comparative advantage. President Trump does not like this huge trade deficit.
Countries move towards protectionism by using restrictions: tariffs and sanctions to boost its
economy and to shield its industry from foreign competition (Moon, 2000). Trump has used
tariffs to cut back this trade deficit and to promote local manufacturing.
Limit US technology transfer to China and to have level playing field for the US companies
in China: The foreign firms who sell their products in China are required by the local

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government to share their trade secrets. The trump administration wants China to stop such
practises. USA also wants China to stop subsidizing the core industries focused in the "Made
in China 2025" plan to provide level playing field for foreign companies. Washington is
creating pressure on Beijing via trade tariffs to bring structural changes in the Chinese
economy (Amadeo, 2019).
There can be various unofficial reasons behind this Sino-US trade war that are quite
important. They are related to rapid rise of China in the technological sector and overall
growth of the Chinese economy. For decades, United States has always led all the
technological innovations and advancements and eroding of this gap by China is a major
threat. The US had changed its China policy few years before this trade war by changing its
view towards China from an ‘unprecedented scope of cooperation’ in 2015 to ‘must compete’
and ‘compete with all tools’ in 2017 as per US national strategy report (Mourdoukoutas,
2019).
2.2) Evaluation of the various adverse effects of this trade war
The imposed tariffs on the Chinese goods would cost the average US household around $831
annually as per an estimate from Federal Reserve. It is further estimated that a 25 per cent
tariff on all Chinese products could dent American GDP by 0.5 per cent next year (Amadeo,
2019). These tariffs would also give a greater blow to China as the US exported $120bn of
goods to China whereas Chinese economy is more reliant on exports to US totalling around
$540bn. According to Oxford Economics such move will impact Chinese GDP by 1.3% in
2020 (Watts, 2019).
China’s overall reach is limited because of its huge trade surplus with US. So, it is speculated
that Chinese gocvernment may sell $1.13 trillion in US treasuries. That can lead to higher
interest rates in US and slow down its economy, which will have global effects.
The increased tariffs will hit the profit of major US firms as close to one-third of the revenue
of top 25 S&P companies comes from China and Taiwan (Sheng and Geng, 2019).
As the Trump administration is now adamant and they want nothing less than the structural
changes to overhaul its mercantilist policies. There are worries that this US-China war may
not just remain limited to the trade dispute but it can take other shapes too. Recent example of

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this is the U.S. government blacklisting of Huawei which shows that cutting off the supply of
necessary items by other country’s firms via strict sanctions is also being used as a tool
(LaFon, 2019).
Also, the smaller Asian nations who are placed further down the supply chain will feel the
impact as approximately 30% of the Chinese goods exported to USA originates from third-
party countries (BBC News, 2018).
2.3) Current status of the US-China trade dispute
In a way this trade war begun in 2016, when Trump condemned the trade practices of China
while campaigning for the Presidential nomination. Few times during this period it appeared
that a final deal would be signed between the two nations but things changed at the last
moment. Suddenly, last month things escalated when US increased the tariffs on US$200
billion Chinese goods to 25% and the President Trump even announced that there will be new
tariffs on all the Chinese products in the coming time. China retaliated by announcing
increased tariffs on US$60 billion US goods.
Responding to the U.S. government blacklisting of Huawei, the Chinese government has
threatened to put the American firms on a blacklist in case they stopped the supply to the
Chinese partners without citing any specific reasons. China has recently even issued a white
paper that said “China isn’t willing to fight a trade war, but it isn’t afraid to fight and will
fight if necessary. It will never give in on major issues of principle” (Stevenson, 2019).
Now, the leaders from US and China will meet later in June at the G20 summit to resume
these negotiations.
Trump faces pressure because of the slowing economy, rising unemployment and increased
costs as next year is election year in the US. After continuous 117 months of economic
expansion in comparison to historical average of 48 months, America could soon face a harsh
recession due to the disruptions from this trade war (Sheng and Geng, 2019). So, soon there
can be some sort of resolution to this dispute. Also, China and USA are large economies and
they are so interlinked that they need one another for sustainable economic growth (Egan,
2019).
2.4) Possible momentum towards free trade

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Free trade is policy of not putting any restrictions on imports and exports by keeping
international free from any restrictions: tariffs or quotas (Irwin, 2015).
Actions of US President have definitely created some hindrance to the free trade by
deploying trade remedies in unexpected ways, imposing trade tariffs and introducing import
quotas. There was also much noise created when the US pull out of the Trans-Pacific
Partnership (TPP) of twelve countries. But the nations around the world have been supporting
free trade as the remaining eleven members of TPP have implemented most of the agreement
(Froman, 2019).
The European Union has been implementing various free trade agreements with Canada,
Vietnam, Japan and Singapore. They are also pursuing FTA with Australia and completed the
third round of negotiations in March (Department of Foreign Affairs and Trade, 2019).
The nations in the Asia-Pacific region have also been promoting free trade via Regional
Comprehensive Economic Partnership (RCEP) and there has also been a lot of progress by
the African Union in implementing the Continental Free Trade Agreement (CFTA). So,
overall the trend is toward the high standards and deep integration in global trade but there
are some concerns because of the growing nationalism and protectionism in larger economies
(Froman, 2019).
3) Conclusion
The USA-China trade war has affected the whole world and it has definitely raised questions
about the future of free international trade. This trade dispute started few years back as
President Trump wanted to cut $419 billion trade deficit between USA-China. Since then,
there have been various tariffs imposed by both the sides. It is expected that some kind of
truce will still be reached soon in-spite of current situation as China and USA are large
economies and they are so interlinked that they need one another for the sustainable
economic growth.

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4) References
Amadeo, K. (2019). Trade Wars and their Effect on the Economy and You. The Balance.
Retrieved from https://www.thebalance.com/trade-wars-definition-how-it-affects-you-
4159973 [2 June 2019].
Australian Government. (2019). Australia-EU FTA – Report on Negotiating Round Three,
Canberra, 25-29 March 2019. Department of Foreign Affairs and Trade. Retrieved
from https://dfat.gov.au/trade/agreements/negotiations/aeufta/Pages/aeufta-round-
3.aspx [2 June 2019].
Bbc.com. (2018). US-China trade row: What has happened so far?. BBC News. Retrieved
from https://www.bbc.com/news/business-44529600 [2 June 2019].
Bbc.com. (2019). Trade wars, Trump tariffs and protectionism explained. BBC News.
Retrieved from https://www.bbc.com/news/world-43512098 [2 June 2019].
Carbaugh, R. (2015). International Economics (16th ed.). Pennsylvania, United States:
McGraw-Hill Education.
Egan, M. (2019). Why the US-China trade war won't last. CNN BUSINESS. Retrieved from
https://edition.cnn.com/2019/05/14/business/china-united-states-economy-trade-war/
index.html [2 June 2019].
Froman, M. (2019). Beyond populist disruption, what now for global free trade?. World
Economic Forum. Retrieved from https://www.weforum.org/agenda/2019/01/the-
future-of-free-trade [2 June 2019].
Feenstra, R. C. (2015). Advanced International Trade: Theory and Evidence (2nd ed.). New
Jersey, United States: Princeton University Press.
Huang, Y., Lin, C., Liu, S. and Tang, H. (2018). The economic costs of the 2018 US-China
‘trade war’: A view from the financial markets. VOX CEPR Policy Portal. Retrieved
from https://voxeu.org/article/economic-costs-us-china-trade-war [2 June 2019].

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Irwin, D. A. (2015). Free Trade under Fire (4th ed.). New Jersey, United States: Princeton
University Press.
LaFon, H. (2019). Ray Dalio Commentary - Beyond the Trade War: The Huawei Step. Yahoo
Finance. Retrieved from https://finance.yahoo.com/news/ray-dalio-commentary-
beyond-trade-195709031.html [2 June 2019].
Moon, B. E. (2000). Dilemmas Of International Trade (2nd ed.). Colorado, United States:
Westview Press.
Mourdoukoutas, P. (2019). US-China Trade War: The Official And Unofficial Reasons
Behind It. Forbes. Retrieved from
https://www.forbes.com/sites/panosmourdoukoutas/2019/01/24/us-china-trade-war-
the-official-and-unofficial-reasons-behind-it/#4bcdf8346da3 [2 June 2019].
Sheng, A. and Geng, X. (2019). How Will the US-China Trade War End?. Project Syndicate.
Retrieved from https://www.project-syndicate.org/commentary/how-united-states-
china-trade-war-will-end-by-andrew-sheng-and-xiao-geng-2019-05 [2 June 2019].
Stevenson, A. (2019). China Strikes Defiant Stance on Trade Against Trump. The New York
Times. Retrieved from https://www.nytimes.com/2019/06/02/business/china-trump-
trade-fedex.html [2 June 2019].
Watts, W. (2019). Here’s how hard the tariff fight could hit the economy. Market Watch.
Retrieved from https://www.marketwatch.com/story/heres-the-hit-us-chinese-and-
global-economies-could-face-as-trade-battle-heats-up-2019-05-09 [2 June 2019].