Economics Report: Analyzing the US-China Trade War and its Effects

This report provides a comprehensive analysis of the US-China trade war, examining its origins, the imposition of tariffs, and the resulting impact on both economies. It explores the trade relations between the two nations, detailing major imports and exports, and the reasons behind the tariffs. The report delves into the economic analysis of the trade war, including its impact on markets, companies, and currencies. It further investigates the industries most affected, the current situation of both countries, and the overall implications of the trade conflict. The report highlights the complexities of international trade, protectionist measures, and the interconnectedness of the global economy, offering a detailed understanding of this significant economic event.

Running head: ECONOMICS
Economics
Name of the student
Name of the university
Author note

2ECONOMICS
Table of Contents
Introduction................................................................................................................................3
Trade relations between US China.............................................................................................3
Major US imports and exports in China..................................................................................4
Reasons for imposition of tariff.................................................................................................4
Analysis of the trade war............................................................................................................6
Impact of imposed tariffs on market and companies.................................................................7
Impact on the currencies of both the nation...............................................................................8
Impact on China.........................................................................................................................9
Industries that are mostly affected due to trade war................................................................10
Present situation of both the nations........................................................................................11
Conclusion................................................................................................................................11
Reference list............................................................................................................................13

3ECONOMICS
The US-China trade war
Introduction
A trade war is known to take place when countries are known to attack each other’s
trade with quotas and tariffs for protecting their industries. According to the International
Monetary Fund, the two largest economies of the world are People’s Republic of China and
the United States of America. The United States is the largest trading partner of China
whereas China is the second largest trading partner of USA (Ross, 2016). International trade
have helped several parts of the globe while establishing economic relations.
The trade between United States and China have increased rapidly after both the
countries re established the diplomatic relation in the year 1979. The first move in the trade
war had been taken place by the American President where he initiated an investigation on
China. Based on the investigation trump have known to imposed tariff on billions of worth of
goods (Friedman & McCormick, 2015). The US department have also stated that the Chinese
company have violated the US sanctions. However after some time both China and the
United States had put the trade war on hold. The economic relationship between US and
China kwon to have come under increasing strain since 2017, when the President began to
take steps to impose significant amount of tariffs on the Chinese imports. Despite the efforts
taken from International Organization for halting protectionism, the economic nationalism
known to have become a global tendency which is accentuated by the Trump administration.
International trade have helped for connecting several parts of the globe which will establish
interdependent economic relations.

4ECONOMICS
Trade relations between US China
The Chinese US relations refers to the international relations between US and China.
The relationship between both the countries is strong as well as complex in nature. Both the
countries have an extensive economic partnership with each other. The US China trade
relationship is known to support more than 2 million jobs in the United States. However, in
the year 2005, the united states were known to run into a trade deficit with China of about
$200 billion. The rapid integration of China into the global economy known to have posed
problems for the higher income countries like USA (Herrero, Xu & Gary, 2018). China has a
rapidly growing aggregate bilateral trade surplus with the United States. It have been found
out that China will be significantly hurt by the tariff trade war which includes all the
indicators like the welfare, gross domestic product, manufacturing employment and trade.
Major US imports and exports in China
The United States exported around $115.6 billion merchandise to China. China had
been the third largest merchandise export market after Canada. The top merchandise US
exports to China are the aerospace products, motor vehicles, waste and scrap, pol seeds and
grains. About one fifth of US exports to China comprises of agricultural products like
soybeans which had been the US largest single export to China. Most of the United States
largest exports to China comprises of crops or raw materials (Hughes & Meckling, 2017).
The goods that are exported to China are soybeans, civilian aircraft, corn, coal, passenger
vehicles, aluminium materials and copper materials. The economic growth have improved the
purchasing power of the citizens of China, especially for people residing in the urban areas.
The large population and huge amount of foreign reserves makes China a potential market for
the exports. According to a work prepared by the Oxford Economics for US China Business
council, it have been found out that in the year 2015, the United States known to have

5ECONOMICS
supported worth more than 2 million jobs and also contributed $200 billion to the gross
domestic product.
Reasons for imposition of tariff
One of main reasons behind the imposition of tariff by USA on the Chinese goods
was to reduce the trade deficit. US President Donald Trump have complained about the
trading practices of China for a long period of time. After that he launched an investigation
on the trading policies of China and then imposed tariffs on billions of dollars’ worth of
Chinese products. In the year 2016, Trump planned to cancel any kind of international deals
with China. After that the EU, USA and Japan agreed to work with the WTO for eliminating
any kind of unfair subsidies by countries. It was claimed by USA that some of the critical
sectors of China were kept insulated from international competition. According to the New
York Times in the year 2018, it was also found out that the trade deficit of the United States
have reached the highest which was more than $620 billion (Lee & Lee, 2018). The President
of USA also claimed that China have failed to fulfil its requirements to be a member of world
trade organization. It was also stated that China manipulated its currency for its own benefits
in trade.

6ECONOMICS
Therefore, Trump stated that tariffs were necessary for protecting intellectual
property of the American business. It was claimed that China unfairly transfers technology
through former or informer practices and exports its rival’s intellectual property. It also used
to subsidise massive overcapacity of some commodities for undercutting competition
globally.
Analysis of the trade war
In the month of January 2018, the President of USA started imposing tariffs on the
imported solar panels, aluminium and steel of China. The President the announced plans for
enacting sanctions against China over the Intellectual Property Rights which negatively
affected the stakeholders of USA. The tariffs was basically on the technology parts and
components.
The President placed a tariff of 30 percent on the Chinese solar panels and about 20
percent tariffs on the washing machines for the one million units imported. After that trump
imposed a tariff of more than 20 percent in steel and aluminium. The trump’s tariffs on steel,

7ECONOMICS
aluminium, solar panels and the washing machines covered 4 percent of the US imports. The
United States trade representative have invested a tariff of worth of $60 billion Chinese
goods. Over 1000 categories of the Chinese goods had been listed for tariffs which comprises
batteries, medical devices, weapons and televisions. In the month of May, The White House
announced that it will be imposing 25 percent tariff on worth of $50 billion goods that is
known to be industrially significant technology (Ross, 2016). The President have also
threatened to impose 25 percent tariffs on worth of $325 billion of Chinese goods. Trump
have hit China with $200 billion of new tariffs when the trade war escalates. Tariffs have
been imposed on some of the Chinese goods sold in the United States of America.
When trump have known to impose tariffs on Chinese goods, China imposed
retaliatory tariffs on the imported goods of US. At first, China imposed a tariff on worth of $3
billion of the US imports in response to the tariff son steel and aluminium. When USA
implemented tariffs on worth of US$200 Billion worth of the goods, China at that time
responds to the US tariffs by implementing tariffs on US$60 billion worth of US goods. In
the month of May, Beijing and USA engaged in trade talks in Beijing where America wanted
China to reduce its trade gap by worth of $200 billion within two years (Ikenson, 2017).
China then announces 178.6 percent of antidumping duties on the imported sorghum. Trump
is also known to sign a memorandum for filing a WTO case against China for their
discriminating licensing practices and restricting investment in key Chinese technology
sectors. China have imposed tariffs on 120 products of USA worth of US$3 billion goods
including wine, fruits, pork and steel pipes. It have reacted to the initial list of United States
Trade representative and proposes 25 percent tariffs on worth of 50 billion goods like
soybeans, chemicals and US automobiles. The US department have also stated that the
Chinese company have violated the US sanctions. However after some time both China and
the United States had put the trade war on hold.

8ECONOMICS
In the month of June, the product list have been reduced on which tariff will be
imposed which will take effect from July 2018. China proposes a second round of 22 percent
tariffs on 100 products. The Chinese Ministry of commerce lodged a case against USA for its
tariffs on solar panels.
Impact of imposed tariffs on market and companies
The trade war which had been initiated by the United States have done a serious
damage to the global economy when the protectionist actions will escalate. The countries
that imposed tariffs and the countries which are subject to tariffs experience losses in the
economic welfare. The impact of any trade war is felt on several fronts which includes
currencies and companies. The trade war have forced some of the companies considers puling
operations out of both the United States and China. Some of the companies report sharp
increase in non tariff barriers. The newly imposed tariffs will be affecting the US companies
who manufactures in China. Therefore, several big companies of the United States are
changing their policies under this present situation. A rise in the import tariffs states that the
production is shifted from the exporting sectors to the importing competing sectors. The stock
markets are known to take a plunge when trade war takes place.
The equity markets of the United States declined sharply when the traders prepared
for escalating the US China trade war. The shares of AMD, L Brands, and Arista Networks
fell since they have strong links with China. The world equity and the oil markets slumped
and the stock market’s fear gauge. The tariff imposition of tariffs had similar impact on both
the US as well as Chinese markets. This trend have been observed from the fact that China
vulnerable US stocks declined by 3.2 percent. On the other hand, the US vulnerable Chinese
stocks dropped by 3.4 percent. China is one of the biggest international market for the
automakers. As a result of trade war Chinese demand for the European manufacturers like

9ECONOMICS
Fiat and Mercedes will increase. However, the earnings of the steel company have been
strong enough due to the tariffs.
Impact on the currencies of both the nation
The Chinese government have devalued its own currency against the US dollar. The
graph above shows that the US Dollar is surging from its lowest point since February to May.
The trade war have even lead to a currency war when China weakens Yuan. A trade war is an
ongoing dialogue between the two countries where each tries to undermine the economic
prowess of each other. One of the phenomena which is associated with the trade wars is the
currency devaluation. For mitigating the pressure felt on the export sector, it is common for
the countries of trade war to devalue their domestic currency which helps in offsetting the
negative impacts of the increased tariffs on services and goods. The economies around the
globe are known to crumble under the increasing debt. In case of the US –China trade war,
the devaluation of the currency started taking place from the month of July in 2018, at that
time the People’s Bank of China had set the Yuan renminbi to 6.7671 CNY to the United
Sates Dollar. The USD index also declined by 1 percent. There was also a phase of periodic
volatility for USD. In the phase of the US China trade war, there was a periodic short term

10ECONOMICS
volatilities of the USD. However, in the long run, the performance of the dollar will basically
depend on the performance of economy of the US, monetary policies adopted by central
banks and the actions of the Federation. The import tariffs are the sales tax which is known to
raise the cost for the consumers. The currency wars, large amount of protectionism and losses
of billion dollars will takes place if both China and USA will be failing to settle their trade
differences.
Impact on China
The trade war between the United States of America and China have complicated
China’s efforts for fixing its economy. Like United States, China is shifting some of the
Chinese manufacturers are shifting their supply chains to Southeast Asia. However, towards
the end of 2018, there was a calming situation of the US China trade war. After the tariffs are
known to be imposed, escalations continued (Hur, 2018). The US China trade war can slash
almost one million jobs from the US economy. Almost one million American jobs are
presently at risk as a result of the current trade war with China.
The tariff trade War is the basic protection as well as the retaliation measures. It can
be an overall import tariff to all the imported product from a specific country. China have
been significantly hurt by the tariff trade war which includes welfare, manufacturing
employment and trade and the gross domestic product. It have been found out that China will
be significantly hurt by the tariff trade war which includes all the indicators like the welfare,
gross domestic product, manufacturing employment and trade. The trade effects are
prominent and the employment effects are known to be moderate in nature. However, the
welfare effects are comparatively weak in nature. The imposition of the tariffs will be having
a similar impact on the markets of China and USA.

11ECONOMICS
Industries that are mostly affected due to trade war
The additional tariffs have jeopardized the trade deal which have been negotiated by
both the USA and China. One of the biggest areas that is affected by trade tensions is the
automobile industry of the United States. China have known to increase the tariffs on the
automobiles which are made in USA from 15 percent to 40 percent as a response for the
tariffs imposed by USA. The Chinese consumers will be buying the locally manufactured
articles while Tesla, he US automakers will be bearing the burnt of the trade war. Since China
lies at the enter of the complicated global automotive supply chain, the US producers will
have to spend more on the parts from hen they will be taxed. Therefore, it can be said that the
automobile industry of the United States have been the most affected industry. The electronic
manufacturers which mostly depends on China like Micron technology, Intel Corp and
NVIDIA Corp are the most vulnerable in the trade war scenario (Li & Lin, 2018). The tech
industries are also affected by the trade war.
The trade war already have a huge impact on the earnings on the iPhone maker’s
since it adversely affect the Chinese economy. The third industry which have been affected
by the trade war is the agricultural industry. China is known as the fourth largest agricultural
export of the United States. China had been the largest importer of the US soya beans and
the other products which are exported to China are cotton, coarse grains and pork products.
However, the government of China known to have imposed an additional tariff on US soya
beans.
Present situation of both the nations
The Chinese economy started to weaken when the trade war with the United States
continued to take a toll on the growth. In the present year of 2019, the officials from US and
China have started trade talks by agreeing to 90 days truce. The president of United States,
Donald Trump and Chinese President Xi Jinping have agreed on a 90 day ceasefire for

12ECONOMICS
deescalating the trade tensions between the two largest economies of the world (Gibbon &
Vestergaard, 2017). After that the president cancels meeting with the Chinese president
saying the meeting will not take place before March. However, after that the negotiators of
US and China continued their trade talks in Beijing. The US will be increasing tariffs on
worth US$ 200 billion worth of Chinese products which will be effective from May, 2019.
The trade deficit between USA and China is shaped by the international patterns of
the division of labour and respective positions in the value chains. Both the nations should be
working hard in order to expand the bilateral trade in services that comprises of tourism,
education, investment migration and e commerce (Hur, 2018). Tough the end of 2018 have
brought a calming situation between USA and China.
Conclusion
The trade war of 2018, revealed a growing concern for the intellectual property
environment of China. The President started the trade war by implementing tariff of worth
$50 billion worth of goods which was met with retaliatory tariffs of the similar amount that
have been imposed on USA. If China continues its retaliation in the similar way, it will be
running out of goods for imposing tariffs. Both China and USA are the world’s largest
economies. After that he launched an investigation on the trading policies of China and then
imposed tariffs on billions of dollars’ worth of Chinese products. The positive relations
between the two countries are the key for the global stability, prosperity and development.
Therefore, there is a need for the Chinese and US thinks tanks to deepen their analysis
and research for finding ways for understanding the trade dispute. The trade imbalance took
place because of deep underlying structural factors and over estimating conventional
measurements which cannot be resolved by erecting trade barriers. The trade war is also not