China & the World Economy 4: China’s International Trade and US-China Relations Flashcards
(12 cards)
What was China’s role in global trade before the 20th century?
The Silk Road (207 BC–2020 AD) connected China to the Mediterranean.
Trade peaked during the Yuan Dynasty.
Zhu Di (1405) opened sea routes to India, Arabia, East Africa.
China had the largest ships, most advanced tech, and highest living standards.
From the 15th–20th century, China became isolationist, believing it had little to gain from trade.
Result: China’s GDP fell from 30% higher than Western Europe (1820) to 1/12th by 1950—the “Great Divergence”.
How did China become a global trading superpower after 1978?
1978: China’s trade = <1% of global trade.
2010: Trade exceeded $3 trillion (143× 1978 level).
Export-led growth: 17.2% annual export growth.
Key reforms:
Decentralized trade institutions
Promotion of FDI
WTO accession (2001)
Tariff cuts (from 47.5% in 1990 to 15.8% in 1999)
Current account surplus: $417.5B in 2022 (2.3% of GDP).
China’s exchange rate policy
1994: Dual-track exchange rate abolished; RMB pegged to USD.
RMB appreciated ~40% since 2005 reforms.
Undervalued currency:
Boosts exports, discourages imports.
Requires buying USD → expands money supply.
Limits monetary policy flexibility.
Risks: inflation, housing bubbles, overcapacity (e.g. steel).
How has China’s energy demand influenced global trade and geopolitics?
China became the world’s largest energy user in 2009.
Oil consumption = half of global growth (IEA).
Heavy reliance on energy imports.
(Your note): China plans to build the world’s largest hydroelectric dam in Tibet → tensions with India and Nepal.
What is the nature of the US-China trade imbalance and its implications?
2013: US trade deficit with China = $318.7B.
US exports to China = $121.7B; imports = $440.5B.
China produces goods cheaper due to:
Lower wages
Undervalued RMB
US consumers benefit from low prices, but jobs lost.
China buys US Treasury bonds → keeps US interest rates low.
2023: China’s holdings dropped to $870B (lowest since 2010).
What were the key events and impacts of Trump’s trade war with China?
Trump proposed 45% tariffs on Chinese goods.
US imposed $550B in tariffs; China retaliated with $185B.
Huawei added to entity list; US firms banned from selling to it.
(Your note): US cancelled further bans due to Huawei’s deep integration with US firms.
“Phase 1” deal (2020):
China to buy $200B more US goods.
IP protection and currency management reforms.
(Your note): “IP” = intellectual property.
What were the economic consequences of the US-China trade war?
US consumers bore the cost (tariffs not absorbed by China).
US exports fell due to higher input costs.
Jobs did not return to the US.
IMF: escalation could cut global growth by 0.5%.
Morgan Stanley: full-scale dispute → 0.81% GDP loss.
China missed Phase 1 targets (only 51% met).
(Your note): If Trump returns with more tariffs, China must boost domestic consumption.
Biden’s China trade policy
Biden retained Trump’s tariffs and tech restrictions.
Focus on multilateral alliances and predictable policy.
Katherine Tai: China’s competition is a top issue.
Robert Lighthizer: Phase 1 includes IP and tech transfer rules.
Biden cautious due to domestic political pressure.
What does economic research say about the trade war’s impact?
Fajgelbaum & Khandelwal (2021):
Tariffs fully passed through to prices.
US consumers paid more.
Real income fell in both countries, but not drastically.
Open questions:
Long-term effects?
Supply chain shifts?
National security implications?
Role of tariff rebates?
Challenges to China’s trade-led growth
Over-reliance on low-tech, low-value exports.
Wage increases and labour shortages → loss of competitiveness.
Resource bottlenecks (land, water, energy).
Pollution and rural-urban inequality.
Trade concentrated in few countries → vulnerable to global shocks.
China earns only 2% of iPad value (low value-added processing).
How has China responded to trade-related challenges since the financial crisis?
2008 stimulus: 4 trillion RMB.
Structural reforms:
Flexible labour
Social safety nets
Private sector growth
Capital market efficiency
Expanded trade with developing countries via FTAs.
New goal: “common prosperity”.
Post-COVID trade under pressure.
Future of China’s trade
Challenges:
IP rights disputes
Currency devaluation risks
Discriminatory trade measures
Trump 2025 tariff threats (10–60%)
China’s strategies:
WTO compliance
One Belt, One Road
Regional FTAs
Exporting infrastructure expertise
Opening services
Boosting overseas investment
