China-US Trade War

Question 1

Explain background between China and US relationship

Answer 1

China can produce what US wants but at a lower price.
To maintain the US peg, China buys US treasury notes (US debt to China $1.25 trillion 2014).
China has political leverage over US, so US outsource to China, creating unemployment.

Question 1

What happened when Trump was initially elected

Answer 1

Trump promised to impose 45% tariffs on Chinese imports. US pulled out of TPP, moving away from free policies from the past

Question 2

What are the 6 stages of the Trade War

Answer 2

1. Initial Escalation 2018-2019.
2. Further Escalation 2019.
3. Talks and Concessions 2019 - Jan 2020.
4. Phase 1 Deal Jan 2020.
5. Setbacks and Delays 2020-2021.
6. Current Status 2021+.

Question 3

Describe the initial escalation

Answer 3

US imposed 3 rounds of tariffs on Chinese goods worth $250 billion.
China retaliated.

Question 4

Describe the further escalation

Answer 4

US increased tariffs by 25% on $200 billion of Chinese goods.
China responded with tariffs on $60 billion of US goods.

Question 5

Describe the talks and concessions

Answer 5

Trump announced tariffs of $300 billion on Chinese goods.
US declare China has a currency manipulator.

Question 6

Describe the Phase 1 Deal

Answer 6

China agree to purchase more US goods and to decrease the tariffs on these goods.
Aimed to prevent further escalation but existing tariffs remained in place.
US drops label of China being a currency manipulator.

Question 7

Describe the setbacks and delays

Answer 7

COVID-19. China struggled to meet purchasing targets and postponed reviews.

Question 8

Describe the current status

Answer 8

US tariffs on Chinese goods = $550 billion.
Chinese tariffs on USA goods = $185 billion.

Question 9

What are the effects so far

Answer 9

1. Shift in trade patterns and consumer impact. Reduced US trade deficit. Consumers bore the burden of the tariffs. Unemployment.
2. Biden’s Administrative Approach. Seeking to build alliances to formulate a predictable trade policy.
3. Economic analysis. Reduced aggregate real income but not by a large amount relative to GDP.

Question 10

What are the challenges of China’s trade-led growth

Answer 10

1. Over-dependance on trade for growth. 50% of GDP since 1992. Anti-dumping.
2. China’s trade is structurally unbalanced. Relies on low skilled/tech, resource intensive industries. Wage increases are reducing competitiveness.
3. Limited trade partners. Susceptible to a global slowdown.

Question 11

What are the solutions and responses

Answer 11

1. Structural reforms - Labour more flexible, increased privatisation and more efficient capital market.
2. 4 trillion stimulus package - infrastructure, tax cuts, subsidies to increase consumption and investment.
3. Increased trade with developing nations through FTAs.

Question 12

Summarise China’s trade history

Answer 12

• 207-220BC - Silk Road.
• 1405 - Sea routes, increased ships and living standards.
• 15th-20th century - China became more reclusive, lower growth compared to West.
• 1978 - Reforms. China pursued export-led growth development strategy. Peg to US introduced 1994.
• 2001- China joined WTO.