The Price of the U.S.-China Trade War

Ryan Zhang ‘20

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Starting at the beginning of 2018, a trade dispute formed between the U.S. and China soon became an explosive trade war resulting in billions of dollars of tariffs on each side; this would subsequently harm both the manufacturers and the economy. The trade war between the U.S. and China started on January 23rd, 2018 when President Trump placed a 30% tariff on foreign solar panels. China, the world leader in solar panel manufacturing, immediately denounced these tariffs but offered no retaliation [1]. On March 22nd, President Trump, citing Section 301 of the Trade Act of 1974, threatened to impose more tariffs on $50-60 billion worth of Chinese goods [3]. Section 301 of the Trade Act of 1974 states that the President has the authorization to take all appropriate action and to obtain the removal of any act, policy, or practice of a foreign government that violates an international trade agreement or burdens or restricts U.S. commerce. President Trump stated that the tariffs were in response to unfair trade practices by China that included the stealing of U.S. intellectual property.

 

On April 2nd, China then imposed tariffs on 128 products it imported from America, such as aluminum, airplanes, soybeans, fruit, and nuts. President Trump, goaded by these recent tariffs, responded by saying he might impose an additional round of tariffs on $100 billion of Chinese imports. After this most recent threat, China filed a request to the WTO (World Trade Organization) for consultations on the new U.S. tariffs [3].

 

Of course, there is much speculation as to why President Trump is being so aggressive with his tariffs. One belief is that he is trying to protect his strongman image. Joey Toscano ‘20, stated, “it’s clear President Trump wants to maintain a strong image near the midterms,” because, in order to tap into the Republican vote, he needs to “reflect strong Republican values through acts like defining gender and denouncing the immigrant caravan”. U.S. intelligence chiefs have also reported that President Trump has not ordered any deterrence to possible Russian hacking [4]. This puts President Trump in quite a difficult situation, as trying to do something about Russia now would be seen as a sign of weakness, and the lack thereof would be seen as a sign of weakness too. Therefore, President Trump shifts the focus off of Russia and towards an issue he has tackled before: import tariffs.

 

The two countries decided that the conflict was escalating quickly, and arranged trade talks from May 15th to May 19th. After these discussions, Chinese officials agreed to reduce America’s trade deficit with China by committing to significantly increase its purchases of American goods. As a result of these negotiations, the trade war was put on hold. Unfortunately, the grace period from the trade talks did not last very long.

 

On May 29th, the White House announced that it would implement a 25% tariff on $50 billion of Chinese goods [3]. The White House also planned to place restrictions on certain Chinese individuals and organizations in an effort to prevent them from acquiring U.S. technology. China did not receive the news well, declaring that they would suspend further trade talks if such trade sanctions were imposed.

 

These import tariffs have had some unintended consequences on Americans. The steel tariffs have been especially harsh due to the fact that steel is not an import that can easily be switched. Thus, prices have been driven higher which raises manufacturing costs in many industries. As prices rise, demand falls, and thus jobs suffer. In addition, the import tariffs China has implemented such as the soybean tariff appears to be targeting the agricultural states that supported President Trump so strongly in the 2016 presidential election. China accounts for 60% of U.S. soybean exports. Many farming families fear they might not be able to survive the ensuing drop in prices as they often depend heavily on foreign markets [2].

 

On June 15th, President Trump followed through with the White House’s previous announcement and imposed the 25% tariff on $50 billion of Chinese exports. As a result, China’s Commerce Ministry accused the U.S. of starting a trade war and said that they would reciprocate any tariffs the U.S. imposed, on U.S. imports. Not long after that, the White House declared that the United States would impose additional 10% tariffs on another $200 billion worth of Chinese imports if China retaliated against these U.S. tariffs.

 

Eventually, U.S. Treasury Under Secretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen met on August 22 in Washington DC in an attempt to open dialogue in response to the intensifying trade war. No resolution was reached. By August 23, more tariffs were implemented and China filed another complaint to the WTO for the tariff escalation. On September 17, the U.S. announced its 10% tariff on $200 billion worth of Chinese goods would begin on September 24 and increase to 25% by next year. China retaliated with 10% tariffs on $60 billion of U.S. imports [1].

 

Hannah Zhang ‘22, described this conflict as an “economic ‘cold war’” that is “continuously building up”, as one side keeps incensing the other side with more and more import tariffs. And at this point in the war, neither government can afford to back down and show weakness in front of their own people. Now, the key factor to watch is whether or not the mutual damage will lead the parties back to the negotiation table. Despite past failed attempts, the deterioration of their economies and their own people would possibly lead them to try and end the conflict. Only mutual recognition of their interests and a reasonable compromise can lead to a quick defusal of this expanding conflict.

[1]-http://www.aei.org/publication/us-china-trade-war-numbers/

[2]-www.washingtonpost.com/news/wonk/wp/2018/04/05/they-voted-for-president-trump-no

w-soybean-farmers-could-get-slammed-by-the-trade-war-he-started/?utm_term=.42f0e3d

cb214.

[3]-en.wikipedia.org/wiki/2018_China%E2%80%93United_States_trade_war.

[4]-https://www.usnews.com/opinion/thomas-jefferson-street/articles/2018-03-06/donald-trump-proposed-tariffs-to-mask-the-fact-that-hes-weak-and-inept

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The Price of the U.S.-China Trade War