Essay Sample on US-China Trade War: Economic Turmoil & Impact on GDP

Introduction

There is an economic juncture between the US and China in the world currently. The economic turmoil between the two countries began when the US first imposed over $250 million of tariffs to Chinese imports a move that made Chinese also to raise tariffs to all the US imports (Amiti, Redding,& Weinstein, 2019). According to International monetary fund statistics in 2018 stated that trade tariffs would reduce US GDP to 0.9% and 0.6% of China 2018 (Amiti, Redding, & Weinstein, 2019). The net export of China still have remained stable even though the continuous efforts of reducing China into a consumption-based economy. This paper highlights some of the trade wars between China and the US and identifies some of the causes that instigate the trade conflict. The principal objectives of trade wars between the US and China might seem to be economical even though they are politically instigated.

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Historical Background

The United States with China have increased from $125 million to $700 million since China joined the WTO in 2017 (Amiti, Redding, & Weinstein, 2019). Not to mention, that China has top ten banks, the largest e-commerce market and the largest middle-class earners in the world. The US has launched a five-section 301 investigation on China intellectual property rights, unfair trade barriers, and clean energy. In the past, the two countries resolved the use of tariffs through a diplomatic system (Li, He & Lin, 2018). The China economic practices now risk destroying US services, such as intellectual property, forced technology transfer, and theft. The unfair trade practices in Chinese also threated wage jobs and high value-added manufacturing companies in the US.

Why China's Economic Model Matters

The Chinese economic model is inconsistent with the trading system based on the comparative advantage in the economy. The Chinese state-owned enterprises (SOE's), the limited rule of law and access to subsidies support state companies in China and globally. The china economic model has increased productivity, reallocation of jobs, growth of the agricultural sector, and building economic ties with WTO forums. In the year 2000-2007, the low priced imports from China created a financial gain of $202 billion for the US (Amiti, Redding, & Weinstein, 2019). Over 1.8 million jobs are believed to be supported by the trade-in the US alone (Amiti, Redding, & Weinstein, 2019). Causes of the US-China Trade Conflict

The trade conflict between the US and China is caused by the widening of the trade gap between the two countries. The trade balance also has led to the continuous battle between the US and China. China has pegged its currency to the dollar by the use of a modified fixed exchange rate. China also has the advantage of buying the dollar through the US treasury to support it. The other cause of trade conflict between the two countries is the political forces, especially in the US (Amiti, Redding, & Weinstein, 2019). Both China and the US are in the competition of who will be in the economic dominance position in the world.

Economic Impact of Trade Conflict

The increase in trade tariffs led to a decrease in Chinese goods in the market and making them more expensive in the US markets, which reduces China's exports to the US. The increase in trade tariffs also resulted in over 25% of the change in trade volume between China and the US (Amiti, Redding, & Weinstein, 2019). China is risking losing over $101.3 billion trade surplus with the US when the trade volume shrinks by over 27% (Li, He, & Lin, 2018). The trade conflict also will affect the China GDP, and the other loss will be spilled to trade partners of China.

Trade Surplus and the current account balance

The current trade surplus the united States are experiencing is as a result of low domestic savings, which require funding. The surplus deficit can also be blamed from the decline of western manufacturing, which resulted from the flooding of America's bond market as a result of excess savings. The reserve asset in China also has dropped tremendously because of the trade conflict (Li, He, & Lin, 2018).

Impact on China Trading Partners

The China imports have greatly affected most of its trading partners according to the China total imports, which later will reflect on their export from the EU, countries such as Korea, Japan, and Taiwan.

Importance of WTO in resolving US-China Trade Conflict

The WTO has identified effective economic platforms where all its members can present their grievances in the market. The platform will also help in controlling both the public and the private sectors in the market. The companies which have complied with WTO regulations will be in a better position to expand their operations in the market effectively (Li, He, & Lin, 2018). WTO also builds global support for the push against Chinese economic practices.

Conclusion

The United States and China have been at the forefront in the conflict about the tariff wars. The US and China have experienced a massive conflict concerning the trade tariff a factor that has led to the destruction of interrelations between the two countries economic development. To stop this trade conflicts, the US should begin by reducing the high tariff rates they imposed on the China exports. US government should ensure that they control their political temperatures not to interfere with the China development structure. The trade gaps between the two countries also should be bridged.

References

Amiti, M., Redding, S. J., & Weinstein, D. (2019). The impact of the 2018 trade war on US prices and welfare (No. w25672). National Bureau of Economic Research. Retrieved From https://www.nber.org/papers/w25672

Li, C., He, C., & Lin, C. (2018). Economic Impacts of the Possible China-US Trade War. Emerging Markets Finance and Trade, 54(7), 1557-1577. Retrieved from https://www.tandfonline.com/doi/abs/10.1080/1540496X.2018.1446131