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Us trade sanctions: US China Trade War
1. US TRADE SANCTIONS
AND ITS IMPACT ON
WORLD ECONOMY
SUB TOPIC:
US CHINA TRADE WAR
PROF. SHUBHADA GALA
2.
3. Background
• In 2001, the WTO welcomed China as its 143rd member.
• President Jiang Zemin promised China would “strike a carefully thought out
balance between honoring its commitments and enjoying its rights.”
• In following years China’s trade surplus with the rest of the world ballooned but
showed little sign of liberalizing on politics.
• Businesses salivating at the prospect, and hopes capitalism would bring
democracy in its wake, the deal was done.
• Booming exports were a key factor in buoying a decade of double—digit growth.
• Multinationals did OK as well. Apple produced its iPhones in China, tapping cheap
labor from a workforce of close to 800 million.
• Yum! Brands, sold more fried chicken in China than it did in the U.S.
• By allowing China to focus on its comparative advantage in cheap labor, and the
U.S. on its advantages in advanced technology, the trading relationship boosted
productivity in both countries.
4. • U.S. Labor groups, with a shift toward more capital—intensive
production, the result was stagnant wage growth.
• Between 2001 and 2016, real income for the bottom 20% of
U.S. households didn’t rise at all, and wages for the middle
20% managed only a 4% increase.
• China’s current account surplus ballooned to 9.9% of GDP in
2007 from 1.3% in 2001.
• The U.S. current account deficit peaked at 5.8% of GDP in
2006. The recycling of China’s surplus back into U.S.
Treasuries kept U.S. borrowing costs too low for too long, an
important background condition for the real estate bubble and
financial crisis.
• For foreign policy hawks, the strategic benefits were
outweighed by the costs. China didn’t democratize, in fact it
doubled down on its single—party model.
5. • China is the world's No.1 exporter. Its comparative advantage is
that it can produce consumer goods for lower costs than other
countries can.
• China has a lower standard of living, which allows its companies to
pay lower wages. American companies can't compete with China's
low costs, so it loses U.S. manufacturing jobs.
• Americans, of course, want these goods for the lowest prices.
Most are not willing to pay more for "Made in America.“
• China promoted the “Made in China 2025” program.
• The financial crisis crystallized the politics. With unemployment in
the U.S. touching 10% in 2009 and the jobless rate in many
European countries even higher, voters were in no mood to listen
to high—minded arguments on comparative advantage.
• In the U.S., a populist wave swept Donald Trump into the White
House with a promise to get tough on China
6.
7.
8.
9. • US TRADE LAWS BEFORE TRUMP ADMINISTARTION:
• ANTIDUMPING, COUNTERVAILING DUTIES, AND GLOBAL SAFEGUARDS
• 25 years prior to the Trump administration, China’s exports to the United
States have been a prime target of import restrictions under antidumping,
especially since its 2001 WTO accession.
• Import protection under antidumping and countervailing duties is thus not
new to the Trump administration. The share of US imports from China
subject to imposed antidumping and countervailing duties in effect each
year over 1995–2017.
• As of 2017, 9.4 percent of US imports from China were subject to
antidumping duties, up from 9.1 percent in 2016. Furthermore, 6.7 percent
of US imports from China were also subject to imposed countervailing
duties, up from 6.3 percent in 2016
10. US share of bilateral imports from China
subject to imposed antidumping and
countervailing duties, 1995–2017
11. • TRUMP’S SECTION 301
• On August 14, 2017, President Trump
instructed the US Trade Representative
(USTR) to self-initiate an investigation
into Chinese unfair trade practices under
Section 301 of the Trade Act of 1974.
• On March 22, 2018, USTR issued its
report (USTR 2018b), and President
Trump announced “with China, we’re
going to be doing a Section 301 trade
action. It could be about $60 billion but
that’s really just a fraction of what we’re
talking about.”
12. • The Section 301 report made four main allegations.
• That Chinese policy explicitly or implicitly created incentives for US
companies to form joint ventures (with local Chinese firms) and
transfer their technology to those firms to gain access to the Chinese
market.
• The investigation described a set of Chinese laws and regulations that
force American companies seeking to license their technologies to
Chinese counterparts to do so on unfavorable, nonmarket terms.
• The Chinese government’s outbound investment policy is part of its
broader industrial policy that allows the unfair acquisition of American
technology.
• The Chinese government has supported a policy of cyber-intrusion into
the commercial operations of American companies, which has allowed
it to steal trade secrets and other proprietary business information.
13. USTR described three actions that the United States would take in response to the
Section 301 report.
• First was a formal WTO dispute that would challenge the second issue of
China’ laws and regulations on licensing, which USTR alleges do not conform
to China’s WTO obligations.
• Second, the United States would consider additional measures to deal with
Chinese investment potentially beyond that arising via the process of
screening inbound investment through the Committee on Foreign Investment
in the United States (CFIUS).
• The third action was to impose new tariffs on Imports from China
On April 3, 2018, the Trump administration published a list of 1,333 products that
were being considered for the proposed 25 percent tariffs which would cover an
estimated $46.2 billion of US imports from China in 2017—somewhat less than
the $60 billion he had suggested on March 22.
Nearly 85 percent of the imports covered by the tariffs are intermediate inputs or
capital goods.
14. US Exports to China
• Beijing announced 25 Percent Tariffs in Retaliation to Trump’s Section 301 Tariffs
• On April 4, 2018, less than 11 hours after the Trump administration published its
Section 301 product list for new tariffs on China, the Chinese government
announced a list of US products over which it proposed to impose 25 percent
tariffs.
• Beijing’s tariffs would cover an estimated $49.8 billion of US exports to China in
2017.
17. • Impact
• A simulation conducted by the Institute of World Economics and Politics
measured the potential implications of a trade war between the United States and
China by using a multi-country global general equilibrium model.
• China will be significantly hurt by tariff trade war in all indicators, including welfare,
gross domestic product (GDP), manufacturing employment and trade but the
costs should be maintainable and will not severely damage the Chinese economy.
• The US will gain on welfare, GDP and non-manufacturing production, but hurt
employment and trade (both export and import).
• Since each nation maintains a large economy, their actions not only effect each
other but also the entire world. As a result of the trade war, the rest of the world
will also see impacts within their own economies.
• For most large and developed nations, they will see positive benefits from a US-
China trade war.
• However, smaller nations will see significant negative impacts.
18. Before March 1 Deadline
NEW YORK, Feb 15 (Reuters) –
• Progress in the U.S.-China trade talks helped send world stock markets broadly
higher on Friday and pulled investors out of the safety of government bonds.
• In early trading on Wall Street, the Dow Jones Industrial Average rose 303.2
points, the S&P 500 gained 22.14 points and the Nasdaq Composite added 31.40
points in morning trading.
• China and the United States reached a consensus in principle on some key issues
during the talks,
• China's state news agency Xinhua said on Friday, negotiations will continue next
week in Washington as investors hope for an end to the trade war between the
world's two largest economies.
