Economics / Finance / International Business

A Trade War with China May Be Imminent

uschinatradewar

As Donald Trump is now into his third week as President of the United States his policies have started to become more and more clear. In terms of President Trump’s trade policies, he has made it very clear that he thinks America is “losing” in trade and that current trade deficit needs to be reduced. But where does our trade deficit come from?

The United States’ number one importer of goods is China. In 2015 China and the United States traded about $660 billion worth of goods and services. U.S. exports to China were $162 billion, while Chinese imports accounted for $498 billion. The result is a trade deficit of $336 billion and that is what President Trump wants to reduce. But how will President Trump start “winning” with China? There are a couple options that President Trump could use. Although many believe his choice of preference to be enacting new tariffs on Chinese goods, this could easily lead to a trade war that would affect not only the United states, but the whole world.

President Trump has already started us down the path towards a trade war.

Trump has already formally withdrawn from the TPP, or Trans-Pacific Partnership, which was an agreement between 12 countries (that didn’t include China, although China potentially wanted to join) that border the Pacific Ocean and together represented 40 percent of the world’s economic output. Trump has said that pulling out of TPP will protect American workers from low-wage countries included in the TPP, such as Vietnam and Malaysia. Some Economists have also come out in opposition of the TPP, arguing that tariffs between the 12 countries are already very low and that the U.S. doesn’t gain a competitive advantage in enough areas to warrant the reduction of tariffs into America.

Theoretically all the above reasons are true, as trade would expand under the deal, labor intensive jobs in the U.S would fall, as they are shifted to lower wage countries, such as Vietnam and Malaysia. Tariffs between the 12 countries also are already very low and many of the countries don’t import many goods from America, but do export goods to America which furthers our trade deficit.

The issue that remains is that many in support of the TPP saw it as an opportunity to combat China in the Asia Pacific region. That pulling out is handing China the keys to control the region for the foreseeable future. These people saw the TPP as more than just a trade deal, but a matter of national security for not only the United States, but for everyone involved. Increasing trade between the 12 members would help to contain and increase multilateral pressure on China and its growth into the South China Sea.

Without it, President Trump will now have to combat them alone. China has already come out and stated that any tariff increases from Trump would be met with repercussions. Meaning that a trade war (of varying proportions) with China might be right around the corner.

The resulting actions would almost certainly hurt China more than the United States, but American businesses and workers would still suffer as a result. With the world’s two largest economies going after each other, there would be global ramifications.

Sources:

http://www.forbes.com/sites/danikenson/2017/02/06/not-much-left-stopping-trumps-trade-war-with-china/2/#3f592f8c69d5

https://www.ft.com/content/06638c26-d42c-11e6-9341-7393bb2e1b51

http://www.economist.com/blogs/economist-explains/2017/02/economist-explains-2

http://thehill.com/blogs/pundits-blog/international/313168-in-a-us-china-trade-war-these-are-americas-best-options

https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china

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