Understanding the US-China Trade War by Liu and Woo

Subject: Economics
Pages: 2
Words: 299
Reading time:
< 1 min

China and the U.S. are each other’s chief trade partners, so it is not surprising that the trade war between them has been very damaging to both. In prosecuting this war, the Trump administration hoped to address concerns about job loss, unfair and illegal practices such as intellectual property theft, and perceived security risks. As described in the article, the Phase One agreement partly addresses these concerns by requiring China to strengthen intellectual property protection and pledge to increase purchases of U.S. goods. In exchange, the U.S. agreed to cancel or reduce some of its tariffs on Chinese goods. The hypothetical Phase Two agreement would presumably involve lowering tariffs further, although the revival of trade is likely to be hampered by the coronavirus pandemic. Overall, the agreement increased business confidence, though much work remains to be done to normalize trade.

International trade is subject to political as well as economic factors, and Chinese-American trade is no exception. Reducing China’s trade surplus with the U.S. can be economically beneficial insofar as it helps employment, but the effect is likely to be limited. The political benefits of protecting voters’ jobs are much more straightforward. The article mentions that China has pledged to buy an additional $200 billion’s worth of goods from the agricultural, manufacturing, and energy sectors. The problem with this promise is that China only imported $130 billion from the U.S. in 2018. It is not clear that there is enough demand for American goods in China to make this increase rational from a purely economic perspective. China probably could fulfill this obligation to get rid of higher tariffs. Nevertheless, arrangements that distort the market are a shaky foundation for a long-term trading relationship, especially one that is already subject to political tension.