According to Chinese economist Keyu Jin, the aforesaid trade deficit was more driven by a difference in
saving rates between the US and China, rather than trade policies. Chinese households were found to save
more than 30% of disposable income on average, compared to 7% in the United States. Similarly, another
Chinese economist, Xiaohuan Lan, believed that the deficit was driven by the way the economic systems of
the two countries are structured. He argued that the U.S. imports more than it exports since its domestic
consumption is greater than its domestic production of goods while China exports more than it imports
since its domestic production is greater than its domestic consumption of goods.
We have a tremendous intellectual property theft situation going on, which
likewise is hundreds of billions of dollars. And that’s on a yearly basis. I’ve
spoken to the President. I’ve spoken to representatives of China. We’ve
been dealing with it very seriously.
China began exporting products made from cheap labor to the US. This
resulted in a trade deficit for the US, and a surplus for China.
China was saving, while America was consuming. Mutual Dependency
‘Made in China 2025’ economic plan -> financially promoting 10 strategic
high-tech sectors. Thanks to this plan, Chinese tech brands such as Huawei
rapidly emerged as major global competitors. Domestic innovation. Became
global leader in 5 technology areas.
Although the trade war tension had somewhat subsided by 2020 and during
the COVID-19 pandemic, a cautious and restrictive stance on trade with China
became a bipartisan consensus in the US, regardless of which party was in
power.
In April, Trump raised the stakes, hiking the tariffs up to 125%. China
responded, first with a tariff rate of 84%, then reciprocated with 125%. As
economists speculate as to the outcome of the battle and the world nervously
watches on, the US-China trade war is likely to have repercussions around the
world, with the World Bank warning that it could lead to a sharp contraction
of up to a whopping 80% in trade between the two countries, and a nearly 7%
decrease in global GDP. Given the deep economic interdependence between
the two countries, the question of who will “win” the trade war is gradually
turning into a different question: “Who will lose the most?”
1. Hello, I am Chaeyun Kim, majoring in Business Administration. The topic I want to discuss today
is the ongoing tariff war between China and the United States. But before I get into the specifics
of the tariff war, let’s start off by defining what a tariff is.
2. Essentially, tariff is a form of tax.
3. It is a tax on imported goods, paid to the government by companies bringing in the foreign
products. (ani) Typically, the charge is a percentage of a good's value. For example, a 10% tariff on a
$10 product would mean a $1 tax on top - taking the total cost to $11. A tariff makes imported goods
from a specific country more expensive, thus a less attractive choice for businesses and consumers.
4. A tariff war occurs when two countries keep raising the tariff on each other’s goods, and that is exactly
what’s happening between China and the US. (ani) It all started in 2018, with then-president Donald
Trump announcing tariffs of 25% on steel and 10% on aluminum imports on all countries, which
affected China heavily. China responded by imposing tariffs on 128 products it imported from America.
From then on they went back and forth, raising tariffs to the point where it reached a whopping 145%
and 125%, respectively.
5. So why such high tariffs? The most influential figure behind the tariff initiative by America is Donald
Trump, and he has time after time spoken out about his determination to tax against China. He has
two main reasons behind this, the first being the US trade deficit. It is common knowledge that one
of China’s most potent strengths is its low labor costs, hence the ability to produce in masses and sell
cheap. In contrast, the United States is known for its high consumption. China’s low price and America’s
high demand made the trade between them very unbalanced, with the US consistently importing more
than it exported to China. Now, when a country imports more than it exports, it results in a trade
deficit because it is essentially spending more than it is earning from the trades. The US continuously
suffered from this problem, eventually recording a $375 billion trade deficit with China alone in 2017.
Trump claimed that raising tariffs would solve this trade deficit by discouraging the import and
consumption of Chinese goods.
6. Another reason the Trump administration implemented higher tariffs was to protect American
manufacturing. China’s low labor cost was tempting for many companies, and American companies
weren’t an exception. As production gradually moved to China, domestic manufacturing jobs were lost
and American companies found themselves increasingly dependent on Chinese goods. The US
government saw this as a big problem, and Trump’s solution was once again: tariffs. Tariffs are not
only imposed on foreign goods sourced from a foreign company; it also applies when a domestic
company manufactures abroad and ships it back to their homeland for sale. Therefore, Trump believed
that high tariffs would bring back domestic jobs by making Chinese labor sourcing more costly.
7. At this point you may be asking: “So did it work?” The simple answer is: no. While Donald Trump firmly
believed that raising tariffs would reduce the trade deficit and protect domestic manufacturing jobs,
most experts believed otherwise. In fact, Nobel economist Paul Krugman went so far as to say that
the idea that tariffs can magically bring back jobs or reduce the trade deficit is just economic
nonsense. A November 2019 UN analysis reported that "the U.S. tariffs on China are economically
hurting both countries". In the United States, it has led to higher costs for manufacturers, higher
prices for consumers and financial difficulties for farmers. In China, the trade war has slowed
down the rate of economic and industrial output growth.
8. So, where are we now with the tariff war? Although the trade war tension as of now has
somewhat subsided through trade truces between China and the US, the repercussions are far
from over. The World Bank predicts that the tariff war could lead to a sharp contraction of up
to 80% in trade between the two countries, and a nearly 7% decrease in global GDP. Given the
deep economic interdependence between the two countries, the question of who will “win” the
trade war is gradually turning into a different question: “Who will lose the most?”
9. Aside from discouraging import of Chinese goods and labor, Trump claimed that the tariff solution
would also curb China’s unfair trade practices such as intellectual property theft and forced technology
transfers. Intellectual property theft, or more commonly known as IP theft, is a broad term referring
to the stealing or unfair obtaining of another entity’s technologies, trade secrets, patents,
trademarks, or copyrighted material. “Forced technology transfer” refers to situations where
foreign companies are pressured to hand over their technology, patents, or know-how in order
to gain access to another country’s market — in this case, China’s. A US Trade Representative
Report in 2018 concluded that American companies lost hundreds of billions of dollars annually
from these activities. Trump viewed these IP and tech-related issues as a core threat to US
innovation and decided to use tariffs as leverage to pressure China into changing its policies
pertaining to such practices. In this case, tariffs were not necessarily a direct economic fix for
the IP thefts, but rather a pressure tactic. The intention was to hurt China’s export economy until
it was forced to negotiate.
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