Trade Friction

Sino-US Trade Disputes

China and the United States are two of the world’s largest economies and have long been engaged in a contentious relationship. The Sino-US trade disputes have been at the epicenter of this tension. Since 2018, the two countries have been locked in a trade war due to their disagreements on issues such as intellectual property, currency manipulation, access to markets, and the tools of economic statecraft. The United States has slapped tariffs on Chinese exports and China has retaliated with its own tariffs on American goods. This has caused a great deal of economic disruption and dampened the global economic outlook.

The roots of the trade war can be traced back to the election of President Donald Trump in 2016. Prior to his election, the United States had pursued a policy of engagement with China as a way to increase American influence in the region. This policy was seen as having mixed results as China continued to flout rules regarding intellectual property, subsidize its state-owned enterprises, and engage in currency manipulation. It was this dissatisfaction that spurred President Trump to take a more confrontational posture towards China. In June 2018, the United States implemented a series of tariffs on Chinese imports as a way to pressure China to change its economic policies.

In response to these tariffs, China retaliated with tariffs of its own on US goods. This tit-for-tat tariff exchange lasted over a year, resulting in a decrease in trade between the two countries and damage to the global economy. In December 2019, the two sides reached a so-called ‘phase one’ trade agreement whereby China committed to significantly increasing its purchases of US goods, while the US agreed to postpone tariffs and reduce ones already in place.

This tentative agreement has not been able to completely resolve the underlying trade issues between the two countries. The questions of intellectual property and market access remain unresolved, with China continuing to push back against US pressure on these issues. The ongoing dispute has caused great disruption for businesses around the world, particularly those in the United States and China, and has made global markets uneasy.

This ongoing trade dispute and animosity between the two countries continues to cast a long shadow over the global economy. In order to fully resolve the situation and prevent further economic disruption, both sides must work together to find a mutually acceptable solution. Until then, the global economy will continue to struggle with the impact of these Sino-US trade disputes.

The recent brewing of trade frictions between China and the United States has been giving the world a lot of anxiety. American President Donald Trump insists on asking China to reduce the current 360 billion US dollars’ trade deficit for more than two hundred billion US dollars in two years, trying to combat what he calls the unfairness in favor of China in the Chinese-US trading relationship. From the perspective of international trade theory, these American strategies are wrong and irrational.

The core of international trade theory is comparative advantage theory, which states that countries should choose products according to the different costs of production that they face. Since there is higher efficiency in Chinas manufacturing industry, a lot of consumers in US tend to choose Chinese products with lower production costs. The US huge trade deficit is because of their lack in cost-effectiveness, instead of any of Chinas unfair practice.

To reduce the trade deficit, US should depend on reducing domestic consumption of imported product and boosting exports. This cannot be solved solely by pressuring trading partners to accept unilateral trade control measures by US to reduce imports and raise exports. These measures can put a significant economic burden on importers and consumers. Instead, US needs to invest in human capital, technology innovation and capital strength, so as to improve the countrys overall competitiveness and international trade capabilities.

In addition, increased unilateral trade control will induce retaliatory action of the trading partners and even cause a trade war, which will inevitably lead to a lose-lose situation of both US and China. Higher material cost, less available resources, increased uncertainties and higher risks of the global economy are all coming along the way. The only wise way to tackle the issue is that, rather than confronting it with tariffs and quotas, US should engage in a constructive dialogue and cooperation, easing the tension and constricting the scope of the dispute.