The China-U.S. trade war came to a temporary stop in December. At the G20 summit on Dec. 1, 2018, the leaders of the two countries, Xi Jinping and Donald Trump, reached a consensus. They agreed to a 90-day negotiation period and will suspend new trade measures for the duration of the agreement.
This eight-month trade war has forced people to think about how this war began and what effects it might have on the world.
First of all, when an emerging global power intends to surpass established powers and usurp their place in the global economy, conflicts between the old and the new such as economic, diplomatic, military and other disputes are inevitable.
Secondly, China’s trade surplus with the United States over the years and the open nature of the United States’ domestic market have greatly dissatisfied the U.S. government and its citizens. Since 2001 when China joined the World Trade Organization, it has received tangible benefits from international trade, especially with the United States.
It soon became, and remains, one of the biggest beneficiaries of free trade in the global marketplace. Foreign exchange reserves would not have such tremendous economic success today without the trade. Though countries with large surpluses are disadvantaged in the trade war and are gradually becoming disgruntled at the present situation, surpluses are not the only significant factor. This trade war is dependent on numerous aspects, including the economic recession and damage to welfare.
When two countries are locked in a trade war, the exports of both are damaged, and the economy is affected greatly. However, for the United States, trade protection may not bring employment back, and inflation may rise rapidly. Even if the United States restricts imports from China, local companies may not be motivated to produce these goods unless the government offers subsidies, a policy that is not economically viable. Therefore, trade protection does not necessarily lead to the return of U.S. manufacturing and does not help employment.
If imports of low-priced goods from China are restricted, American consumers may have to bear higher costs, and inflation may rise in a short period. This means that trade protection, in fact, has a greater effect on U.S. inflation than employment.
In the context of economic globalization, the adjustment of the industrial structure of countries requires more consideration of the factors involved in international division of labor, and how they can be used to attain the optimal allocation of economic resources. The use of anti-dumping by importing countries to protect the country’s traditional industries and eliminate competitive advantages both destroys the international division of labor and hinders the importing country’s ability to adapt its industrial structure.
As for trade products, China’s exports to the United States are mainly low-cost, labor-intensive manufacturing products, while the U.S. exports to China are mainly technology-intensive products based on aircraft, electronic equipment and machinery. China and the United States each have a comparative advantage and optimize the allocation of resources. A trade war between the two countries will be detrimental to both sides.
It is clear that the trade war between China and the United States cannot continue without economic catastrophe for both countries. There needs to be a resolution that is more considerate of the state of the global market. What will happen after the 90-day negotiation is still not clear, but I am hoping for a positive, more calculated result.
Erya Du is a first-year pre-law student double majoring in international studies and economics. She loves deer, pandas and architecture.