Naser Koshan

China and United States impending trade wrestle

15.04.2018

The United States and the People’s democratic republic of China (PRC) have cherished remarkable trade relations over the course of many years, reaching hundred of billions of US dollars in mutual trade annually. China is the largest exporter when it comes to the United States’ trade balance sheet; on the other hand, the U.S. is simultaneously a great exporting partner to that of the Chinese robust economy.  In fact, Chinese mainland (China, Taiwan & Hong Kong) combined is the largest producer of goods in the world, their exclusive overreach is not only confined to the United States, but diversified all over the five continents, from Africa to Asia and Europe to North America are all recipients of Chinese made products equivalent to their trade partnership and economy size. The one party state’s capitalistic approach to its economy has undoubtedly opened new horizons of outstanding economic achievements, particularly in the last two consecutive decades; part of this absolute advantage in global economic dominance is certainly intertwined with highly skilled and cheap human capital/workforce as well as the very entrepreneurial spirit of the Chinese indigenous citizens. 

Contrary to globalization principles, protectionism and nationalism are an integral part of policies undertaken by the civilized world on the global stage. Britain is on the verge of exiting the EU, aiming to ride a solo rodeo towards further economic and political autonomy on its own, while the U.S. and the rest of the world are already on the path to tighten their geographic borders and put orthodox restrictions on foreign trade, questioning the very fundamental free trade principles.

In hindsight, business transactions at any giving level are a give and take formula among partnering entities. In the very specific case of trade relations between the United States and China, both countries are effectively benefiting from a mutually agreed trade partnership that is solely based on the very basic economic principle of supply and demand. Chinese exports to the United States have not only contributed tremendously on attributing lower prices for goods and services here in the United States, but also creating major employment opportunities for American workers at home. The same is true when we gauge the added value to the Chinese economy by the American goods and services, in short unlike views expressed by a number of trade experts; it is a two way street rather than the other way around.

President Trump as a billionaire businessman has had sporadic lash outs funneled at China, Europe and Mexico for treating the United States unfairly in mutual trade dealings, intentionally aiming to bankrupt American industries and ripping off the American people. Choosing “Make America Great Again” as his campaign slogan was no accident, the then nominee, Mr. Trump had repeatedly warned U.S. trade partners to indulge in fair trade with the country, or risk retaliatory actions from his administration once in power. He even went further to step out of the NAFTA (North American Free Trade Agreement) and NATO pacts if U.S. demands were not met. Considering the growing U.S. trade deficit with the rest of the world, President Trump’s administration is aiming to narrow down the deficit gap it runs with many countries, including China, Mexico and South Korea. White House trade representatives are already in substantial talks with officials from the same countries to renegotiate terms on existing trade pacts or sign new ones with amended terms. Financial indexes suggest that U.S. trade deficit with China had indeed rose to USD 375.2 billion in 2017 compared to USD 347 the previous year.

As a first step to achieve this milestone, President Trump recently signed a bill that will levy additional 24-25 percent tariffs on solar panel and washing machine imports from abroad, mainly targeting Chinese and South Korean manufacturers. The move comes with the aim to make the American manufactures at home more competitive and subsequently increase employment at these sectors. The White House also announced a series of similar suits to follow the decision; The U.S. is on the lookout to place tougher barometers on American intellectual property often abused by Chinese manufactures, causing further incompetence in American capability to compete with the growing Chinese global trade dominance. China on the other hand, retaliated and slapped a similar tariff increase on an estimated 128 items imported from the U.S., including agricultural products ranging from fruit to wine and frozen pork valued at USD 3.0 billion dollars.

In addition to the trade problems abroad, President Trump is also at odds with American giants at home, blaming American premier corporations for outsourcing American jobs and evading taxes. He specifically demanded Amazon pay its fair share of taxes with additional compensations to the U.S. postal service for rendering the service at minimum cost under its running contract with the agency. Amazon is expected to pay a 41% more for average package shipping to USPS when its five year contract with U.S. postal service ends in October.  President Trump is also furious on Amazon for having loose restrictions in place when it comes to allowing Chinese manufactured products on Amazon Fulfillment facilities and onto its marketplace for American consumers.

The United States sees China not only as an emerging economic rival, but also a strategic adversary when it comes to its foreign political and economic interests. President Trump and his administration attribute the prevailing U.S. trade deficit to that of Chinese currency manipulation and dumping policies. China on the other hand, has had a remarkable trade surplus that enables the country to engage with smaller economies on global level, and establish an even formidable footprint across different continents. It is worth mentioning that in spite of all speculations concerning a probable trade war between the U.S. and China, business dealings between the two countries are still at its highest level and unlikely to change in the short-run.

On the other front, China is already striving to revive the ancient silk route concurrent to its initiative of one belt one road framework that will undoubtedly transform global trade on a different level. No doubt, the rapidly growing Chinese economy will direly need emerging recipient markets for its vast production and remarkable expansion in the near future. This will in turn allow the Chinese ingenuity to conquer additional markets, and strengthen its miraculous achievements.    

The Chinese ruling party recently lifted the constitutional logjam allowing President Xii to serve unlimited terms as the president. This will allow him the time and extraordinary power to fulfill his vastly popular economic vision for the Chinese global leadership. The White House, on the other hand believes that any trade dispute with China will have a meager impact on the bilateral relations of the countries, eventually the U.S. will benefit from the arising circumstances as it is still an irreplaceable trading partner to Europe, China and all other major economies in the World.

 

 

Author:  Naser Koshan

April 2018

Washington, U.S.





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