The Sino-American Trade War: Are Trumponomics Making America Great Again?

The economic policies of the current controversial American head of state have become known for their protectionist nature, individual and corporate tax reforms and, most notoriously, immigration reduction. Since Trump's tax reform plan was adopted as law, there have been mixed results, showing that there is potential for the President to indeed make America great again. For example, in 2017, the nation's real gross domestic product grew by 2.3%, compared to 1.5% the previous year. Furthermore, while job creation, an important element of Trump's campaign rhetoric, decreased by 10.1%, to its lowest level since 2013, the unemployment rate has simultaneously fallen for the eighth consecutive year, and labour force participation among prime-aged labourers has increased for the fourth consecutive year. Equally, the stock market grew strongly, and the United States has seen a growth in household net worth for the eighth year straight. That said, the President's recent trade quarrel with China, although understandable in principle, could offset the above achievements and many other potential successes in years to come, due to the alienating effect of his protectionist policy. In this article, I shall be discussing the ramifications of Trumponomics by paying attention to the potential consequences of the US-China trade war.



Earlier this year, the American government began erecting trade barriers via astounding tariffs on steel and aluminium imports. On 1 April 2018, China retaliated by imposing punitive tariffs on over 128 categories of US goods. Last Friday, tensions escalated following a reciprocal application of 25% tariffs on $34 billion worth of each other's good, a move that Beijing labelled a precursor to potentially the biggest trade war in economic history. However, one must ask: why this sudden, dramatic move on the part of the United States? Is it, as most people would now assume, merely another in a row of impulsive Trumpisms, or is Trump actually trying to make a valid point? I think the latter is the case, contrary to what most "Trump haters" would probably conclude.

Trump's main argument is that the Chinese trade policy is unfair, even verging on villainous, and that over the years, the East Asian powerhouse has been stealing intellectual property on a regular basis. When compared against the evolution of Chinese trade since the beginning of the century, the President's remarks do actually raise eyebrows vis-a-vis the former. For example, currently, China is exporting seven times as much as it used to at the turn of the century; it is the world's greatest exporter, being valued at $2 trillion a year. However, China does also rank as the world's second-largest importer of both goods and services. That said, given its disproportionate exportation practices, China has a huge trade imbalance, which Trump has fairly pointed out as staggering. For example, last year, China had a trade surplus of $165 billion; it is not the largest however, with Germany's and Japan's surpassing it, and Trump has voiced his complaints regarding the latter two equally.

On the contrary, last year, America had a trade deficit with the rest of the world amounting to $800 billion, of which $375 billion was with China. Trump highlights such trade imbalances as being reflective of unfair and biased past trade agreements, through which the United States is being taken advantage of. However, where one ought to criticise Trump regards his narrow vision of trade. These imbalances would seem far less concerning if one took into account the fact that America is the world's largest exporter of services, something that the former business tycoon and reality television mogul often neglects.


Contrary to most people who voice their opinion on Trump, I have to agree with the President’s diagnosis of the current trade climate. Global trade imbalances have led to the whittling away of the middle classes and have subsequently created shocking levels of income inequality. In an article praising Trump’s ambition but criticising his execution, Anthony Scaramucci stated that the catalyst for the decline in American industry really was China joining the World Trade Organisation in 2001. Scaramucci ascertains that since then, the Chinese have consistently bent the rules by devaluing their currency so as to sell more products, routinely stealing intellectual property and dumping products on the open market in order to suffocate any competition. Indeed, there is much truth to Scaramucci’s claims, especially vis-à-vis the theft of intellectual property.

China’s business practices have forced American companies that wish to conduct business over there to lay down their confidential technology and other trade secrets as a requirement to access their markets. Although technically labelled illegal by the WTO and the respective parties would be sanctioned if found out, such negotiations are typically concluded in secret in order to avoid said sanctions. This “business model” is very reflective of an almost mafia-like business structure due to the excessively intrusive demands and the clandestine nature of many operations. For example, earlier this year, the Chinese branch of the American Chamber of Commerce discovered that over half of its members believed that the diffusion of intellectual property was an issue of serious concern. The EU Chamber of Commerce has complained in equal measure, stating that European companies desiring to sell their products on the Chinese markets have often had to transfer vital technology to the recipient parties.

From the above discussion, it is clear that the United States has been victimized. That said, given how things currently are, the US-China trade dispute is being made by the President to look like an American economic war of aggression on China, and, if continued, it would have serious adverse effects on local job maintenance and national production; something which would ultimately be a shame given Trump’s commitment to job creation and stimulating the local economy. For example, within the United States, there are many counties with very small populations that often depend on one industry for jobs, such as agriculture. In Bladen County, North Carolina, Smithfield Foods, which is owned by a Chinese company, employs approximately 5,000 people from across the area, and is expected to open 300 more jobs by November. Trump’s tariffs, should they continue indefinitely, could lead to a potential widescale job cut, which would have a ripple effect on the whole area, for the company’s high-paying jobs attract workers from neighbouring counties. This is one very specific illustration of how Trump’s good intentions vis-à-vis the American people can be poorly executed. As for a further example, the labour union at Hyundai has warned that if the President’s automobile tariffs continue, they will greatly damage Hyundai’s American sales and put 20,000 jobs at the car giant’s factory in Alabama in danger.

However, what is indisputable is China’s gargantuan economic presence. Trump’s move to impose tariffs on Chinese steel and aluminum imports can be seen more as a warning than a defensive maneuver; a warning that the US will no longer tolerate the excess global capacity of those two metals, a lot of it due to Chinese investment. For example, since the beginning of the century, China’s steel production has increased six-fold, while its aluminum production has increased even more rapidly. While the EU shares Trump’s concerns vis-à-vis the need to tackle China’s excessive capacity and their methods of acquiring foreign technology, where they part ways is in Trump’s willingness to unilaterally impose additional trade barriers on the East Asian economic spearhead.

All things considered, despite the good intentions and generally well-constructed arguments put forward in Trumponomics, the present tense economic climate created by Trump is not making America great again, but rather putting it in jeopardy. While it is important to tackle imbalances, what matters is HOW one does it. Trump’s m.o. is making the whole ordeal look like a war of aggression, something that China has capitalized on and has allowed it to play victim. Only time will tell what the right solution is both for America and for tackling China’s villainy, no exaggeration intended. As for now, if the current climate persists indefinitely, I do not see Mr. Trump’s job-creation project ever coming to fruition.

Comments

Popular posts from this blog

Brexit: The Genesis of a Return to Pre-Globalisation Nation-States?

The End of an Era: A Postmodern and Phenomenological Examination of Socialism and Capitalism

Learning to Fly: How Turmoil in the Civil Aviation Industry Reflects the Simplistic Understanding of Capitalism by Trade Unions