Five Questions on China's Trade War? Answered.
This essay seeks to give some background on the current trade war between the United States and the People’s Republic of China and urges both nations to reconsider their positions in the best interest of their respective citizens. In essence, this “trade war” is an economic conflict between the People’s Republic of China and the United States where the respective leaders of the two nations are ramping up economic pressure to force concessions out of one another. This pressure has come in the forms of tariffs, technology bans and the targeting of specific commodities.
1. Why is the trade war occurring?
The current trade war between the People's Republic of China (PRC) and the United States is occurring due to a number of factors.
The Central People's Government's misuse and abuse of the world trade network is a real and provable accusation. It has been noted by a number of countries and is something which has been discussed for many years, particularly since the People's Republic joined the World Trade Organization (WTO) in 2001, an event which marked the official entrance of the People's Republic as a world economic power.
Practices such as the stealing of Intellectual Property and the forced transfer of technology against the will of the company in question are some of the more well-known and highlighted malpractices committed by the Central People's Government and the companies they directly or partly own. These practices are a threat to global fair trade and it is a credit to Trump that he is tackling a long-ignored issue.
Trump, the incumbent US President, has been clear about his intention to confront the People's Republic over such practices since his political debut in the ‘80s when he flirted with running for the Presidency even considering entering the race in 1988.
With all of the above taken into consideration, it was only a matter of time until such a trade war would occur. The question is now whether the world economy itself can survive such a clash of the economic titans.
2. Who has the economic advantage?
Ask any economist and they'll tell you that Gross Domestic Product (GDP) is not an optimum indicator of an economy's performance, as it lacks a holistic method in its approach. However, it does give a general assessment of a nation's economy and for the People's Republic, the Real GDP forecast is showing there is serious trouble on the horizon.
The Organization for Economic Co-Operation and Development’s (OECD) figures, via the Real Gross Domestic Product Forecast, show that the economy of the People’s Republic has steadily contracted. This year the OECD forecasts that Real GDP Growth will be 6.30%, that is compared to its height in this decade of 10.64% in 2010. That is a decrease of over 4% and the OECD predicts that it will fall next year to a low of 6.02%. While not the whole picture, this shows that the economy of the People’s Republic is not as strong or as invulnerable as its leader would like to claim.
However, the United States shouldn’t be too confident itself as it is also vulnerable to the possible negative effects of this trade war. There are real signs that this trade war is affecting the growth prospects of the United States. On May 30th, 2019, Bloomberg reported that, “U.S. economic growth last quarter was revised down by less than expected amid stronger consumption and exports than initially reported, suggesting the expansion was on relatively firm footing before President Donald Trump’s escalation of the trade war with China.” The aforementioned article shows that this trade war has unseated, or even threatened, the economic boom which has occurred under the current Presidential Administration.
Specifically since joining the World Trade Organization in 2001, the economies of the People’s Republic and the United States have become ever more intertwined. Particularly in the Tech sector where, due to the nature of production and related materials of devices such as mobile phones, a semi interdependent relationship has developed between the respective nations. For example, Huawei Technologies, has admitted to buying American designed and made chips for their mobile devices and American Tech companies are dependent on the People’s Republic’s abundance of rare earth minerals for the production of Tech related components, in particular Liquid Crystal Displays (LCD) and computer memory.
Neither respective nation is truly economically ready for this trade war and depending on how intense the negative effects become, it could mark the beginning of a recession for either respective nation’s economy. Such a national recession, due to the size and dominance of that nation’s economy could mark a time of recession for possibly the entire world.
3. Who has the political advantage?
Neither side has the political advantage in this economic war as each side is posed with problems unique to their respective country.
One of the realities which is forgotten by the West is how paranoid the Chinese Communist Party is in regard to its people. Their government understands that they cannot placate over a billion people forever just by economic freedom and that one day there is a real threat of them being overthrown by a popular movement for genuine change, like the one which organized the Tiananmen Square Demonstration and others before they were brutally and illegally gunned down by the People’s Liberation Army.
That being said, the United States and its Administration has no political advantage either. The Trump Administration’s main achievement is the economic success which the United States is currently enjoying. I suspect that the Trump Administration is highly aware of that fact when discussing the strategy for future action. It would be foolish to sacrifice one of your greatest achievements if you were an incumbent administration, especially if you were about to enter a re-election race.
Also, many of the voters for the incumbent President, especially farmers will be devastated by any action by the Central People's Government targeting their primary crop and export such as soybeans. At the time of writing, the People's Republic has imposed tariffs in retaliation to the US tariffs, which include agricultural products.
4. Who’s going to suffer the most?
The people who are going to suffer the most from this trade war are the Chinese and American consumers and producers.
One of the criticisms of the incumbent US President is that he fails to understand how tariffs actually work. He has repeated many times that the People’s Republic will pay them, however, tariffs by their very nature are applied on the products when they enter the country of export and hence the consumer pays the tariff, not the company which produces the product.
This misunderstanding is hardest on those who have the least, including Trump voters, a large percentage of whom are on the poverty line and cannot afford to pay extra for products, especially essentials like food and toiletries.
As usual, it isn't those who start the war who will pay the price for its consequences instead it is the "little people.” The farmers many of whom are Trump voters-are suffering immensely due to the imposition of these tariffs imposed by the People's Republic are having on their livelihood.
A transcript of NPR show, All Things Considered, on May 11th, 2019 revealed the true suffering experienced by the American people caused by the trade war:
MARTIN: Well, you know, in July of last year, the Trump administration announced that there would be this $12 billion bailout program for farmers who were hurt by the trade war. Have you seen any of that money?
BOYD: I haven't seen a dime of that money. And I've been calling and calling USDA. And they continue to say that the funds are in process, and the funds are going to be sent to me. I have yet to receive these funds. And I've reached out to the agriculture secretary, Sonny Perdue, to ask him for a meeting to see why the payments are late to farmers like myself and other small-scale farmers around the country. And that meeting has fell upon deaf ears and blind eyes.
The question has to be asked, Is the current administration truly prepared for the real-life consequences of this trade war? Unfortunately, I suspect not and it will be those who truly cannot afford it that will or are currently suffering.
5. Who will win?
That is something I, nor do actual professional economists, actually know as it is highly dependent on future events.
Personally? I suspect that both sides will have to back down at some point within the next few weeks as if this continues, it could produce unsavory side effects for both respective nations which could threaten the security of their leader's place.
Neither country is in a political or economic position to continue the current trade war. With this, as the trade war continues, the livelihood of working class citizens is jeopardized.
However, we have to understand that the two heads of state are deeply proud, dictatorial and ego-driven. It is unlikely that one will want to be seen as backing down or capitulating to the other and hence I believe that a dignified and hidden climb down will be enacted to avoid any embarrassment by either party.
If anything the best result would at least a tempering of the worst excesses of the trade abuses committed by the People’s Republic, however, that would take great economic pressure-something which I do not think the current US administration will do if its economic success is threatened by the very possible and very real side effects of this economic confrontation.
It’s a situation which will need resolving though at some point and whoever does it, whether it is this current President or another, will have to be ready for serious economic consequences which could possibly mean the end of their time as President.