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An Update On The US-China Trade War

January 4, 2019

 

As New Year’s day is celebrated, China and the United States mark the 40th anniversary of their diplomatic ties amidst one of the largest trade wars in economic history. Though messages of truce and cooperation were exchanged, the trade war between the two nations shows few signs of coming to an end. According to a CNBC statement, Washington DC warns that if the US and China cannot reach a compromise by the 90th day of a ceasefire, “10% tariffs will be raised to 25%”.

 

Spurred by China’s low consumption of US goods, President Trump initiated the trade war last summer by putting tariffs on Chinese exports, including agricultural products, chemicals, metal products, and machinery. Trump’s decision was mainly provoked by China’s history of “unethical” trade practices. China was accused of stealing intellectual property, and steel dumping -- selling steel at low prices to drive off competitors in the US. The trade war was highly controversial and prompted both criticism and support from Americans. In taking action against China’s practices, the United States attempts to delay China’s rise to being top global power, yet risks bringing down their own economy.

 

The consequences of the ultimatum are daunting- fiscal damages from a 25% trade tariff will see mutual financial suffering for both countries. However, statements from the 90-day truce suggest the possibility of China giving in to Trump’s list of trade demands. According to BBC News, Chinese officials are “confident in implementing” trade commitments made to the US “as soon as possible”. The White House further stated that “China has agreed to start purchasing agricultural product from [US] farmers immediately”. Although the trade war is criticized for risking the well-being of American consumers, the long-term effects of successful negotiations can ensure a level playing field for trade. This could be the United States’ key to maintaining her global standing in a period of shifts in world power.   

 

As of now, the world is watching China’s next move. The advantages of China accepting trade demands are plentiful- the trade war will end before it escalates into something bigger and more damaging, and trade will continue to grow between two major economies. For China, a stable outside environment is crucial in order to develop and strengthen the country from within. Furthermore, the tariffs on $200 billion worth of Chinese goods are relatively small compared to China’s $12.24 trillion GDP as of 2017, so money is not the issue at large. So what’s stopping the Chinese administration from giving in to the US? US demands China to stop subsidizing private companies, to respect and protect US’ intellectual property rights, and, honoring China’s obligation as a WTO (World Trade Organization) member, open up market access to Chinese financial markets. These changes require amendment of national policies, and Chinese policies take a lot of time to be refined to a consensus. The US should further consider that, regardless of whether it is the right course of action, China’s yielding to demands can be a show of political weakness. Complete acceptance of the demands is implausible; instead, both parties should come to a compromise that eliminates unfairness in the trade system, yet respects China’s position as a top global power.

 

While “encouraging fair trade practices is important”, Robert McGuirk, economics and history teacher at Milton, believes that “a trade war between the two top economies is not the best way to do it”, as “this current economic state can not afford a trade war.”  Although successful negotiations can be a major boost for the US, they strongly depend on the willing cooperation of China in order to avoid mutual economic setbacks. However as US demands are put out, the long-term effects of attacking ‘unfairness’ face-on could prove to be a risk worth taking.

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