In recent months, China and the United States have been all over the news due to drastic changes in the trading relationship between the two superpowers; the tensions between the two nations have grown and the two superpowers as of 2018 have entered into a trade dispute. What could have possibly caused tensions to rise between these two economic superpowers?
When President Trump ran for office in 2016, one of his major concerns was the US trade relationship with China; he, along with many other individuals, perceived that China was destroying the US market and more specifically the industrial job market. Now although it is true that the US industrial job market has been declining in recent years and the US open trade policy may be a small portion of the cause, the main cause is automation. In recent years there has been a large increase in the productivity of automation, meaning that companies today are becoming more and more mechanized; due to this, the demand for labor in companies within the manufacturing industry of the United States took a hit, which angered many of the residents of states that depended on the manufacturing industry.
Another factor that one should look into is the heavy taxation of American goods entering China; an average American good entering China has a tariff which is three times larger than a Chinese good entering the United States. This causes the costs of selling in the Chinese market much higher for American firms, while Chinese firms have less tariffs to drive up the costs of selling in the American markets. This could be seen as sheltering Chinese companies from the possible competition of American companies entering the market.
Adversely, in trying to shelter certain industries, the new tariffs have hurt other industries and companies within the United States; the tariff may be absorbed by big business, however, small businesses that cannot afford to absorb the 25% tariff could be pushed out, thus reducing the competition in the industry. As Aaron Murderick, CEO of Crazy Aaron’s enterprises said, the domestic production of steel will not be able to match the demand. And it’s not only his company alone: many companies in the US import their materials and intermediary goods from China in order to sell their goods at a lower price. The newly imposed tariffs have the ability of driving up the costs for such companies, leading to an increase in the final price of the good, which can affect the domestic demand. Certain businesses may even be backed into not being able to change the prices in order to remain competitive, which could lead to these businesses incurring losses. This all brings to question: Is a tariff war be the best move forward?
Jonah is a Sophomore at Georgetown University Qatar. He will be majoring in International Economics.