You may be wondering why China and the United States, despite the high volume of world trade and the high level of the world economy and sometimes economic borders and markets in some sectors, are always looking to hit each other’s economies and trade war . In this analysis, we will address this issue. Adequate knowledge of this issue will significantly contribute to the analysis of gold, global currency, oil and steel price trends, as the United States and China are the two main players in the world economy in the field of commodity energy and global currency.
*** High US trade deficit
The first point that stands out in the financial statements of the United States and China is the high trade deficit of the United States and the very high trade surplus of China. Both components are in a critical situation in China and the United States, which, if the management of these two indicators is eliminated, will pave the way for the economic collapse of these countries. This is why it is a factor that makes the elimination of the rival attractive on both sides.
The US trade deficit with China in 2019 was equivalent to three hundred and forty-five trillion dollars. This is 18% less than the deficit of $ 418.9 billion in 2018. In a way, the United States is paying off this debt in stages to minimize its economic risks.
*** Major US imports
The largest U.S. imports from China were computers, cell phones, clothing and toys, and sports equipment. Many of these imports are from American manufacturers who send raw materials to China for assembly at low cost, and after assembly, they enter the transit and transportation stage, which is part of US imports.
*** China’s basic imports from the US
China imports most of its commercial aircraft, soybeans and semiconductors from the United States. In 2018, after the start of Donald Trump’s trade war, China canceled its soybean imports and the domino effect of the trade war practically began. Following this, Trump imposed tariffs on exports of Chinese steel and other goods. In practice, the importation of many Chinese goods into the United States is accompanied by heavy tariffs. By doing so, Trump sought to reduce China’s trade surplus, part of which is in the hands of the Americans, to mitigate its trade deficit. This hurt many businessmen in the two countries, and many small businesses in the two countries were plunged into closure and bankruptcy.
Despite all this, low-priced consumer goods produced in China have dominated US imports over the years, with virtually nothing left out of the country’s interactions. China can produce many goods at competitive prices because of two comparative advantages
Low living standards
The slight peg of the yuan to the dollar, which has always devalued the yuan, has made the Chinese market attractive to American traders.
To keep export prices low, China buys large amounts of treasury bonds. It has become one of the largest lenders to the United States, currently second only to Japan. This will increase American dependence on China and will be a kind of patchwork on the performance of the US government.
*** Causes of China’s trade surplus
China produces many consumer goods at a lower cost than other countries, and buyers, including buyers in the United States, are drawn to lower prices.
*** Fragile yuan exchange rate
If the United States pursues trade protectionism, American consumers will have to pay higher prices for their “American-made” goods, because domestic manufacturing costs are in no way competitive with Chinese goods, and the cost of the products is very high. increase. Therefore, it seems unlikely that the trade deficit will change with this approach. Most people prefer to pay the lowest possible cost for computers, electronics and clothing, even if it means other Americans are losing their jobs.
*** Reasons for starting a trade war
The US trade war with China began with the high flexibility of the Chinese market in production. China is the world’s largest economy and has the largest population in the world. It has to divide its production among the approximately 1.4 billion inhabitants. A common method for measuring living standards is per capita GDP. In 2019, China’s per capita GDP was $ 16,784. American companies that can not compete with cheap Chinese goods must reduce their costs or go out of business. Many businesses reduce their costs by outsourcing jobs to China or India. US production fell 35% between 1998 and 2010, according to the number of jobs measured. This was an issue that was not at all pleasant for the President of the United States.
During the 2016 presidential campaign, Trump cited US trade with China and agreements that allowed the Chinese to widely change US financial indicators, citing Jane as the main reason. The departure of manufacturing jobs and intellectual property of the United States. He said China was responsible for “the biggest theft in the history of the world” and cited the US trade deficit with China, which was about $ 346 billion in 2016, as a tool to show the depth of the damage. “We can no longer allow China to invade our country,” he said during his campaign.
*** The reasons for the trade war between the two world economic giants
His campaign, relying on the image of Donald Trump as the ultimate trader, the US-China trade reform strategy
“We will cut a better deal with China to help compete for American jobs and workers,” he said. To provide a better deal with China, Trump outlined a four-pronged plan: Dealing with China over intellectual property and technology transfer concerns. End China’s export subsidies and environmental standards and cut US corporate tax rates to make US products more competitive.
China adjusts the value of its currency, the yuan, to the value of a basket of currencies, including the dollar. In other words, China clamps its currency to the dollar using a fixed exchange rate correction. When the dollar loses value, China buys to support the dollar through the US Treasury.
*** The current remnants of the china-US trade war
Trump set a 25 percent tariff on steel imports, which took effect on July 6, 2018, affecting $ 34 billion in Chinese imports. This amount was higher than the 10% tariff previously imposed on aluminum. Trump’s tariffs have increased the cost of imported steel, which is ultimately imposed on consumers. The tariffs were imposed a month after the tariffs and Trump quotas were imposed on imported solar panels and washing machines. It should be noted that China has become a world leader in the production of solar panels. Tariffs led to a drop in the US stock market index with the announcement of the stock market.
*** Consequences of the china-US trade war
The trade war slowed the growing economic momentum on both sides and diverted trade from China and the United States. Economic growth on both sides was negative, capital was blocked in both countries and raw material prices rose, and in practice the investment risk of the two sides was very high due to heavy tax penalties. Companies did not hire new staff due to lack of transparency and sometimes By maintaining the force, they maintained their normal position.
Across the United States, many farmers went bankrupt, and the manufacturing and transportation sectors fell to a level not seen since the last recession. Trump’s actions have led to one of the largest tax increases in years.
*** The cost of trade war from the perspective of global analysts
The September 2019 study by the journal Modi Analysis shows that the trade war has already cost the US economy nearly 300,000 jobs and 0.3% of real GDP.
Other studies have put the cost of US GDP at around 0.7%. The 2019 Bloomberg Economics report estimates that a trade war will cost the US economy $ 316 billion by the end of 2020, while a recent study by the Federal Reserve Bank of New York and Columbia University found that US companies invested at least $ 1.7 trillion. The country has lost its stock price as a result of US tariffs on imports from China, and sometimes it is not allowed to withdraw and transfer money to other markets.
Artan Press
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