How the U.S.-China Trade War Is Not Making America Great Again
Originally published 10/30/2019
Relations between the U.S. and China have been multifaceted over the last forty years since the U.S. formally established diplomatic relations with China in 1979. Our peaceful, but stressful tensions go back to the 70’s when we began to sell arms to Taiwan (Economy 2019 32–41), an indirect jab, if you will, at China. Since the late 80’s and early 90’s we have pressured China to improve their practices towards human rights by threatening to cut trade deals with them (Cooper). When students protested at Tiananmen Square in 1989, some of which the Chinese government was responsible for. This lead Clinton to pass an executive order which set a guideline of seven improvements that China had to make in regards to human rights if they were to continue China’s most-favored-nation status (Cooper). Ultimately the U.S. and China have utilized the links between their economies as tools of manipulation and influence over other political decisions. The U.S. has seen better days when it comes to handling our business with China, days that don’t include hiking tariffs and costing Americans their jobs and incomes.
In modern times the U.S. government still at odds with China, yet for different reasons. During his campaign President Trump revealed intentions to counter China’s “unfair trade practices”, citing them as responsible for “the greatest job theft in history” (Timeline: Key Dates in the U.S.-China Trade War). This was largely part of Trump’s campaign narrative he used to promote his idea of making America “great again”. In January of 2018 China was accused of intellectual property theft, which prompted Trump to vaguely threaten China with a big “fine” (Timeline: Key Dates in the U.S.-China Trade War). Since then Trump has engaged in economic tit-for-tat between the Asian giant as a way to strengthen the integrity of the U.S. economy. On the surface this may seem like a just cause to some, but what is happening to many Americans is actually far worse than the benefits many were expected to receive.
Tariffs are never healthy both in principle and practical contexts. They unnecessarily cost citizens money on both sides often due to increased taxes and sometimes (not always) a decrease in work opportunities. Jobs occasionally move to another country where the businesses can thrive elsewhere. Worst case scenarios would be in the hypothetical realm of physical or biochemical war over severe economic stress placed by international opposition. In 2018, over 90% of economists surveyed believed that current and future tariffs would have negative effects on the U.S. economy (National Association for Business Economics 1). Estimates from the National Retail Federation projected that the changes in cost of household appliances and furniture would see an increase of 23.1% and 23.4%, respectively (National Retail Federation 6–7). Economists writing for the Tax Foundation believe that “If all tariffs announced thus far [May 31, 2019] were fully imposed by the United States and foreign jurisdictions, U.S. GDP would fall by 0.66% ($165.15b) in the long run. Wages would fall by 0.44% and employment would fall by 512,000” (York et al). Further, they also suggested that retaliatory tariffs would hit the GDP another -.07% ($17.8b) and 55,300 full-time jobs would be lost as a result (York et al). Concerning China’s 25% retaliatory soybean tariffs, the University of Missouri Food & Agricultural Policy Research Institute estimated that compared to 2017/18 Sep.-May the 2018/2019 Sep.-May window would see a drop from 27.7 million metric tons to merely 7, respectively. In summation, not a lot of estimates were reliably practically backing up Trump’s plan en masse.
In 2017 Trump and Chinese President Xi Jinping both agreed to a plan of 100 days of talks over future trade. The talks went nowhere and were dismissed as if they never took place.. January of 2018 saw Pres. Trump announce the first set of tariffs targeting solar panels and washing machines being imported (Ailworth). In the Spring Pres. Trump placed tariffs on steel and aluminum. China struck back in April by placing a 25% tariff on aluminum, airplanes, cars, and others, while placing a 15% tariff on fruits and steel (Biesheuvel). By June the United States had perturbed China enough for them to declare a trade war between the two countries. The U.S. imposed a 25% tariff on $34b worth of Chinese goods (Timeline: Key Dates in the U.S.-China Trade War) on June 15, shortly preceding China’s declaration of a trade war. It was ping-pong throughout 2018 and early 2019, with the U.S. imposing 10% tariffs on $200b of Chinese imports in September 2018, quickly followed with tariffs on $60b of U.S. imports (Timeline: Key Dates in the U.S.-China Trade War). The 10% on $200b of Chinese imports was later raised to 25% in the following Spring.
Farmers have taken the biggest hit amidst this trade war. In August of 2019 China, the largest buyer of U.S. soybeans, announced they would cease buying U.S. agricultural products as a form of retaliation to Trump increasing tariffs yet again (Breuninger and Schoen). In the last several months many farmers known to the author of this paper residing in southwest Ohio have filed for bankruptcy and been forced to find new work as a result of these tariffs. The U.S. government had to quickly step in and authorize over $28b in subsidies to help aid farmers around the country (Breuninger and Schoen). As one farmer stated, “That’s a hard hit for us, it’s going to make life difficult… Farmers are still a bit stunned about the announcement that they’re not gonna buy anything” (Breuninger and Schoen). Now American exports have severely dropped over 50% from $19.5b to $9.2b from just a few years ago (China). This is also not good for Trump’s re-election, he famously campaigned for the working-class Midwestern rural voter base consistently throughout his election.
While farmers are a large portion of victims here, literally hundreds of other American businesses have been hurt by this trade war, including Ford, Walmart, Volvo, Tyson Foods, and GM (Lincicome). GM specifically cut 4,000 workers (Shepardson) due to its restructuring after the prices for steel and aluminum skyrocketed from the tariffs (Lincicome). Walmart also announced in the Spring of 2019 that they would be introducing higher prices on items due to the rising costs from tariffs. AutoZone, one of the largest automotive parts stores in America has been left with no other choice than to raise prices on many products made of steel, such as brake parts, for example (Lincicome). Keep in mind most of these effects are happening due to retaliatory tariffs imposed by China. It’s also important to note that these aren’t just tariffs, these are “retaliatory”. The U.S. has largely been the instigator in this situation from the get-go, not leaving China with much of a choice either.
Throughout this time both the American and Chinese stock markets have suffered at times from the trade war. In America, the Dow Jones has briefly sunk every time Trump has introduced new tariffs, or increased preexisting ones. One of the latest bouts was when the S&P 500 to over four consecutive days in a decline over talks of a new tariff threat in August 2019. The Dow Jones fell over 5% several times in the last twelve months every time there was a change in the tide with the trade war. This increased instability does not help the market stabilize and be able to prioritize on the Fed cutting interest rates. Historically speaking, cutting tariffs was a tool that FDR famously utilized to help the economy rebound in the mid-30s. There is growing concern that we may be headed for another market crash (not necessarily due to tariffs) but having these tariffs in place will not help us should we fall down an undesirable path reminiscent of 2008.
Trump has been persistent on his plan, and it’s no wonder how his approval ratings are consistently low. This position and stubbornness to not pull out of the trade war has already caused enough economic strife to call it unsuccessful. Not only what has happened, but what could happen? How far can this go? Will Trump continue to push tariffs until we have China in the palm of our hand? That’s certainly not going to happen, and Trump knows that. China is too powerful to be pushed around. They have an army, they have a fast-growing economy, and an increasing presence on the world stage. Would Trump dare to pressure them to recognize Taiwan as independent? Will there be a full on war over the South China Sea? At this point one could see Trump heading in any of those directions in the slim chance he is re-elected. Despite his commentary, it’s obvious that he’s not “great friends” with President Jinping. They are both fighting for a victory, one way or another. Both are ultimately not willing to lose important battles for the sake of a few men (or a few thousand, for that matter). It’s a dangerous game being played that is already leaving Americans and Chinese at the mercy of their leaders while they have to adapt to a new economic landscape.
Works Cited
Cooper, Mary H. “U.S. — China Trade.” CQ Researcher, 15 Apr. 1994, pp. 313–36, library.cqpress.com/cqresearcher/cqresrre1994041500
Ailworth, Erin. “U.S. Imposes New Tariffs, Ramping Up ‘America First’ Trade Policy.” The Wall Street Journal, Dow Jones & Company, 23 Jan. 2018, https://www.wsj.com/articles/u-s-imposes-trade-tariffs-signaling-tougher-line-on-china-1516658821.
Biesheuvel, Thomas. “As China Fires Back in Trade War, Here Are the Winners And Losers.” Bloomberg.com, Bloomberg, 4 Apr. 2018, https://www.bloomberg.com/news/articles/2018-04-04/as-china-fires-back-in-trade-war-here-are-the-winners-and-losers
National Association for Business Economics. “August 2018 Economic Policy Survey”. 2018. PDF file.
National Retail Federation. “Estimated Impacts of Proposed Tariffs on Imports from China”. 2019. PDF file.
“Timeline: Key Dates in the U.S.-China Trade War.” Reuters, Thomson Reuters, 10 Oct. 2019, https://www.reuters.com/article/us-usa-trade-china-timeline/timeline-key-dates-in-the-us-china-trade-war-idUSKBN1WP23B
Economy, Elizabeth. “US-China Relations at 40.” The Diplomat, Jan. 2019, pp. 32–41.
York, Erica, et al. “Tracking the Economic Impact of Tariffs.” Tax Foundation, 24 Oct. 2019, https://taxfoundation.org/tariffs-trump-trade-war/
Food & Agricultural Policy Research Institute, University of Missouri. “A Hybrid Model Approach to Estimating Impacts of China’s Tariffs on U.S. Soybeans”. 2019. PDF file.
Breuninger, Kevin, and John W. Schoen. “US-China Trade War Is Hurting Farmers, but They’re Sticking with Trump.” CNBC, CNBC, 7 Aug. 2019, https://www.cnbc.com/2019/08/07/us-china-trade-war-is-hurting-farmers-but-theyre-sticking-with-trump.html
“China.” China | USDA Foreign Agricultural Service, United States Department of Agriculture, https://www.fas.usda.gov/regions/china
Lincicome, Scott. “Here Are 202 Companies Hurt by Trump’s Tariffs.” Cato Institute, 17 Sept. 2018, https://www.cato.org/publications/commentary/here-are-202-companies-hurt-trumps-tariffs
Shepardson, David. “GM Cutting 4,000 Workers in Latest Round of Restructuring.” Reuters, Thomson Reuters, 4 Feb. 2019, https://www.reuters.com/article/us-gm-layoffs/gm-cutting-4000-workers-in-latest-round-of-restructuring-idUSKCN1PT21Z
