Is Trump the Only One to Blame for the Trade War Between USA and China? Paper Example

First, to start with a bit of background. The trade war between China and the United States is an ongoing economic conflict between the two largest national economies in the world. In 2018, the U.S. President Donald Trump began to set trade barriers, such as tariffs, on China to force China to change there, as the U.S. claims, "unfair trade practices". Even before his election, Trump supported the importation of tariffs to, as he says, lessen the U.S. trade deficit and promote domestic manufacturing. He stated that the U.S.'s trading partners were "ripping off" the country; so, imposing tariffs was a primary principle of his presidential campaign.

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The opinions in the U.S. are still being divided - however, not as many economists argue that tariffs are a sufficient resolution for the trade deficit, or that Trump is doing the right thing.

But, should all the blame for this trade war be put on Trump? Or are there other actors in global politics whose actions should be reconsidered? This essay aims at showing that there are deeper reasons for the trade war between the two countries and that Trump's trade barriers are not the only thing that caused it.

Over the past years, there has been a trade deficit between U.S and China due to the export-import differences. The U.S has been importing computers, accessories, cell phones and footwear from China. A lot of these imports are from U.S manufacturers who send raw materials to China at low cost and import them back to the U.S as finished products. They are considered as imports. On the other hand, China imports auto, aircraft and soybeans from U.S. China has been the focus of the U.S trade war as the most crucial source country of its trade deficit. U. S and China being the top one developed and developing countries in the world, have had trade frictions over the years which have never disappeared. These two countries possess the biggest markets in the economy.

China produces more goods at a lower cost than any other countries. This is due to the lower cost of living in China and exchange rates partially fixed to the dollar. This enables them to export these goods at lower prices hence causing implications to U.S manufacturing companies. People want to buy products at lower prices; this, in turn, leaves the local companies to either reduce their rates or go the market. If America wants to cut trade between them and China, they will have to increase their prices of "made in America" goods and lead to a higher cost of living. Also, people will consider working and transferring their businesses to China soon. It is, however, true that U.S manufacturing has dried up and dragged U.S competitiveness in the global marketplace down.

It's not only Trump's strategies that caused the trade deficit between the U.S and China. It has become challenging for the world at large to fix its huge trade imbalances over the years. For instance, China has had extreme inequalities and has the highest investment rate in the world. Their consumption rate is low hence has an excess consumption rate. According to sources, in the past two decades, shares of Chinese income earned by their households has been the lowest compared to that of other countries in modern history. This means that their workers consume a small share of what they produce.

U.S on the other hand, have the largest economy in the world and supports the most flexible and best-governed financial markets in the world. About half of the world's excessive savings end up in the U. S. Foreigners seek the U.S to store wealth they cannot invest at home, leaving it to be a nett importer of foreign capital. In the 1950s, the U.S was the net exporter until the 70 were when the balances started to shift. The world wars had destroyed Their productive capacity. This led to their trade surplus, becoming a permanent trade deficit up to date. Other advanced economies had been built and taken the United States' place of providing goods and services to the rest of the world.

However, some of ways to eliminate these deficits have been discovered and are aimed to reduce the persistence of these imbalances. They include strengthening of currencies, soaring asset values for surplus countries and reverse for deficit countries and rising consumer prices. For the U.S, their financial markets have capital being offered at the lowest rates and their businesses sitting on piles of unused cash which have led to lower domestic investment levels. Again, them importing foreign capital has displaced their domestic savings. This is has led to high dependence on international capital rather than their money invested in their local companies. (Pettis, 2019). Factories that cannot compete with others will end up sending their workers home and removed from the market. This leaves many people jobless and more borrowing of loans costing the economy.

Many might think this to be a conflict between two countries, but in the real sense, it's a conflict between two economic sectors. The people benefitting from rising profits suppressed wages. They increased the mobility of foreign capital in the U.S is the bankers and the owners of the money in both the deficit and the surplus countries. Workers have paid dearly for the imbalances through lower wages and high living cost. Tackling inequality in income distribution can, however, help curb the situation. This can be achieved by either tax reform or by acting in favour of workers and middle-class people. The most significant step that can be taken is by finding ways for foreigners to stop putting their savings in America's financial markets by imposing a tax on foreign capital inflows. And later work on raising wages, improving infrastructure and reducing health and education cost, among others.

China also should step up reforms to fix the trade imbalances and end the trade war between them and the U.S. Though it seems impossible, China should also consider increasing their workers' minimum wages and reduce their focus on savings since impeding of their technological advancement is impossible (Jain, 2019). They should also look to increase communication efforts with the U.S government and companies and governments of other countries. This should help promote investments across the global market. During these negotiations, flexible strategies should be made, like expanding imports across the globe. According to studies by scholars on the trade war between the two countries show that the trade war will have a substantial negative impact on the global economic, trade development and destroy trade relations. If they keep up with it, they will leave all countries with a difficult decision of choosing between them to develop their trading activities (Zhu, 2019).

China's purchase of the Treasury helps to keep U.S interest rates low. This gives them political leverage over U.S fiscal policy. This benefits both of them since it balances U.S interest rates and the exports bought from China. Trump's decision on the matter of tariffs has, however, raised questions about the future of the two countries and other countries as well. Why is it a lose-lose situation? According to sources, the people who suffer from the high U.S tariffs on China are the U.S firms and consumers. This is because prices of goods have been hiked and made it difficult for consumers to continue with purchases. Other countries are also said to have benefitted from the trade diversion between the U.S and China. These countries have filled the gaps that have been left due to the decreasing trade between the two.

Farmers in the U. S also suffer from tariffs imposed by China which have led to losses. There has been a massive decrease in sales of wheat, soybeans and pork. This has also seen an increase in farm bankruptcy and cutting of profits for some companies within a year. This trade war has also led to other countries leaving out the U.S from trade agreements being formed. This not being enough, Trump still threatens to expand tariffs to more of China's imports. Although this could be a blow to most countries, China has a higher chance of surviving as it has expanded its markets to other countries, and it has made significant investments too. It cannot, however, change the trend of its economic growth due to its considerable trade connection over the years. These have replaced the U.S as China's largest export market. They are aiming at improving their levels of innovation to increase international competitiveness and attract more foreign investments in future.

The two countries can still be able to reach a truce in future which remains to be the best hope left for now. The trade war is said to have gone beyond the escalating tariffs. After Trump added China's Huawei to the Entity List hardened the attitude between the two. China has reportedly suspended the purchase of U.S soybean stirring up chances of the U.S restricting supplies of their exports to China. This causes doubts to many on the decline of the current trade war between the two countries. More negotiations are encouraged to reduce restrictions of more investments and help more imports. They should try and maintain a good trade relationship among them for the sake of their citizens and the future.

The two countries should sit together and have a look at the major problem they are facing as individual countries before looking at the imposing of tariffs as the reason for the trade war. These imbalances have been there throughout the years, and they have been unattended until today. Once they identify their weaknesses each as a country, then it will be easier for them to curb the issue and move forward. Many countries are depending on their truce as it will see improvements in the global economy and the development of living standards in many countries. Also, issues like terrorism will reduce among countries. This will also promote peace across the globe and unity.

References

Pettis, M. (2019). Why Trade Wars Are Inevitable. Retrieved 16 December 2019, from https://foreignpolicy.com/2019/10/19/trade-wars-inevitable-us-china-economic-imbalances/

Zhu, Z. (2019). Retrieved 16 December 2019, from https://www.researchgate.net/publication/325408952_Trade_War_between_China_and_US

Jain, M. (2019). Retrieved 16 December 2019, from https://www.jstor.org/stable/26608823?seq=1