Trade War between giants-who will benefit from it?

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Jakob, Online English Teacher at Acadsoc.

Jakob, Online English Teacher at Acadsoc.

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Mutual Assured Destruction, was once a famous doctrine describing the relationship between the USA and the Soviet Union, whose nuclear weapons were able to destruct human beings for many times. It turned out that a massive-scale war between two camps never happened because they were both avoiding the worst outcome of this game-destroy each other and human race.

Do you ever consider crops, meat, milk, clothes, toys…these daily necessities are imported goods from other countries? Especially to the US and China, they exchange billions dollars worth of goods every year. By 2017, the total volume of bilateral exchange between two countries has reached roughly 636 billion USD, when China exported $506 billion to the USA.

In late March, Trump formally signed an announcing to investigate in Intellectual Stolen by China and planned to place tariffs on only ‘appropriate goods’ following the investigation. As predicted, it will affect approximately $50 billions USD worth of goods imported from China, mainly steel and aluminium products. Apparently, the Chinese government only took this investigation as a trick, a well-designed trap and launched a counterattack right after US’s first move. China is going to place tariffs on $3 billions worth of imported goods from the US, including porks, meats, and fruits.

The intention of US government is clear, ‘trying to solve the ever largest trade deficit between China and the US’. No doubt such trade war between two giants will help enclose the gap between USA and China, particularly when China exports far more volume and worth of goods than the US does. How? Assumed the aggerate volume of bilateral exchange falls by 50%, as a result of opposing trade strategies, the number of trade deficit will drop by 50% as well. Probably, US governors are ready to take the price, ‘In a lose-lose situation, China will lose more than we do.’

However, Economic is never number games or gambles, which can accurately tell how much you will win and lose. In last century, US politicians and Congress tried to solve the trade deficit between USA and Japan by protection and section 301. They see it as a tradition to blame other countries for the large trade deficit of USA, currency policy, stolen intellectual, dumping sales, an unreasonably low price of goods, etc. of other countries. But they never learn the lesson-external competitors could be partially responsible for the trade imbalance, whilst the main problem lies within US economy itself. If, as politicians and protection supporters advocated, US industries really benefited a lot and regained their competitiveness, why nowadays ‘made in China’ almost conquests every inch of US market? If trade war really works, after defeating ‘made in Japan’, US manufactory should take its place in the global market?

Picture from: Time

By 1984, right before the Plaza Accord was signed between the US and her main trade partners, the bilateral trade deficit between the US and Japan had reached 34 billion USD generally, and 49.8 billions USD (equally to 1986’s US dollars) in manufactured goods, the largest trade deficits the US ever had with her business partners (in last century). Before 1985, trade wars between USA and Japan were likely ‘offender vs defender’ games-If US government believed any specific kind of goods threaten domestic manufactory and enlarged the trade deficit, they urged the Japanese government to constraint their export policy and placed up to 100% punitive tariffs to Japanese products. Japan-made artificial fibre in the 1960s and early 1970s, cars and steel in 1970s, as well as semiconductor and digital products in the 1980s and 1990s, were all victims after Japanese companies and government compromised to restrict the amount of export under high pressure of her allied. From 1985 onwards, Reagan administration seemed to find a solution once for all-the Plaza Accord, forcing EU and Japan to help lower the exchange rate of US dollars, aiming at boosting the overseas competitiveness of US-made products. What’s more, by introducing section 301, US government placed pressure on Japan to open their market for US products.

Ironically, in 2016 it reported a $68.9 billion goods trade deficit between the US and Japan. This number kept growing even after the 1990 economic crisis in Japan. Though Japanese companies made many compromises under unilateral policies of US government, they never lost their competitive power in US market. Toyota and Honda maintain their leading position in the automatic market, Sony and Panasonic are still main players in digital products while Cannon remains a large market share of cameras. Probably trade war will force Japanese brands to invest more, localise their production, and hire more employees in the US, yet they still play a great threat to local companies.

National Security Strategy of the United States of America released in December 2017 outlined ‘revitalizes the U.S. manufacturing base, creates middle-class jobs’, as a promise made by Trump for his supporters. Following this doctrine, Trump signed the procedure to begin withdrawal of TPP (Trans-Pacific Partnership), threated to abandon NAFTA (North American Free Trade Agreement), and restricted immigration.

made-in-the-usaActually, the keyword in White House’s document is not ‘revive manufacture’, instead ‘create more jobs’. Revive ‘made in the USA’ is not the result, but the method, by encouraging the expansion of manufacture industry more American labour forces will be hired. If considered the real unemployment rate in the US (that includes workers who have been discouraged and out of the labour force for less than one year), the index of January 2018 reached 8.1%, almost doubled the nominal unemployment rate 4.1% that officially announced. And the Civilian Labor Force Participation Rate reached a valley after 1978, which indicates the proportion of Labor Force/Civilian Non-Institutionalized Population.

Many economists disapprove with such viewpoint-manufacture industry in the US is falling. More accurately, it is upgrading and evolving as the natural trend of industrial development. Between 2000 and 2010, North America lost 5.6 million positions majorly due to machines replacing human beings. How much did international trade and outsourcing contribute to this job loss? Only 13%. If you google ‘Jobs replaced by robots’, you will see a full list of jobs disappearing in the coming 10 or 20 years. No one, even US government can stop the trend of productivity growth-more robots are taking over human’s places because they are safer, cheaper, and more skilled.

Wipe Chinese brands out of US market may bring some jobs back in short-term, however, it won’t change the long-term tendency. How can the labour cost of America be competitive against that of Southeast Asia or robots? Unless White House determines to expand the war,  drifting the whole world into it, and placing tariffs on all imported goods. The USA is no longer a fertilised land for labour-density manufacture as it was in the 1950s. The improvement in productivity offered labour forces a better living-standard and wages, but it initialised the self-execution of labour-density manufacture. If one day, the labour cost becomes no longer affordable for business owners, they will naturally seek for outsourcing and transfer job opportunities to lower-cost labours. Asking non-labour-density manufacturers to increase their employment is nearly an impossible task because they increase their profits mainly by innovation, not an expansion of production (in contrast, this may threaten the price of their products). As Forbes reported in 2016, more than 35% of American citizens were working as freelancers, writers, teachers or eBay owners.

Tariffs placed on Chinese goods will be paid by US customers, seeing an increased price of their daily necessities. What’s worse, the Chinese government has shown their determination to strike back-thousands of farmers in the US will lose their largest market and witness China turns to alternative imported options from South America, India, and Russia.

The bystanders of this battle, EU, Japan, Korea and many developing countries may benefit a lot from this trade war, filling the blanks left by disappeared Chinese and US manufactured trade goods. But US customers and labour forces have to pay the price-higher daily expenditure and no guarantee for more job opportunities.

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