An unwinnable conflict? The US-China trade war, 5 years on

Summary

The U.S.-China trade war, initiated by President Trump, aimed to reduce the U.S. trade deficit with China through tariffs, but ended in failure as the trade imbalance worsened. Despite the tariffs, China maintained strong exports, and American companies relying on Chinese supply chains were hit hard. The Biden administration continued some of these policies, with a focus on limiting China's technological growth, especially in semiconductors. As global tensions rise, the debate over economic decoupling intensifies, with experts warning that fully decoupling the economies of the U.S. and China could disrupt global trade and harm living standards worldwide.

Takeaways

• 😀 The US-China trade war began over the massive trade deficit between the two countries, with the US importing far more from China than it exported.
• 😀 Trump introduced tariffs on Chinese goods to reduce the trade deficit, but this goal was ultimately not achieved, as the deficit continued to grow during the trade war.
• 😀 The trade war led to a complicated impact, with tariffs affecting both the US and China, resulting in price increases for US exports and retaliatory tariffs from China on US products.
• 😀 The US trade deficit with China continued to grow even after the tariffs, and the US imported more from China in 2022 than ever before, contrary to Trump’s objective.
• 😀 China's export capacity remained strong despite US tariffs, with some sectors, such as technology, still thriving, even as others faced declines in demand.
• 😀 While tariffs hurt the Chinese economy slightly, their impact on the US economy was much more severe, particularly in industries reliant on Chinese supply chains.
• 😀 The US imposed export restrictions on high-tech products to China under Biden, aiming to limit China's technological rise and curb its global influence.
• 😀 The Biden Administration sees China as a strategic threat, focusing on preventing technological transfers to China to protect US national security.
• 😀 The global economy has been impacted by the trade war, with countries like South Korea and Japan exploring ways to reduce reliance on China, including subsidies and shifting manufacturing.
• 😀 Decoupling from China is unrealistic in a globalized world, as many products attributed to China are actually produced elsewhere, like in Vietnam and Malaysia, undermining the effectiveness of trade barriers.
• 😀 The IMF forecasts global economic challenges if the trade war intensifies, with developing nations facing difficult choices on which global powers to align with, leading to increased costs for all.

Q & A

What was the primary objective of President Trump's trade war with China?

President Trump's primary objective was to reduce the U.S. trade deficit with China, believing that China had been taking advantage of the U.S. through unfair trade practices.

How did the trade war impact the U.S. trade deficit with China?

The trade war did not achieve its goal of reducing the U.S. trade deficit with China. In fact, the U.S. imported more from China in 2022 than ever before, and the trade imbalance grew larger.

Why did the tariffs on Chinese goods not lead to the desired trade balance?

Tariffs on Chinese imports also raised the cost of U.S. exports, since many of the goods imported from China were intermediate goods used in U.S. manufacturing. This made U.S. products more expensive and hurt U.S. businesses.

What was the economic effect of the trade war on Chinese workers?

The trade war resulted in job losses and lower wages for approximately 2.5% of China's population, particularly those working in the manufacturing sector. The demand for Chinese exports fell as a result of U.S. tariffs.

How did China retaliate against U.S. tariffs during the trade war?

China imposed its own tariffs on U.S. products, targeting industries that were important to U.S. exporters, like agriculture (e.g., soybeans). This hurt American industries, many of which were in states that supported Trump.

What was promised in the 2020 trade deal between the U.S. and China?

In 2020, a trade deal was reached where China committed to purchasing an additional $200 billion worth of U.S. goods compared to 2017 levels. However, these promised purchases were not fulfilled as expected.

What was the impact of U.S. tariffs on American businesses?

The tariffs on Chinese imports increased costs for American manufacturers, especially those heavily reliant on Chinese supply chains. This ultimately raised prices for U.S. consumers and reduced the competitiveness of U.S. industries.

How did China's trade relationships change during the trade war?

While trade with the U.S. suffered, China's trade with other countries, notably Russia and Southeast Asia, increased. This helped to mitigate some of the negative impacts of U.S. tariffs.

How did the Biden administration's trade policies differ from Trump's?

The Biden administration focused more on limiting China's technological rise, imposing export restrictions on high-tech goods like semiconductor chips. Biden's policies were also framed in terms of national security, aiming to prevent China from advancing technologically.

What challenges exist in the idea of decoupling the U.S. and Chinese economies?

Decoupling the U.S. and Chinese economies is seen as unrealistic due to the deeply integrated global supply chains. Many Chinese-made products are not actually manufactured in China, and the costs of decoupling would likely lead to higher living standards and prices globally.