Trump on trade wars

Trump on trade wars

“Trade wars are not so bad when we are behind all countries in terms of trade balance”. Trump’s trade policy assumes an economic nationalism approach. His approach has threatened global trade foundations by imposing high tariffs on goods worth billions of dollars from China, Mexico, EU and Canada (Hongjian, 2018). These nations are in turn retaliating and responding with levies worth thousands on US goods. This action is putting the globe’s largest economies at war. Trump insists that trade wars are easy and good.

Trump’s administration has imposed tariffs on goods worth billions, but this move affects China to a large extent. He placed a 10% levy on Chinese products worth $200 billion. Later on, in May, Trump announced his plans to place a 25% tariff on Chinese goods worth $325 billion (Schoenbaum & Chow, 2019). Trump insists that the $100 billion acquired from the tariffs would get utilized in purchasing US agricultural products which would get, later on, directed to the starving and impoverished nations for humanitarian reasons. Trump also intends on cutting the trade deficit with China, a nation he regularly accuses of unfair trade policies even before he became president. He insists that the trade deficit hurts the US manufacturing sector. The US has a significant trade deficit with China that increased from $43.6 billion to $419.2 billion (Schoenbaum & Chow, 2019).

Trump’s administration insists that protectionism, an approach that seeks to use tariffs to boost the nation’s industries, is a shield against foreign competition. The administration, therefore, imposed a 10% tariff on aluminium and 25% levy on steel imports (Hongjian, 2018). Mr Trump insists that the USA relies so much on other nations for its metals such that the country would not be in a position to manufacture enough cars and vehicles using its factories if there was a war. The US gets most of its steel from the EU and Canada, who are staunch USA allies (Hongjian, 2018).

Theoretically, taxing foreign aluminium and steel would force the US companies to purchase homemade steel. This effect would, in turn, boost the US aluminium and steel industries as more firms will be interested in purchasing their products. The aluminium and steel prices would increase in the US since there would be less supply from foreign firms, thereby increasing demand and prices of local steel and increasing profits for local steelmakers.

This approach would give a significant boost to the US steelmakers, which would drive the demand for more employees and better profits. However, the US firms that require raw materials, like aeroplane and carmakers, would see their costs increase. This cost increase means that firms might have to increase the prices of finished products, that would eventually affect the consumers. Car prices would increase in the US.

China has, in turn, retaliated. Being the globe’s second-largest economy, China has taxed US industrial and agricultural products, from pork, soya beans to cars, steel pipes and aeroplanes, The nation has also pledged to execute the necessary countermeasures against Trump’s proposed tariffs (Hongjian, 2018). Theoretically, China would tax US firms such as Apple, the tech company. This move would adversely affect the tech giant, which would have to increase its products’ prices to compensate for the loss.

Trump’s administration has pulled out of major trade deals such as NAFTA, TPP and US-Korea Free Trade Agreement (Cozzolino, 2018). It has also taken intentional approaches to weaken the WTO, thereby damaging the multilateral trading system. The administration terms the agreement as rigged against the US. The administration denounces the organization when WTO finds US practices have violated trade rules but ignores equally the many cases WTO has ruled on their favour.

The worrying Chinese trade policies and Trump’s nationalism has sparked a trade war. In 2018, Trump’s administration documented a lengthy report expressing its concerns on the Chinese trade policies. China had been coercing US firms to form joint partnerships with local firms to access the 1.4 billion customer base (Schoenbaum & Chow, 2019). These partnerships enabled china to get US technology. At times, firms would provide it willingly to avoid conflict with regulators, while other times, Chinese spies and firms would deal it. Trumps administration documented China’s overcapacity, state-owned enterprises, industrial subsidies and the nation’s failure to transform into a market economy among its significant grievances. The outcome of this documentation was tariffs and counter-tariffs worth $360 billion between the two nations (Schoenbaum & Chow, 2019).

Observers assume that Trump’s administration wants a deal from China, which is not the case. Trump’s administration aims at a complete and immediate transformation of China’s economy. To end this war, China would have to abandon industrial policies aimed at acquiring technological dominance, stop intellectual property theft, stop the harassment on foreign firms and open markets the government had closed to give local firms dominance. The Communist Party, on the other hand, maintains its dominance by controlling all sectors of China’s economy. Losing that dominance would place its grip on political power in jeopardy (Cozzolino, 2018). If Trump wanted to strike a deal with China, he would have worked along with Japan and the EU who share similar concerns. Trump’s administration, however, aims at increasing tariffs on all Chinese imports.

The rupture has already begun with scientists and students from China being no longer welcome to the US. The meagre Chinese investments in the US are under extreme national security scrutiny. Trump’s administration has increased export controls, controlling who and how Americans can share their technology with, especially in the fields of artificial intelligence, additive manufacturing and advanced computing. This step, however, does not prevent China from acquiring better technology as firms from South Korea, Germany and Japan may fill this void (Irwin, 2017). Therefore, this approach will disadvantage the US more.

If Trump’s administration continues trying to separate Chinese and Us economies, the US will pay a tremendous economic price. Trump’s administration denies that his approach has costs. He insists that China is paying tariffs which is an advantage to the US. Research, however, indicates that companies pass on tariff costs to the American customer. Majority of US exporters, mainly farmers, are experiencing the loss of markets due to China’s retaliation.

The modern globalized international trade approach allows open trade among nations that aim at guaranteeing them security via power maximization. This approach resembles multipolar trade that emphasizes on a nation’s freedom to create specialized trade relations with multiple nations and replace the responsibilities and roles of trade partner with functions offered by another. This effect could be the long-term impact of Trump’s protectionist approaches against China. Trump’s measures may give him the ability to impact pressure on China, but they might weaken America’s material power compared to that of China (Erica, 2019). The US may experience net relative losses if extensive tariffs get implemented over a protracted period. Rival states in Asia and Europe will retain their trading ties, leaving the US isolated from open global trading. There have been discussions between the EU and China on how to expand their commercial relations and to shield themselves against US’ unilateral protectionist approaches.

China could also retaliate against the US, enabling other nations to acquire relative gains versus the US. For example, China experiences diminished soya in response to Trump’s tariff directive. There are, however, several grain-producing nations that would sell to China in the place of the US. Consequently, the US would experience relative losses versus China’s alternative, while the Chinese industries would manage to retain their portion. In the modern trading structure, China would still manage to get an alternative trading partner for its goods (Erica, 2019).

The US is also likely to experience competitiveness and efficiency losses because of the tariffs placed on Chinese products. Protectionist approaches are often applied to protect a nation’s waning industries. These approaches will adversely affect the performance of US’ competitive firms that use protected items to improve efficiency (Cozzolino, 2018). For major US firms, Chinese imports are essential due to the existing international competition. Therefore, a small reduction in competitiveness several affects the firm’s revenue and performance. Most of the Chinese electronic exports are outsourced goods produced by partners and subsidiaries of US companies in China. Therefore, imposing tariffs on these China –assembled electronics diminishes the competitiveness of significant US manufacturing firms (Irwin, 2017). These firms are likely to perform poorer than their foreign rivals due to decreased competitiveness. They would, therefore, generate less revenue for America’s economy.

In light of these issues, Trump’s administration must assess the long-term outcomes of such policies and make wise decisions based on the best outcome. There exist other approaches to improving the economy, through free trade, without eliminating economic ties and violating economic pacts created in the past.