World- systems theory and the current US-China trade war
The World-Systems Theory approach by Immanuel Wallerstein explains the changes in the economies of the capitalist world using a modern world’s historical development, knowledge structures combined with the analysis of the Capitalist world’s contemporary economic crisis. The key intellectual building blocks and the theory’s main concepts have had a significant influence on the developing world. The world system theory emphasizes on equal opportunities and development across countries and thus appealing to the practitioners and those who believe in the philosophy of balanced development.
The world-systems theory explains the current US-China trade war, which started in early 2018, and which has been significant in the global market in almost half a century by using analysis of world systems in place. A lot of speculations of the potential impact, causes, and the progress of the trade war have emerged. Countries need to understand the leading causes of the trade war to avoid future occurrences. In that regard, the world-systems approach provides ideas on how to predict the future economic consequences and thus prepare policymakers and people in business in making the corresponding decisions. Don't use plagiarised sources.Get your custom essay just from $11/page
World-system theorists believe that an objective world exists and can be best understood quantitatively, and regardless of how long it has existed, it is still a product of history. Further, it explains that a world- system consists of structures, boundaries, member groups, legal systems, and coherence (Lévai, 2012). According to the world-systems theory, conflicting forces that are present in the world economies cause tension, which is responsible for tearing countries apart from each other. The world economic systems change over a given period, and its’ development is dynamic and is predominantly internal. World-systems theory suggests that the economy of the world is connected via the market as opposed to a political dimension through which economic blocks mutually depend on each other for necessities such as food, fuel, and protection.
The United States and China constitute the two largest world economies in terms of foreign investments and international commerce. Therefore, the close ties that is there between them will significantly impact the economy globally. The results of their relationship are made larger by the world’s supply chains that are responsible for production. China-US trade-war, which is currently taking place between the two economic giants, was caused by the US government, imposing 25% of taxes on a variety of products bought from China. The decision made by the US government was not agreeable to China, and they equally reacted by charging extra taxes on a several imports from the United States.
Unfortunately, the commercial war did not take a break after the first round, and the two nations continued charging additional tariffs on each other and thus becoming the largest trade war ever witnessed in the global market economy. The world-systems theory goes on to mention the division of labor, which relates to forces that are responsible for production in world economy and which relates to the current US-China trade war. The geographical and cultural differences between the two regions, whereby one concentrates on the labour-intensive method of manufacture and the other applies the capital-intensive system of producing goods.
One of the noticeable structures that the world economic system has is the hierarchy of authority between periphery and core, whereby the rich and powerful cultures exploit and dominate the societies that are less endowed in terms of resources and technology. According to Wallerstein, different countries in the world system have different strengths, and this helps in maintaining the system because steady states address differences in surplus flow to the core zones. The critical potential impact relating to the China-US trade war from the systems theory perspective is that the two economies will be affected negatively. Firstly, the firms in the United States that do business with China will perform poorly in bonds and stock returns when such a trade war happens. Meanwhile, many companies that do not directly do business with the Chinese government will be affected with the trade war via the network of global business value chain.
Immediately after the trade war started, the Shanghai Stock Market dramatically declined, and a significant change was observed in the foreign rate of exchange relating to a unit of Chinese Yuan per USD. The world-systems theory explains that the financial markets will be affected when there is a conflict between the leading trading economies. Whenever the announcements are made from the two governments on bilateral trade concerns, both potential and current investors promptly respond in the existing financial markets. A good example is when the commerce department of the United States began to restrict its firms from trading with China’s corporations in 2018, and this affected China’s Stock Market Index instantly.
The understanding the current US-China trade war from the world system literature is made clear through an explanation that free international trade is not always beneficial to all economies that have trade policies. The trade policies are designed to regulate commerce between different economic systems. The truth is that predicting the direction of the US-China trade conflict is impossible. Still, the signs and signals of the actions taken will have lasting consequences on the world economic systems even if the conflict will end soon.
The stiff competition of the imports from China mainly gave rise to the declining manufacturing sector employment in the United States. Long-term variations in positions taken by the US and China in the economic systems of the world is the leading cause of the trade war. The analysis of capitalisms through the world systems approach as a historic structure has always combined different forms of labor within functional divisions. Individual nations do not have independent economies but are part of the more extensive world economic system. Apart from being divided into different societies, the world is divided into three main economic groups which are; core, peripheral, and semi-peripheral zones. A country is attributed to a specific zone due to its dominance over other nations.
The trade war between the US and China is better explained when the theory mentions how countries in a world system fall under different zones, and such zones have different characteristics where there is a struggle for dominance in ownership of factors of production and also the processes involved. Both China and the US constitute the core nations and therefore have surplus production with the ability to purchase raw materials from other countries at low prices while demanding high prices for exports (Crowley, 2007). Proponents of the world systems approach believe that the exclusive abilities of the current world systems include the capitalist nature of their operations, the global environment, and the world economy that has not been unified politically.
Through the systems approach, Wallerstein explains an exchange that is unequitable as the allocation of extras in the peripheral zones to the industrialized and technologically savvy nations, which results in the accumulation of wealth at the international magnitude. The dominant countries maintain stability and implement free trade if it only benefits them. In the case of the US and China trade, the existence of class struggle in evidence since the world economy at present is riddled with constant occurrences which form the foundation of modern history (Ciuriak, 2019). The words system approach envisions a socialist government which could ensure a high productivity level by changing distribution while integrating economic and political decision-making process.
Predicting the effects of the trade war between the United States and China is further complicated by the global value chains, which eventually paralyses the prediction on which countries or firms will reap the greatest benefits or suffer losses from the trade war. The trade war will, in the long run, create the necessary incentives for firms to reorganize their supply channels. The actual costs of the US-China trade war will continue to remain high until full confidence of the world trading systems is fully restored among the relevant economic zones. The world-systems theory’s analysis of the economic policies and the potential conflict between the various commercial systems and specifically the US-China trade war is elaborate and reflects the real-world economic challenges.
Through the world system theory, certain features of China’s capitalist state, such as the communist party’s impact and informal trade networks implies that any attempt to solve the issue through the World Trade Organization dispute settlement is likely to fail. Policymakers and other professional trade negotiators can learn many lessons from the trade war between the US and China. Both local and foreign businesses, which heavily depend on the worldwide supply chains, will continue to invest if the policy on trade is unambiguous. A trade war that is likely causing a risk of high tariffs is undesirable for both business and welfare. It can negatively affect trade relationships in the current world economic system.
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