Research Paper on United States-China Trade War

Introduction

The 1979 trade and economic reforms played a fundamental role in transforming China's economy into one of the fastest-growing and biggest globally. China's entry into the World Trade Organization enhanced its trade liberalization and economic growth through the United States-China commercial ties. However, in the past years, the bilateral trade relationship has been strained due to various reasons. For instance, China's mixed reactions on executing its World Trade Organization obligations, increased implementation of industrial regulations to protect and promote local firms, and infringement on the American intellectual property. China's trade and economic policies might have an adverse impact on the United States economy. The United States-China trade war has led to Congress' assessment on the probable short-term and long-term effects on the American economy. Hence, the need to review the United States-China commercial ties to ascertain the contentious issues, outline the Trump Administration's economic policies to China, and the likely outcomes.

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China-United States Trade War Recent Developments

The United States-China bilateral ties have become contentious and complex due to China's partial transition to the establishment of a free market economy. Hence, Trump's administration has shown its intention to endorse harsh trade policy to China. The commencement of Section 301 lawsuit against China's trade policies on the intellectual property rights is one of the major actions the Trump Administration has taken (Siby and Dr. Arunachalam 3). Such harsh trade policies have resulted in the China and American governments implementing tough trade sanctions as a retaliation on their bilateral trading. Firstly, on 25th July 2018, the European Union and the United States affirmed their commitment to collaborate as like-minded partners to resolve unfair trading practices that seemed to target China's economy. Secondly, on 6th July 2018 Trump's government raised the tariffs by almost 25% on Chinese imports with a $34 billion net worth. Coincidentally, China claimed it would raise its tariffs comparatively on the American products. The United States representatives responded on 10th July 2018 through their claim to impose a 10% tariff on the Chinese products with a $20 billion worth (Morrison 1). Thirdly, on 8th March 2018 Trump's government declared that it would increase its import rates on the Chinese aluminum products by 10% and Steel products by 25%. The American government alleged that the additional import levies were linked to the national security amendments as outlined in the 1962 Trade Act. Likewise, on 2nd April 2018, China raised its duties on American agricultural commodities by approximately 25% especially on imports with a net worth of almost $3 billion.

The China-United States Bilateral Trade Relations

The bilateral trade relation between China and the United States was attained after the 1979 diplomatic agreement between them. Moreover, in 1980 the United States-China trade generated about $400 billion in revenues that played a central role in reforming China's economy. China is ranked as the 16th largest export market and 24th largest trading partner to the United States (Kobayashi and Hirono 2). For example, in 2017, the cumulative commodities traded between the United States and China generated almost $636 billion revenue returns. Therefore, China is the main trading partner to most American goods. The United States commodities export to the Chinese market in 2017 was roughly $115 billion that was a 13% increase from the 2016 merchandise exports. According to Morrison, the leading American products exported to China in 2017 comprised of scarp, electronic components, motor vehicles, grains, and aerospace products (2). Additionally, statistics indicated that the United States exports to China had increased by 491% between 2002 and 2017. The Chinese export growth rate was comparatively high than the other top export markets to the United States products in 2017. Therefore, the total United States commodities exports to the Chinese market is anticipated to rise by at least 15% by the end of the 2018 fiscal year.

A majority of the trade critics allege that China may provide the main market for the future United States exports. Moreover, China is among the fastest growing economies globally. Its positive economic growth is expected to continue in the next three decades given the government endorses new economic reforms (Mandel and Anderson 8). As a result, China's objectives on social safety enhancement, industrial upgrade, economic rebalancing, and infrastructural modernization will improve the demand for foreign services and goods. The constant economic growth has led to an improvement in China's purchasing power. Hence, China's huge population and large foreign exchange assets provide the required potential market.

A 2017 Oxford Economics research projected that the 2015 export commodities and the bilateral foreign direct investment supported almost 2.6 million American professions. The foreign direct investment and export revenues boosted the American gross domestic product by nearly $216 billion. Besides, the research predicted that the United States services and goods exports to China could grow from about $165 billion to almost $520 billion between 2015 and 2030 (Bollen and Rojas-Romagosa 14). For instance, roughly 202 planes were delivered to Chinese airlines by the Boeing Corporation in 2017. Economists estimate that Boeing will dominate the aviation sector in the next two decades and the Chinese aviation stakeholders will order almost 7240 aircrafts valued at nearly $1.5 trillion. As a result, China will be Boeing's main consumers on the global market.

The 2017 General Motors Report indicated that the firm sold more vehicles in the Chinese market compared to its American customers between 2010 and 2017. For example, in 2017 General Motors sold about 3 million vehicles in the United States compared to the 4 million sales in China. Hence, the Chinese market sales accounted for nearly 42.1 % of the global General Motors sales. General Motors' management projects its vehicle sales to the Chinese clients will increase by about 6 million units by 2020 (Morrison 5). Furthermore, in 2017 the United States automobiles export profits from the Chinese market were estimated at $10 billion. For that reason, China is considered as the second-largest export market to the American motor vehicles after Canada. Similarly, the Credit Suisse estimations indicated that the Chinese clients had surpassed their American customers by 2015. China's 109 million middle-class customers had surpassed the American middle-class consumers who were assumed to be almost approximately 92 million. Besides, based on reliable purchasing power predictions from Brookings Institute the gross revenue from the Chinese middle-class is supposed to rise from $4.2 trillion to $14.3 trillion between 2015 and 2030 (Morrison 6). Hence, by 2030 China's middle-class purchasing power will have tripled the American customers' consumption levels.

The United States Commodities Trade Deficit

Some of the American legislators are concerned with the trade deficit from the American export commodities to China. For example, the trade deficit rose in 2017 to nearly $375 billion from the previous $347 billion deficit (Li, He and Lin 1567). In the recent past, the commodities trade deficit from the American exports to the Chinese market has increased significantly than it is with its other trading partners. Some trade analysts claim that the conspicuous United States trade deficit with China illustrates the damaging and unbalance effect of the bilateral relations to the American economy. However, other economists claim that the deficit reflects the dynamic shifts in the rise of complex and extensive supply chains in global production. Given that China is usually the ultimate assembly point for most export-oriented multinational businesses that outsource goods and service from various nations, China is expected to experience minimal trade deficit effects.

Most trade analysts purport that the steady increase in the United States imports from China is the main cause of the imbalance in the bilateral trade. Moreover, the imbalanced trade is growing due to the shift in production from other Asian nations to China. For instance, different export goods that were initially manufactured in Hong Kong, Taiwan, and Japan nowadays are made in China by most foreign organizations. In 1990, China supplied roughly 7.6% of the manufactured American imports from Asian countries but in 2017 China's manufactured goods export rate had increased to almost 55.4% (Morrison 11). Therefore, between 1990 and 2016, China's role as a major supplier of manufactured commodities to the American market had increased steady surpassing its rival Asian competitors. Hence, the trade deficit in the bilateral relationship between the United States and China might not decrease due to most multinational organizations shifting their production on export-oriented goods from other Asian countries to China.

United States-China Investment Ties

Investment plays a fundamental role in maintaining the United States-China commercial relations. As a result, China's investment in the American economy can be classified as non-bond investments, foreign direct investment, and United States securities holdings (National Bank of Canada 2). China has several investments in various projects and companies in the United States that are not acknowledged in the Bureau of Economic Analysis records. The records cannot reflect such investments given they do not conform to the United States foreign direct investment requirements.

China's focus on accumulating foreign exchange assets is its primary objective on overseas investment. Consequently, China's foreign exchange funds are channeled through three major sources (Wong 3). Firstly, foreign direct investment inflows and huge annual exports and imports surpluses. Secondly, the Chinese government intervention to slow or halt its currency value. Thirdly, capital outflows restrictions from the Chinese stakeholders. Therefore, the Chinese government has opted to invest most of its assets abroad rather than converting them into foreign currencies. In the past decade, the Chinese government has channeled most of its investment into the United States Treasury securities. Even though the investment generates low net profits, such securities are usually recognized as a safe investment option globally due to their liquidity. Besides, they are acknowledged as credit by the American government. Additionally, the Chinese government has adopted a strategic approach to obtaining high profits by diversifying its investments. Hence, China has encouraged its State-owned enterprises to invest abroad to facilitate its efforts to gain access to technology, food, and raw materials. The approach makes the Chinese firms to be more competitive internationally thereby increasing China's yearly foreign direct investment outflows. For example, China's annual foreign direct investment has grown steadily from $21 billion to $183 billion between 2006 and 2016 (Wei, Rockey and Balis 4). Therefore, the tactical investment approach endorsed by the Chinese government has led to China being regarded as a reliable source of global foreign direct investment outflows.

The foreign direct investment flows have been the main form of the United States investment in China. Moreover, most of the United States foreign direct investment has been in the export-oriented sector meant to exploit China's low wages (McLarty Associates 3). The rapid growth of the Chinese economy in the past 7 years has led to the United States foreign direct investment being diverted to capitalize on China's thriving d...