Assignment:
TRADE WAR BETWEEN CHINA & THE US
Context
China and the US have been top trading partners with each other and were recently involved in the largest trade war in history (Tan, 2018). Following are key events in the China-US trade war (Bartz, 2018; Tan, 2018):
8 March 2018
Trump announces import tariffs of 25% on steel and 10% for aluminum, but exempts Canada and Mexico and offers the possibility of excluding other allies. Australia is one of the countries hoping to be granted an exemption from the levies, although US steel imports from Australia is only 1% of the total US imports and are worth around US$200m (Wearden, 2018a).
18 March 2018
Forty-five US trade associations representing some of the largest companies in the US urge Trump not to impose tariffs on China, warning it would be "particularly harmful" to the US economy and consumers. The group includes the US Chamber of Commerce, the National Retail Federation and the Information Technology Industry Council.
1 April 2018
China retaliate against US import tariffs. The Chinese government increases tariffs by up to 25% on 128 US products, from frozen pork and wine to certain fruits and nuts, escalating the dispute in response to US duties on imports of aluminum and steel. The tariffs were scheduled to take effect on 2 April.
3 April 2018
Trump alleges China has repeatedly engaged in unfair practices to obtain US's intellectual property and proposed 25% tariffs on some 1,300 industrial technology, transport and medical products to try to force changes in Beijing's intellectual property practices. In addition, China ran a $375 billion goods trade surplus with the United States in 2017 and Trump has demanded that China cut the trade gap by $100 billion (Reuters, 2018). The targeted products for tariffs represent about $50 billion of estimated 2018 imports.
4 April 2018
China announces it will impose additional tariffs of 25% on 106 US goods including soybeans, autos, chemicals, certain types of aircraft and corn products and other agricultural goods. The products targeted by the tariffs were worth $50 billion in 2017.
5 April 2018
The World Trade Organization (WTO) says China sought consultations with the US, the first step in a WTO dispute, over the US's announced tariffs on the $50 billion worth of Chinese imports. The notification lodged by China to the WTO triggers a 60-day deadline for the two sides to settle the complaint or face litigation at the WTO by a neutral panel of arbitrators. Despite the notification, Trump says he has instructed US trade officials to consider $100 billion in additional tariffs on China.
20 May 2018
The US treasury secretary announces that the proposed tariffs were put on hold by the US pending negotiation with China (Wearden, 2018b).
15 June 2018
However, three weeks after the announcement from the US treasury on 20 May 2018, the Trump administration releases an updated list of 1,100 Chinese products that will be subject to a 25 percent tax and scheduled for implementation on 6 July 2018. More than 90 percent of the items in this list are intermediate inputs or capital equipment, meaning they are items US firms import to assemble end products.
China responds by issuing a revised list of $50 billion in US products that will be subject to tariffs starting July 6, as well. The list disproportionately targets the US agriculture sector, particularly in places where Trump voters are located.
18 June 2018
Trump says in a statement that the United States is compiling a list of Chinese goods that will face tariffs of 10 percent unless China agrees to the trade concessions laid out by his administration. If implemented, this would add a further $200 billion in import taxes for the country, meaning tariffs will be levied on nearly all of the $505 billion in Chinese products coming into the United States. This retaliation is unprecedented in US history.
6 July 2018
The U.S. starts implementing duties of 25 percent on $34 billion in Chinese goods at 12:01 a.m. on 6 July 2018, prompting a swift reaction from China, which introduces an equivalent 25 percent tariff on $34 billion in US goods. Analysts commented that the trade dispute has become a "dark day" for global trade.
Questions
1. Conduct an economic analysis (using diagram where applicable) of the effects of the tariffs on final goods and intermediate inputs for:
- US consumers;
- US producers;
- US government;
- aggregate national welfare in the US;
- Chinese consumers;
- Chinese producers;
- Chinese government;
- aggregate national welfare in China;
- Australian consumers;
- Australian producers;
- Australian government;
- aggregate national welfare in Australia;
- consequences on efficiency at the global level.
2. Is a trade deficit necessarily bad for a country in free trade? Why does the US pressurised China into reducing its trade deficit?
3. Evaluate and explain why analysts describe the trade dispute as a "dark day" for global trade.