During the presidential election, Donald Trump made disparaging comments concerning China, blaming the country for the global warming “hoax” and for pitfalls in American business.
Being #2 in the global economy, China is considered one of our most important economical allies but also one of our biggest competitors. The United States is China’s number one export market and China is third for the U.S. Would it be possible for these two countries to maintain a cordial business relationship with America under the leadership of President Trump?
At present, both countries are undergoing a major change in leadership. Under President Trump, the United States’ economic policies are sure to change. Trump has already appointed Peter Navarro as lead to the National Trade Council and has signed an executive order to get rid of the Trans-Pacific Partnership created by Obama. On the other hand, Beijing is shifting leadership as well since five of their Politburo leaders will be reaching the retirement age, leaving President Xi Jinping and Premier Li Keqiang to remain.
Trump has already expressed discontent with China’s practices during the election, stating that China purposely keeps their currency artificially low, labeling the country as a “currency manipulator.” In January 2017, he tweeted “China has been taking out massive amounts of money and wealth from the U.S. in totally one sided trade…”. Slapping The country with this label could give Trump an excuse to impose a higher tax (a proposed 45%) on Chinese imports but some economists, such as Lee Branstetter of Carnegie University, think this may be a bad decision. He compares Trump’s proposed tariff to the tariffs supported by Republicans at the start of the Great Depression. What followed was an increase in American tariffs that resulted in a global trade war.
The current status of trade between China and the U.S. is indeed an unbalanced one, with the U.S. at a disadvantage. The Nita States has an import tax of 2-3% while China’s is 3-9%. To put it simply, U.S. exports to China were only $116 billion in 2016 while imports from China were at $463 billion, putting the total deficit at $347 billion. Americans buy Chinese manufactured goods because the prices are so low.
Since China joined the World Trade Organization in 2001, the U.S. and China’s past trade relations have been rocky. The United States filed 23 complaints with the WTO against China overall and 14 during the Obama administration alone. The most recent accusation being the distortion of prices of crops by China making it difficult for American farmers to compete in global markets. This means that China’s “market price support” program causes an overproduction of wheat, corn, and rice. This undercuts the American market for exporting those crops and results in a loss of revenue for American farmers. President Obama claimed that this program breaks the rules set forth by the WTO.
There’s no guarantee that Trump’s proposal of higher tariffs will help the United States. In addition to possibly triggering a trade war, it is the belief of many economists that American consumers will be the ones who ultimately will suffer. Retail prices for imported goods and their domestic substitutes would increase. This means costs for these goods could also rise. Production of such products can also be delayed, especially amongst bigger companies.
In an article by The Economist in February 2017, The Peterson Institute for International Economics does not believe a tariff would be positive for the United States. Their assessment finds that American private sector employment would decline by more than 4% by 2019, which would hurt American families living on modest incomes if Trump were to follow through with his threats. (The Economist, Nov. 2016, Daily Chart: A Trump Trade Agenda ).
Relations between the United States and China are not entirely negative. According to Joseph Weed, Director of Communications of the National Committee on U.S.-China Relations, there is a rapid growth in Chinese direct investment in the United States. “This is a function of Chinese investment in existing U.S. companies, as well as the creation of ‘greenfield’ or new businesses; in both cases, this represents Chinese owned companies operating in the U.S. And providing jobs to American workers and business suppliers. In just a few years, this investment has grown to support more than 100,000 American jobs.”
“While there are issues of concern between the two countries, diplomatic relations continue to represent a productive working relationship. Both sides have areas of dissatisfaction but strong economic ties and areas of shared concern continue to encourage both sides to work together within the framework of the global community.”