How US-China Trade War Has Affected America’s Economy?

The final effects of the phase one trade deal between China and the United States — and the trade war that headed it — have significantly harmed the American economy without resolving the underlying economic affairs that the trade war was proposed to fix. The outcomes that have resulted in the wake of the economic impact have assisted in worsening bilateral relations.

As a candidate in 2016, Donald Trump made his argument for the presidency around his alleged vision as a dealmaker. As the 2020 election draws approaching, President Donald Trump and his representatives are substituting down on that statement, which includes calling attention to what he has considered “the biggest deal ever marked”: the “phase one” trade deal with China. The contract reportedly involves a Chinese involvement to purchase an extra $200 billion in American goods above 2017 levels by the end of 2021.

Six months after the agreement was signed, this agreement’s costs and advantages evolved into a more precise focus. Despite Trump’s assertion that “trade wars are good, and simple to win,” the final results of the phase one commerce deal between China and the United States — and the trade war that introduced it — have significantly damaged the American economy without fixing the underlying economic issues that the trade war was meant to solve. 

The consequences of the trade war go beyond economics. Trump’s prioritization on the trade deal and de-prioritization of all other dimensions of the relationship created a more lenient environment for China to promote its interests abroad and suppress its people at home, protected in the knowledge that American answers would be silenced by a president who was unwilling to risk losing the deal.

Origins of the trade war

During the 2016 presidential campaign, a constant theme from then-candidate Donald Trump was to influence US trade with China. The deals that allowed it was a primary cause of US production jobs and intellectual property loss. He said China was accountable for “the greatest fraud in the history of the world” and criticized the US trade deficit with China, which in 2016 attained at around $346 billion. He declared, “We can’t proceed to allow China to rape our country.” Raising on the image of Donald Trump as the ultimate dealmaker, his campaign issued a plan to reform the US-China trade relationship, in which it promised to “cut a more favorable deal with China that promotes American businesses and workers struggle.” 

Trump planned out a four-part strategy to acquire a better deal with China: indicate China, a currency manipulator; face China on intellectual property and overpowered technology transfer concerns; end China’s management of export subsidies and lax labor and environmental standards; and lower America’s corporate tax rate to produce US manufacturing more competing.

Upon entering office, Trump attempted to engage Beijing immediately to address China’s economic policies’ fundamental interests. Just three months into his presidency, he met with Chinese leader Xí Jìnpíng 习近平 at Mar-a-Largo, where they admitted to building a 100-Day Action Plan to fix trade differences. 

The next month, China opened its economy (slightly) to US firms and services to trade more significant Chinese entrance on bilateral trade and US acceptance of China’s Belt and Road Initiative. Yet follow-on negotiations fizzled as Washington urged Beijing for more permissions, and Beijing denied American pressure. The 100 days it was ended in July 2017 with no contract, no press conference, and no joint statement out of the first conference of the US-China Comprehensive Economic Dialogue that was announced dead by the Trump administration four months later.

President Trump began the trade war to constrain Beijing to execute significant changes to features of its economic system that promote improper Chinese trade practices, which include limited technology transfer, intellectual property fraud, restricted market access, and subsidies to state-owned enterprises. 

Trump claimed that unilateral tariffs would narrow the US trade deficit with China and produce companies to bring production jobs back to the United States. Between July 2018 and August 2019, the United States declared proposals to force tariffs on more than $550 billion of Chinese products, and China countered with tariffs on more than $185 billion of US goods.

Economic costs of the trade war

The trade war prompted economic distress on both sides and headed to the diversion of trade away from China and the United States. “US economic growth decreased, business investment depressed, and companies didn’t hire as many people. Across the nation, a lot of farmers became bankrupt, and the manufacturing and shipping transportation sectors have caught lows not witnessed after the last recession. Trump’s operations amounted to one of the highest tax raises in years.”

A September 2019 study found that the trade war had already obligated the US economy approximately 300,000 jobs and an expected 0.3% of real GDP. Other researches established the cost to the US GDP at around 0.7%. A 2019 report predicted that the trade war would obligate the US economy $316 billion by the end of 2020, while more recent analysis from the Federal Reserve Bank of New York and Columbia University discovered that US companies dropped at least $1.7 trillion in the value of their stocks as a result of US tariffs taxed on imports from China.

Various studies have found that US companies fundamentally paid for US tariffs, with the cost expected at approximately $46 billion. The tariffs imposed American companies to receive lower profit margins, deduct wages and jobs for US workers, delay potential wage hikes or expansions, and support American consumer’s or companies’ values. A representative from the American Farm Bureau said that “farmers have dropped the large majority of what was once a $24 billion market in China” due to Chinese retaliatory actions.

Meanwhile, the US goods trade deficit with China remained to increase, touching a record of $419.2 billion in 2018. By 2019, the trade deficit had narrowed to $345 billion, approximately the same level as 2016, originally due to decreased trade flows. It should be seen that, while the US deficit with China reduced, its overall trade deficit did not. Trump’s unilateral tariffs on China redirected trade flows from China, affecting the US trade deficit with Europe, South Korea, Mexico, Japan, and Taiwan to rise.

China also witnesses economic distress due to the trade war, though not enough to surrender to the Trump administration’s center demands for significant fundamental reformation. Indeed, as the trade war pulled on, Beijing decreased its tariffs for its other trading partners as it decreased its confidence in US markets. Both sides declared the final deal on January 15, 2020, frequently agreeing on the offer Beijing had put on the table from the commencement — raised goods purchases plus engagements on enhanced intellectual property security, currency, and required technology transfer.

Abstaining from the deal was any progressive movement on subsidies, state-owned enterprises, and China’s industrial policy to benefit its own companies. The development of market introduction also confirmed the underwhelming end of the financial sector. These and other hurdles were put off for a phase two agreement, which Trump recently announced is not granted.

A more permitted environment for Chinese invasion and suppression 

Throughout this period, President Trump made attempts to generate a smooth and positive relationship with China — particularly with Xi Jinping — and described his attempts to encourage trade negotiations. 

Trump praised Xi’s power and leadership openly while shying away from bilateral dispute points in private engagements. Instead, Trump reportedly managed his private exchanges with Xi to propose him to act on his private priorities, most of that associated with the trade negotiations, and, for a time, North Korea.

In June 2019, Trump reportedly assured Xi Jinping in a private phone call that the United States would abstain from criticizing China over Hong Kong while trade negotiations were continuing. 

The following month, Trump said he assumed that President Jinping had acted “very responsibly” with the protests in Hong Kong, adding, “We’re working on trade agreements right now. We’ll see what results.” He publicly declared related opinions in November when he shied away from criticizing Jinping about Hong Kong and connected the issue to trade negotiations, saying, “We have to stand with Hong Kong, but I’m also supporting President Jinping.” 

He further said that President Jinping is “a friend of mine, he’s an incredible guy,” and described the Hong Kong protests as a “complicating circumstance” in trade talks. On January 10, 2020, when Laura Ingraham on Fox News questioned President Trump concerning “the human rights issue in China” and referenced “a million people in internment camps, and reeducation camps,” he replied, “Well, I’m driving a fine line, because we’re forming…great trade deals.”

John Bolton, the then-national security adviser, insists that the logic behind President Trump’s prioritization of a trade deal above other concerns with China were made evident in a private meeting with President Jinping at the June 2019 G-20 summit in Japan. According to Bolton, Trump told Jinping to proceed ahead with construction camps to detain 1 million or more Uyghur Muslims in Xinjiang, saying it was the right thing to do and asked President Jinping to support him the upcoming presidential election by boosting purchases of soybeans and wheat. 

US President Donald Trump later questioned Bolton’s characterization of events, tweeting that Bolton’s book “is a collection of lies and made up stories”; Trump denied Bolton’s allegations about Xinjiang. Still, at a campaign rally in Manchester, New Hampshire, on February 10, 2020, Trump announced, “Last month, we approved a groundbreaking trade contract with China that will disappoint so many of our competitors.”

Although other Trump administration members, which include Vice President Mike Pence and Secretary of State Mike Pompeo, have been abrupt in their criticism of China’s suppression at home and aggression abroad, their comments have not been observed in Beijing replacement for presidential disgrace. 

During this period, the Trump administration took a broad range of operations against China, including tightening export restrictions, questioning Chinese technology companies, improving investment screening, and blunting the Belt and Road Initiative. 

In Beijing’s top-down Leninist system, though, other leaders’ signs send to Jinping, and Jinping’s acknowledgments to those messages sustain meaningful weight. Neither the United States nor any other nation receives to have two foreign policies with China. There is only one. Beijing’s wires are tuned to the signs that other administrators send.

To be clear, the Chinese leadership holds complete responsibility for its carelessly nationalistic movements along its border and its cruel suppression at home. Beijing’s judgments to lead in its current direction were made more straightforward, though, by its faith in Trump’s close focus on trade and his concern is not allowing other problems to obstruct the achievement of a deal or hinder the deal’s implementation.

Even in the weeks after the signing of phase one trade deal, President Trump continued to reassure Jinping of his support. For weeks, Trump regularly appreciated Jinping’s response to the fast spread of the pandemic COVID-19 in China. Trump’s tone would not change until the pandemic COVID-19 took its damage to the United States.

Was the trade war worth it?

The two nations declared a split in the trade war at a particular signing ceremony at the White House, including President Trump and Chinese Vice Premier Liú Hè 刘鹤, the 11th ranked member in the Chinese leadership. Although the contract’s full text has not been made public, statements say the contract binds China to purchase an extra $200 billion in American products over two years above 2017. 

The text of the deal that has been made public shows China committing to guard American intellectual property, prevent coercive technology transfers, and abstain from doing currency devaluation as a trade weapon. It also added an implementation mechanism that would permit import tariffs if conflicts are not fixed.

In the six months after the deal was signed, China’s possibilities pushing its purchasing targets have decreased considerably. 

According to Bloomberg predictions based on Chinese Customs Administration data, China, in the first half of 2020, had purchased only 23% of the total purchase point for the year. While part of this is attributable to trade flow disturbances caused by the pandemic COVID-19, much of the gap owes to the agreement’s inefficiency from the commencement. In the phase one deal, as explained by Brad W. Setser and Dylan Yalbir at the Council on Foreign Relations, China pledged to purchase about $60 billion more in US goods than it had in 2017 $180 billion in US goods this year. Yet US goods exports to China are presently significantly under what they held in 2017.

In other words, Beijing almost paid for the deal with the commitment of a windfall in purchases of American goods. It resembles that President Trump admitted an IOU as a statement of victory.

The future will tell if the implementation agreement’s reforms will succeed where others have deserted, and much will depend on China’s eagerness to change deals into law and, crucially, implement them. Yet the crucial question for the United States — particularly today, as the US economy is in its most unfavorable state after the Great Depression as a consequence of the pandemic COVID-19 — is if the economic damages it paid for those implementation contracts were worth the billions of dollars dropped in value, the hundreds of thousands of jobs mislaid, the stagnation of US manufacturing, and the destructive consequences of the trade war on American farmers.

Ultimately, phase one deal failed because it, along with the trade war, critically damaged the US economy while missing to make significant progress in radically fixing the US-China trade relation’s fundamental shortcomings.