Donald Trump’s policy has sent threats to China with talks of imposing bigger tariffs on the country. Will the tough talks by the President-elect eventually lead to a trade war?
Donald Trump had expressed threats of raising China’s tariffs up to 45% as he wanted to bring back factory jobs to the U.S. However, economists think that while it may possibly cause a trade war, some economists doubt the 70-year-old business mogul will risk doing so.
Just what is China’s importance in the U.S. trade economy?
Significance of China in the U.S.
China has the world’s second-biggest economy and with a population of over 1.4 billion, the country easily turned into a factory brimming with an abundant labor force. Because of this, Americans took the opportunity in outsourcing their manufacturers in the country which, in turn, upped the Chinese citizens’ social class.
Nowadays, the Chinese are among the largest groups in the U.S. attending the most prestigious universities and checking in on big hotels in major cities, and more. Therefore, China has, undeniably, became U.S.’ biggest creditor.
Moreover, the U.S.’ trade deficit with China has significantly widened as Americans are consuming more goods and services from outside, particularly in China, than what the U.S. exports. This is because Chinese products are considerably cheaper than American products.
One of the reasons behind this, along with other factors, is the cost of living in China is compellingly lower which allows cheaper labor cost as well.
Donald Trump’s Policy
During his campaign, Trump made a big deal about China since he knew that the promise of bringing back jobs, especially in the manufacturing sector, would speak to voters. An economics professor at Cornell University, Eswar Prasad, said that it was easier to cast blame on the “external bogeyman” for the losses of jobs in the U.S. which worked for the politician.
Trump had voiced his antagonism towards China by raising tariffs and calling the country a currency manipulator. However, economists do not think Trump will fully engage in a trade war with the populous country. His strategy might lean towards what he does best, being a business dealer, and stretch far enough just to get the best deal.
There is also a possibility that Trump may want more from China, says the University of Southern Carolina economic professor Matthew Kahn. Some potential goals would be a larger access for Americans in the local market and for China to consume more products from the U.S.
Meanwhile, raising tariffs will not simply solve the problem of dropping job opportunities as manufacturing companies can just transfer to another low-cost labor force like Vietnam. In fact, it can even hurt U.S.’ economy too. China can restrict their market and raise the cost of imports which can viably hurt the working-class Americans.
How China Can Affect U.S.
U.S.’ trade deficit with China is not entirely a negative thing as trades between the two countries have helped the U.S. become a “stronger nation” according to Khan. The lowering cost of consumer goods, like what we see on Walmart’s shelves, is caused by the cheaper cost of making them in China.
With American’s growing taste for cheaper goods, that might appear to be a good thing. However, workers in Michigan and Ohio are losing jobs as manufacturers prefer to outsource in countries with a lower-cost labor force.
Meanwhile, as China suffers from a slower economic growth, U.S. will be affected as well since global demand for resources like oil, steel, goods and more will lower too. Therefore, a lot of pondering will surely ensue before Donald Trump’s policy can come to light.
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