Compare the current potential trade war between the US and China with the so-cal

Question

Compare the current potential trade war between the US and China with the so-called Chicken War that happened more than 50 years ago. Be sure to give a brief synopsis of both. Speculate on whether there will actually be a trade war with China and the possible effect on both countries. Try to avoid generalities and be as specific as possible (e.g., the price of ham in China will increase and demand imported American pork products will decrease, which will in turn affect...). Limit your answer to 350 words.

Explanation / Answer

A FULL-blown trade war between China and the United States could be devastating, with some suggesting its impacts could be worse than the Global Financial Crisis (GFC).

This week more fears were raised that the dispute between the superpowers was getting out of hand, with both countries announcing more tariffs designed to hurt each other.

The Dow Jones industrial average plunged 501 points on Wednesday after China announced it would retaliate against measures announced by the US — although it has since recovered.

Many countries are worried about the impact to the world economy, which one report suggested could be as bad as the GFC in 2009.

WHAT IS A TRADE WAR?

Essentially a trade war happens when countries start imposing tariffs (taxes) on each other’s products.

Putting a tax on something discourages these products from being brought into the country as it makes it more expensive.

In the past countries have embraced tariffs to protect local jobs and the profits of businesses.

“Basically the idea is that if you import goods from another country, you are not producing them yourself,” Lowy Institute International Economy Program director Roland Rajah told news.com.au.

But, he said, most economists agree that this way of thinking generally ignored the benefits of bringing in cheaper products from overseas.

“Open trade is a good thing and has played an important role in raising living standards,” he said.

This is because people are able to buy things more cheaply and can also have a wider range of products to choose from. Local producers also benefit because they can buy components for things they want to make at a cheaper price.

WHAT HAS CHINA DONE?

The trade war tit-for-tat began after America introduced tariffs on things like aluminium and steel imports, suggesting it was a punishment on China for allegedly stealing US technology.

American businesses have been complaining about the theft for years and last year US President Donald Trump ordered an investigation into Chinese practices.

On March 22, the findings were released and confirmed China had been trying to steal US technology and intellectual property. China has denied it steals or pressures foreign companies to hand over technology.

A GAME OF CHICKEN’

Many experts don’t believe a trade war is the best way to make trade with China fairer and the US announcements of tariffs on steel and aluminium imports from China have sparked a strong response.

Beijing quickly unveiled plans for duties targeting US products which depend on the Chinese market including soybeans, aircraft and autos — some of which send nearly 60 per cent of their exports to China.

America hit back on Wednesday, announcing a 25 per cent tariff on 1300 Chinese products including flat-screen televisions, medical devices, aircraft parts and batteries.

1. Both Sides Back Down

Less than a month ago, this seemed possible. Following talks between the two powers in Washington, Treasury Secretary Steven Mnuchin said the administration was “putting the trade war on hold” and wouldn’t impose tariffs. Hope grew that the U.S. would accept a modest increase in purchases by China of American products. But within days, the president backed away from the framework for the talks.

A short-term truce now seems unlikely. On Friday, a senior administration official said the U.S. is looking for structural changes to the way China deals with technology. The administration wants Beijing to stop forcing American firms to transfer know-how. Beijing has signaled it won’t accept major changes to its Made-in-China 2025 blueprint, which lays out how the Asian nation plans to lead in emerging industries such as artificial intelligence.

2. China Blinks

President Xi Jinping has defended the existing global trade order. Certainly, China has a lot at stake. For years, state-driven investment and exports drove growth. Xi’s government is trying to engineer a gradual slowdown that puts more emphasis on consumer spending. A trade war could disrupt Beijing’s careful management of the economy, which showed signs of underperformance in May.

In the best-case scenario for the U.S., China would back down on technology issues and open its market to more American goods and services. “If you’re a trade negotiator, in some sense, having President Trump is a great advantage because everybody knows he will impose tariffs and that gives the trade negotiator a lot of leverage,” said Rod Hunter, a partner at law firm Baker McKenzie and former director of international economics at the White House National Security Council under President George W. Bush.

3. U.S. Blinks

Trump prides himself on his negotiating prowess. He co-authored a book called “The Art of the Deal,” in which Trump describes how he extracted concessions in real-estate transactions.

But the jury is still out on Trump’s negotiating record as president. The U.S. push to overhaul the North American Free Trade Agreement is in limbo. Critics say Trump gained little from his high-profile meeting this week with North Korean leader Kim Jong Un. It’s quite possible China may call Trump’s bluff, knowing how much the president enjoys a rising stock market and strong U.S. economy.

China’s list of products designated for tariffs includes a range of agricultural items like soybeans, sorghum and cotton, a potential blow to rural states that backed Trump in the 2016 presidential election.

“What Trump is signaling here is that he wants to not only continue negotiations, but he’d actually like to have them resolved in the short term rather than the long term,” Terry Haines, managing director and head of political analysis at Evercore ISI, told Bloomberg television

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