Weijian Shan, a Chinese economist, got his article published in the Foreign Affairs magazine in 2019 entitled “ The Unwinnable Trade War” in which he explained with certain arguments that the war has not really damaged China so far as anticipated by the US, but it has badly affected the US itself. He has given 3 main reasons to prove his stand.
Why trade war is turning against America?
The following are the 3 reasons extracted from Weijian Shan’s writing to prove how the trade war is turning against America. His arguments are divided into the separate headings for the better understanding.
Trade deficit with China has actually increased after the trade war
Trump started the trade war with China by imposing the tariffs on $200 billion worth of Chinese imports in 2018 to save his home industries. According to Weijian, Chinese export in the same year increased by $34 billion, while American export to China decreased by $10 billion. It was because, China in retaliation, also increased tariffs on American import. Besides, in 2019, Trump, once again imposed the fresh tariffs on Chinese imports without studying the previous figures that his war was actually affecting American exports to China. Consequently, Chinese export, no doubt, declined by just 4 per cent while American export to China shrunk by a whopping 24 per cent in the first eight months of 2019. Thus, by analyzing these figures, it can be reached that the trade deficit actually increased after the war. Before, the trade deficit was because of increasing Chinese export and later owing to decreasing American export to China. In the both cases, America is at loss and the war is actually not helping it to control the deficit.
Weijian Shan has also given some reasons about why Chinese export to the US has not declined to a larger extent as anticipated? Firstly, according to him, there is no good substitutes or replacement for many of the products the US imports from China such as iPhones or consumer drones. Almost all American are using IPhones that are manufactured in China owing to cheap labour. American will purchase the Phones no matter how much tariffs are increased. Secondly, the most of the industrial units of America are in China that are unwilling to leave Beijing. For instance, according to one research around 60 per cent of US companies or business in China said they would stay in the country instead of returning to home.
Around $80 billion more import bill for the US after the trade war
It is known fact that the Chinese products are less expensive as compared to the merchandise from the other countries like Japan, South Korea and so on. Trump’s tariffs raised the price of Chinese products and the importers were forced to purchase their stocks from some other states to fulfill the domestic needs. Consequently, the import bill of America actually increased to around $80 billion.
To understand this fact, lets consider a simple example. Before tariffs, American consumers were using, for instance, Chinese kids pampers that cost them $10. The same quality American local products were available to them for $20 owing to expensive labour. The price of the product from some other countries was $15. Hence, the importer would be forced to purchase the stock from these countries for $15 that was previously available for $10 from China before the tariffs. Thus, the overall import bill of American will increase and according to a survey conducted by Economists by Federal Revenue Bank of New York, America paid $80 billion additional in import bill as compared to total import bill before the tariffs. It is another argument given by Weijian to support his idea that why trade war is turning against America.
Trade war has not affected the price of imported goods in China
China has acted smart during the trade war as per Weijian’s views. It has raised the tariffs, in retaliation, on the American imports, but not on all its stocks. For example, Beijing has exempted tariffs on the imported American goods that were not available from other countries on a cheaper rate. China knew that the substitute for American medicines and semi-conductors were not available elsewhere. Resultantly, it actually decreased tariffs on these American products to maintain the price. On the other hand, China raised tariffs on only those American imports that were easily available from elsewhere at the same rate. Weijian has given a very good example of lobster in this regard. According to him, China raised 25 per cent tariffs on American lobster while decreased tariffs on the import of lobster from Canada. As a result, China got same quality of lobster from Canada. It declined around 70 per cent of US lobster export to China.
Thus, 3 important arguments are given by Chinese economist, Weijian Shan to prove why trade war is turning against America. According to him, it has, instead of decreasing the trade deficit of the US with China has actually raised it. Besides, the war has added around $80 billion more import bill of the US owing to its purchase of goods at expensive rate from elsewhere after the tariffs on Chinese inexpensive commodities. Finally, like the US, the war has not raised the price of imported goods in China due to shrewd policies of Chinese policy makers. It is a time for Trump to reconsider his strategy of trade war and discontinue it for the best interest of his people and country.