Anika Bansal – Year 9 Student
Why is there a dispute?
Due to opposite views on the trade imbalance and their economy, the US and China rivalry has developed into a full-blown trade war. The US has criticised China of unfair trading practices and intellectual property theft. The common belief in China regarding this matter is that the US does not want them to expand and develop their growing economy. Therefore, both these economies have imposed several tariffs on each other’s products to reduce the other’s access to its market.
Currently, the US has around $500bn import from China but only about a $100bn export. This leads to a $400bn trade deficit, which is unsustainable for the US. The trade deficit is the difference in the imports and exports of an economy. Since there is such a big trade deficit, in order to lower it the US has demanded that China buys more of its products. China has refused.
The US also accuses China of intellectual property theft. Many American companies go to China for production, as labour is cheap; however, China insists on the transfer of technology that American companies have developed. America accuses China of stealing this technology and benefiting its own industries. For example, if Apple wants to produce their products there, China will not allow them unless they share their technology. This means that Apple has the choice to give their technology to China or not manufacture in China. If Apple wants to reduce the production costs, they will share their technology allowing China to produce cheaper phones and laptops, with the same features and technology. People will then buy Chinese products instead of buying Apple products as they have the same attributes but for a cheaper price.
Trade war: a quick overview
The trade war started when President Trump decided to impose higher tariffs on Chinese products to lower the trade deficit with China. The US imposed tariffs on Chinese metals such as steel and aluminium. During the course of the past year, two of the world’s leading economies have been raising and imposing new tariffs on each other’s products. This has severely damaged the trade between two countries. So far, the US has introduced tariffs on $360 billion worth of Chinese goods; China has retaliated by imposing tariffs worth $110 billion on US products. The US has made four tariff policies, the last one specifically aimed at Chinese imports imposing 15% duty. China has responded by introducing tariffs from 5%-25% on US products including crude oil: this is the first tariff imposed on fuel.
Why should the UK care?
The British economy depends on larger economies such as the US, China and the European Union (EU). After recent elections and a convincing victory by the Conservatives, Prime Minister Boris Johnson has announced that the UK will leave the EU on 31st January 2020. After Brexit, the UK will no longer be a part of the EU and so they will also lose the seventy free trade agreements they have with the EU. Free trade agreements are arrangements to ensure that there is no tax on the trade of certain products between countries or economies.
Up to this point, London has only managed to replicate twenty agreements with the EU (less than half of what is required after Brexit). Free trade agreements allow an insurance policy for governments as well as providing better access to the World Trade Organisation (WTO) Agreements. The WTO Agreements are 164 agreements that refer to world trade and cover the trade of goods, services, etc. The WTO sets procedures for settling arguments as well as tariff boundaries. All EU members are required to be a WTO member, therefore giving them a better accessibility to these agreements. Nevertheless, if the UK leaves the EU, it will remain a member of the World Trade Organisation, but will become independent.
How can the UK benefit from the on-going trade war?
When Brexit occurs, it will be crucial for the UK to strengthen its relationship both with the US and China. To improve trade with the US, the UK may have to follow some of the US policies. The US may want the UK to limit the Chinese accessibility to the British market; this may lead to the UK losing trade with China, which is a large manufacturing economy. The UK is a largely service sector economy and this may limit access to Chinese markets. The UK must try to use the trade war to their advantage by using the tension between the US and China to gain a bigger market in China and to attract Chinese companies to develop their businesses in the UK. While the US is trying to limit Chinese access to its large domestic market, an opportunity is provided for the UK to act as a substitute for China, increase its share of the market both in the US and China, and potentially gain from the ongoing trade war.
After Brexit, the UK will have to make its own trade agreements with China and the US rather than being part of a collective agreement with the EU. This provides a chance for the UK to establish separate deals with the US and China. To ensure that the UK economy benefits the most from deals, these agreements will have to be carefully drafted and executed.
The trade war is an ongoing dispute between the US and China, due to a perceived imbalance in their trade, leading to newly imposed tariffs. This may have serious implications for the UK economy, especially after Brexit happens on 31st January 2020. It is crucial for the UK to negotiate good deals with both the US and China without directly getting involved in this trade war. The UK needs to develop new agreements and policies with each country independently in a way that is beneficial to its own economy.
Anika Bansal (9IAB)