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US China Alaska Talks – US and China trade angry words at high level 2 plus 2 Alaska talks

US China Alaska Talks – US and China trade angry words at high level 2 plus 2 Alaska talks

Relevance:

  • GS 2 || International Relations || India & Rest of the World || USA

Why in the news?

U.S and Chinese officials have exchanged sharp rebukes in the first high-level talks between the Biden administration and China, taking place in Alaska.

U.S and China Trade War

US- China Relation:

With high growth rates during the past two decades and the largest trade surplus with the United States, China is the primary target of the U.S. trade war efforts. Tariffs are the first shot in bilateral tensions that are multilateralizing and injuring global economic integration, coupled with ever more intense technology competition

Rising U.S.-China Tensions and Waning Globalization:

  • Today, globalization led by the United States and other advanced economies is winding down, while China-fueled globalization, which is driven by emerging economies, has grown to be a complement.
  • As “America First” policies surge in Washington, the attractiveness of the Asian Infrastructure Investment Bank (AIIB) and the BRICS1 New Development Bank (NDB) has significantly increased in developing economies
  • Washington has kept its distance from the China-led Belt and Road Initiative (BRI) despite its openness toward U.S. participation former President Trump even labeled the Initiative as “insulting.”

U.S.-China Trade Tensions:

  • The United States and China are the world’s leading powers in terms of the size of their economies, defense budgets, and global greenhouse gas emissions.
  • Both nations are permanent members of the United Nations Security Council.
  • The global importance of the U.S. and Chinese economies, as measured by their nominal gross domestic product (GDP), can be illustrated in two ways that will also illuminate the challenges of the ongoing power transition:
    • one involves the rise of the Chinese economy relative to the U.S. GDP;
    • the other focuses on the concomitant shifts in globalization
  • China accounted for almost 50 percent of global growth and continues to constitute some 30 percent of global prospects today. In positive scenarios, such economic spillovers support global growth.
  • In negative scenarios, such spillovers would penalize those growth prospects and the collateral damage would likely be the worst in emerging and developing economies.

Cause of the War:

  • The Trade Deficit: US bilateral trade data fail to reflect the true nature of value added in each country, ignoring to identify the actual beneficiaries of its global trade.
  • Nonreciprocal Trade Practices: US accused China to be engaging in nonreciprocal trade policies where China charges higher tariff on imports from the US than vice versa. Additionally, the trade balance also tilts in favor of China more as compared to US
  • Theft of Intellectual Property Rights and Cyber Theft: The strongest allegation was regarding the economic model of China in which US multinationals complained about mistreatment and predatory practices of Chinese administration
  • Industrial Policies: US has alleged China to be engaging in economic aggression against the US economy owing to Chinese government practices
  • Long-Term Challenges: The biggest challenge to the US comes in the form of China’s emergence as the major economic power. China is laboring to evolve into more technologically advanced in a number of dual-use industries
  • Rapid and Aggressive Internationalization of EMNEs: The sudden emergence of emerging economy multinational enterprises (EMNEs) in a very short period of time, giving a tough competition to multinational enterprises based in advanced economies (AMNEs), is another contributor to the US–China Trade War

Global impact of the trade war:

  • The trade spat between the US and China has consequences well beyond their borders.
  • Some of the affected economies in this trade war would be the following:
    • The economies that would be worst hit from drop in Chinese export to the US would be Taiwan, South Korea, and Malaysia. These three economies form the part of the Asia’s export supply chain
    • For instance, nearby 1.6% of Taiwan’s output is linked with China exports to the US where computers and electronics particularly account for the largest share.
    • Similarly, somewhat 0.8 and 0.7% of outputs of South Korea and Malaysia are linked with Chinese exports to US with the same industries in the crosshairs.
    • The trade war would impact South East Asia the most as it is the major trading partner to both the US and China.
    • The East Asian value chains are estimated to contract by about $160 billion owing to the tariff imposition on Chinese exports by US.
    • In contrast, North American value chain is expected to witness a shift in their production location from China to North American region to offset the negative impact of Chinese tariff. The North American region benefitting would be US, Mexico, and Canada.
    • European companies like BMW would also be impacted gravely as their production chains have roots in both the US and China. BMW, a German automobile company, manufactures its cars in the US and sells in China both of which are the main counterparties of the trade war.
    • International suppliers of the US firms, e.g., Boeing, an aircraft manufacturer, become the prime collateral damage bearers if China proceeds to cancel orders with them. Japan, UK, Italy, and Canada are the suppliers to the US firm Boeing.
  • Consequences for India:
    • The US-Sino Trade War has substantial implications for developing countries including India.
    • It is a high likelihood that an increasing US-Sino trade tension can transform into dumping of Chinese goods in Indian markets at predatory rates (US-China trade tensions may lead to dumping of Chinese goods in India: Ind-Ra,2019).
    • This diversion of Chinese exports to developing economies would severely disrupt demand–supply dynamics in Indian domestic markets, particularly for products such as iron, steel, organic chemicals, and electronic goods.
    • Furthermore, India is not even in a position to benefit from the trade war of the US with China as the nature of commodities exported by India is not the same as that of China to the US.

What can be done by India?

  • India has a rapidly widening trade gap with China. Ongoing trade war could be an opportunity for India to reduce it significantly.
    • After the decrease in exports from the United States, India can export surplus agricultural products such as soybeans to China.
  • As it seeks to replace the US hegemony of technology firms, India could become China’s software industry partner. India needs some solid pegs to pitch to China, and India’s software industry has the potential to advance.
  • Growing trade tensions between China and the United States could boost Chinese investment in India.
  • After China’s products were restricted from entering the US economy, India could look at ways to meet the US’s demand for goods. According to a study released by the United Nations Conference on Trade and Development,(UNCTAD) only around 6% of the $300 billion in Chinese exports subject to US tariffs will be picked up by US businesses . India, as well as other countries, will benefit from this.
  • If Chinese exports to the US slow down, India may be able to increase its clothing, garment, and gems and jewellery exports to the US.

Conclusion:

The greatest trade war in economic history can result in a change in the international trade architecture, slow-down of financial markets. The China’s government in its turn has a goal to achieve leadership in robotics, biotechnology and artificial intelligence. It will provide financial support to high-tech industries, and will do everything possible not to let the US stop or slow down the modernization and digitalization of China’s economy. The US protectionist attack on their trading partners, especially on the People’s Republic of China, has a political dimension in addition to its economic dimension. China is designated by the US leaders as the US’ chief strategic rival in the future. Therefore, various constraints of trade with the US and other ways to slow down China’s economic growth are also tools for slowing China’s political power growth.

Mains oriented question:

U.S protectionist policy to the US first had made many changes in the global economy, which gave a boost to trade war between China-US, what are its global consequences. Explain in detail. (200 words)