Causes and possible consequences of the us china trade war

Causes and possible consequences of the us china trade war

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  CAUSES AND POSSIBLECONSEQUENCES OF THE US-CHINA TRADE WAR By Tekler Huseyin IBW2017539015 A Term Paper Submitted in Partial Fulfillment of the Requirements for the Topics in International Trade and Trade-Related Finance Course for the Master’s Degree in International Business at the University of International Business and Economics, 2018 BEIJING, CHINA Lecturer: Prof. Dr. Xiaoming Cong
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  ii Abstract When we lookat the history of the known humanity, it appears that people started living in communities and that private property has emerged due to the progress of historical conditions. One of the consequences of this outcome is that world history is the scene of many wars and destruction. When it comes to war, it is armed struggles that take place between countries or political groups that come to mind first. Looking at this perspective, we see that the historical development process is also seen as the great majority of battles take place as physical battles, but it has become possible to say that, with great physical battles, technological and economic developments, sword-fighting and armed wars have begun to shift to economic and cultural wars. This new form of war has begun to take place on the stage of history on the basis of economic instruments. As an example of economic warfare, protectionism can be shown by countries in the direction of their own economic interests. It would not be wrong to say that the currency wars and the wars of trade that brought about by the protectionist policies of the countries, especially in the crisis period, will be the most important economic problem of our time. Throughout history, all wars have led to great destruction, and generally underdeveloped countries and poor countries have been affected by these destructions, and it is not wrong to say that the economic wars, as well as physical wars, will effect the least developed countries and the poor countries. In this analysis, in the light of the historical background of protectionism, a trade war and the possible consequences of this war, which could be caused by the mutually elevated trade walls of the US and China, were examined.
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  iii Contents 1. Introduction……………………………………………………………….1 a. Tradewar history and protectionism………………………………1 b. Tariff……………………………………………………………….2 2. USA’s economic review………………………………………………….2 3. China’s economic review………………………………………………....4 4. US-China competition to evolve into a trade war…………………...……8 5. Who would benefit from a U.S.-China trade war?......................................9 6. Who would lose most?..............................................................................10 7. Conclusion……………………………………………………………….11 8. References…………………………………………………………….…12
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  1 1. Introduction Nowadays thereis a trade war on the world agenda. Especially, because of that, the US has put high taxes on steel and aluminum imports in the recent period, the issue getting more popular. The countries are trying to develop their policies in this framework. Because they do not want to trigger a risk. In fact, IMF President Lagarde even said that "there will not be a winner in the trade war". But there is a term that is not expressed much in these discussions. 'Protectionism'. The real reason for the trade war. The Trade War is one of the most potent consequences of conservative economic policies. Generally speaking, it refers retaliation to the exporter country of the raw material, which places barriers with customs duty and quota on the entry of any raw material into the country. The global tension also increases with the increase in the provision of these missiles. A trade war between nations and states are as old as history. In fact, human societies have long since competed with each other on economic interests. Some of these rivalries even led to wars and people being massacred. Historians declare a reason for the first world war as the commercial rivalry between Britain and Germany and the reason for America to enter the second world war in the form of commercial rivalry with the Japanese empire in the East Asian region. After the Second World War, the superpowers invented institutions like the IMF, the World Bank, and the WTO to prevent trade wars from turning into military wars. However, since that day, the great economic forces have repeatedly entered a trade war with each other. Taking into account the stagnation in the US economy, the expectation is that China will become the world's largest economy over the next 10 years, up to 15 years. China, with an annual ARGE budget of more than 200 billion dollars and have 300 thousand of Ph.D. level engineers, not only as the leader of the Asia Pacific region but also aims to become the leader of the world economy, which accounts for one-third of the world economy. In the last few years, this context has been on the agenda with the New Silk Road Project. Also referred to as "One Belt, One Road Project", the project aims to link Asia, Europe, and Africa through trade. The project, which is a whole with marine, land and rail networks, will eventually affect two-thirds of the world's population, one-third of the economy. a) Trade War History and Protectionism After financial and economic crises, generally, countries try to change their current economic and strategic policies to adapt to the new situation. After the recent global financial crisis, protectionist trade policies, which countries have been dreaming of with political and economic goals, have become more visible on the agenda. The presence of an increasing level of protectionism, especially in the G20, is striking. The widespread belief that, after the crisis, economic indicators worsened further and that the effects of this situation began to be felt by the countries well, international agreements and protective measures that damaged the basic rationale of free-market economics would be a salvation bill for many countries in the long run. Competitors have to resort to similar protectionist policies against the protective measures that some competitive countries have engaged in, triggering restrictions on trade restrictive measures. These practices, which have led to the contraction of world trade, are also spoken of as "beggar thy neighbor, enrich yourself" strategies. During such crises, national governments try to gain an
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  2 advantage by defyingsafeguard measures against their main rival. When we look at the history of crises, we can often come across different examples of these conservative policies. When we look at the development process of the world economy, protective trade policies are seen that the critical thresholds of almost all of the industrialized countries' development stories. The history of the global economy and politics shows that after a very serious crisis, countries often tend to put into practice of protectionist politics and state interventionism. The financial and macroeconomic crises in the world system are triggering countries to resort to protectionist measures and world trade is also slowing down. The countries which are interventionist while having a liberal stance on the international plenary are expressed in the literature by "Keynes in-Smith out" or "Keynes-inside, Smith-outside" discourse. The USA, Germany, and Japan, which historically followed the UK as a "role model" among the developed countries in their protectionist practices, are the countries that are most intensely applying such policies. Today, the economically stronger developed countries can be the most ardent supporters of protectionism, leaving free-market advocacy when it comes to national interests. Especially in recent years, there have been frequent rising extreme right movements in the United States under the direction of Donald Trump, in the UK under the direction of Theresa May, and in different European countries. b) Tariff A tax levied on imports (and, sometimes, on exports) by the customs authorities of a country to raise state revenue, and/or to protect domestic industries from more efficient or predatory competitors from abroad. Customs duty is based generally on the value of goods or upon the weight, dimensions, or some other criteria of the item (such as the size of the engine, in case of automobiles).1 Customs tax is rarely applied in export products. This tax causes the product to be sold more expensive in the local market. It reduces the import of this product and the sales within the country. The gap created in the market encourages potential local producers to increase the production of this product. Domestic product is much cheaper than the foreign product because of the customs tax. A quota is an arrangement that determines the annual maximum amount that a given import product can be imported into a country. 2. USA’s economic review The United States has the biggest, most innovatively progressed, and most various economy on the planet. While the United States represents just around 4 percent of the total populace, its GDP is 24.5 percent of the world's aggregate monetary yield (Exhibition 1).1 The American economy is a free- advertise, private endeavor framework that has just restricted government intercession in zones, for example, medicinal services, transportation, and retirement. American organizations are among the most profitable and aggressive on the planet. In 1998, 9 of the 10 most beneficial organizations on the planet were American (even the non-U.S. exemption, Germany's Daimler-Chrysler, has a considerable piece of its activities in the United States). Not at all like their Japanese or Western European partners, American organizations have the significant opportunity of the task and little government control over issues of item advancement, plant openings or terminations, and business.
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  3 The United Stateshas considerable natural resources. These resources include coal, copper, lead, phosphates, uranium, bauxite, gold, iron, mercury, nickel, silver, tungsten, zinc, petroleum, natural gas, and timber. It also has highly productive agricultural resources and is the world's largest food producer. The economy is bolstered by an excellent, though aging, infrastructure which makes the transport of goods relatively easy.2 Despite its impressive advantages, the American economy faces a number of problems. Most of the products and services of the nation are consumed internally, but the economy cannot produce enough goods to keep up with consumer demand. As a result, for several decades the United States has imported far more products than it exports. This trade deficit exists entirely in manufactured goods. Exhibition 1:Gross domestic product (GDP) ranking by country 2017 (in billion U.S.D) (World total GDP 79.280,94 billion USD)
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  4 The United Statesactually has trade surpluses in agriculture and services. When adjusted for the surpluses, the US trade deficit widened to USD 566 billion in 2017. The trade deficits narrowed with China and Canada but worsened with Mexico. It is the biggest trade gap since October 2008 as both exports and imports reached a record high. The United States has been able to sustain trade deficits year after year because foreign individuals and companies remain willing to invest in the United States. The United States has been running consistent trade deficits since 1976 due to high imports of oil and consumer products. In 2017, the biggest trade deficits were recorded with China, Mexico, Japan, Germany, Vietnam, Ireland and Italy and the biggest trade surpluses with Hong Kong, Netherlands, United Arab Emirates, Belgium, Australia, Singapore, and Brazil. Mexico is the United States' 2nd largest export market and the 3rd largest supplier of imports. Today America is known as the world's largest economy. America has one-fifth of the world's GDP. On the other hand, no country in the world is suffering from trade deficit as America. The American people import about 800 billion dollars of products and services each year. There are some factors that lead to this, such as the endless consumption ambition in America, the decline of the quality of domestic products, the lack of competition with foreign products, and the application of mismanagement policies in the commercial arena. So every year America's trade deficit grows even more. Until half a century ago, the world's largest creditor state, with the most foreign exchange and gold reserves, has now become the world's largest borrower, and most owed to those economically competitive countries. Now President of the United States Trump who is the representative of national economic movement of the country is trying to get rid of this situation with populist slogans like "America First". And for that, he wants to break the relations what makes up the international economy in the first place and than start a trade war against economic competitors. But it is already clear that economists are doubtful that this tendency can be successful. 3. China’s economic review The People's Republic of China has become one of the dominant forces in world politics, especially in the last quarter of a century, along with the economic growth that it has caught up with and the increasing political and diplomatic weight. The country, which is described as "the factory of the world", is the world's second-largest economy with an economic size of 12 trillion dollars, following the US, which has an economic size of 19 trillion dollars. It is the world's largest exporter. It has the world's largest foreign exchange reserves and is the world's largest energy consumer. Among the world's top 1000 companies, the number of companies based in the US, UK, and Japan is decreasing, while the number of Chinese companies is increasing. The same is true for the top 10 companies in the world. The first three rows of the "Top 25 Companies of the Year 2016" list of Forbes magazine were taken by Chinese companies. Seven of the world's 25 largest companies belongs to the Chinese owners2 . China, as the locomotive of the world economy and the world's most populous country with a population of 1.4 billion, manages its economic power with embracing science and technology that fosters its soft power, strengthens the middle class and attaches great importance to the armed forces. China, one of the largest investors in a large area from Africa to Europe and Central Asia to the United States, has named the "new normal" to the sustainable and qualified growth plan it has
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  5 drawn on itsagenda as part of its latest 5-Year Development Plan. With the impact of the global economic crisis that began in 2008, China's growth rate has declined to 6.5-7 percent from the 9-10 percent band, with the country giving priority to domestic consumption and public investments, the country has compensated this trend. Increasing the share of the service sector in the economy, environmentally compatible industrialization, economic growth, urbanization and energy politics; production and export involving advanced technology; high value-added products; an industrial strategy based on innovation has come to the forefront. Within this scope, important regulations have been made and are being made in public administration, banking, and finance sector. In China there is a system of socialist economy that the state is planning, directing and coordinating. In China, whose practices are explained by state capitalism, the claim of public ownership over the means of production is steadily declining. The important names of the Chinese Communist Party, party- connected organizations and the state have a stock share on private corporations. China is also taking important steps in regard to IPR, taking into account the global economic order and harmony. And now America is using IPR issue as the reason for the trade war against China. Tax reform, reform of public institutions and organizations, fight against bribery and corruption, fair competition conditions, strong legal order, privatization of state banks are also on the agenda. Taken measures and the result of advanced technology orientation, energy is used more efficiently. Iron, copper, coal demand has decreased a little. This decrease has adversely affected countries and companies that sell energy and raw materials to China. As China moves from less productive industries to more productive industries, the urban population is increasing, and health and education are spending more. The service sector is also developing. We know that since 1970, priority in reform and openness in China has been to increase exports and attract foreign capital. These targets have been reached to a great extent. However, with the global economic crisis of 2008 foreign investment from abroad to China has decreased. As foreign demand declines, China's exports also decline. China then changed its growth strategy based on exports. 'One Belt One Road Project', 'New Normal Strategy', the promotion of income distribution correction, the acceleration of economic-bureaucratic reforms, the harmonious growth of environment and industrialization are products of the new strategy that stands out with the global crisis. It should be emphasized that poverty and unemployment are still a major problem for China, whose population is middle and upper class. China has given high priority to railways, ports and sea routes while making economic and diplomatic attacks. Two of the three largest ports in the world are in Shanghai and Hong Kong. China is also ambitious in shipbuilding, maritime fleet, and fishing. The logistics sector, which is an essential part of global trade, is one of the areas where it is most ambitious. The fact that China buys or builds many ports outside of China is evidence of this claim. China is the world's biggest steel producer, with a share of 50 percent in steel production. It is the third biggest player in the maritime transport sector after Greece and Japan. The Asian Infrastructure Investment Bank3 , which was founded by China with $ 100 billion in corporate capital, allocates $ 15 billion a year to infrastructure investments. Again, the Silk Road Fund, which is a dream come true with its Chinese leadership, also has a $ 40 billion source in its first phase. Both organizations will provide resources, especially for large-scale infrastructure projects. In Asia Infrastructure Investment Bank, established in 2014, China has put half of its capital in China. By March 31, 2015, the applicant countries were accepted as a founding member. No member of the bank has the veto power. The representation rate is determined on the basis of the GNP4 of the countries. As
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  6 new members join,it is anticipated that the share of old members will decrease. In this respect, the Bank is separated from the institutions such as the IMF and the World Bank. Because the influence of the United States is strong in these institutions. Participation of new members or the growth of the economies of existing members is not reflected in the functioning. The Asian Infrastructure Investment Bank, which has 57 founding members, has taken the projects to expand the transportation network and coordination in customs. It will help investments in ports, civil aviation, logistics services, financial institutions, and advanced technology. China also has supported the BRICS5 Development Bank and the BRICS Business Council, both of which BRICS countries co-founded. The share of BRICS countries in the world population is 45 percent. Its share in the world economy has exceeded 20 percent. Total foreign exchange reserves have approached 4,5 trillion dollars. China and Brazil have deactivated the US dollar in trade between them. With these steps, China is bringing both Asian economies and developing countries' economies closer together, as well as being an investor it increases its political and diplomatic influence. China, which aims to be get invested 1 trillion 250 billion dollars by 2024, and aims to realize these investments especially from Asia, Africa, and Latin America. In this way, the aim is to increase the soft power in the countries. Despite all the commination of the United States, major European countries such as Britain, France, Germany and Italy, as well as South Korea and Australia, its close allies in the US, have joined the Asian Infrastructure Investment Bank. China is also influential in Australia, a member of the British Nation Society, which is known as the extension of England. It is the largest buyer of precious metals sold by Australia. China is not only influencing the economy of this country but also its social and cultural life. In Australia, China has a wide range of investments fields, from banks to real estate companies, industrial facilities to sports clubs. In response to these steps of China, In response to these steps of China, Western countries present the rise of China as a fear subject to their public opinion. The reaction to China fuels the rise of Chinese fear. it is thought that in many countries the global power balance has changed in favor of China, China will eventually take over the United States and become a superpower. China's relations with the US are stressful in the political sense and strong in the economic context. Economically it is almost interdependent. The country that the US owes most is China. China has $ 1.2 trillion in US bills and bonds in its hands. There is huge scale trade between the two countries. Approximately 250 thousand Chinese students are studying in USAUS President Trump has telephoned the Taiwanese leader, contrary to diplomatic practices, to send a message to China shortly after coming into office in 2017. He deliberately raised tension against China, criticizing China's economic policies. He even explained that he could open a debate on even One-China6 policy. China has opposed the protectionist trade policies that the US brought to the forefront. It defended free trade. Chinese leader Xi Jinping has said: “The main reasons for global problems, such as the international financial crises, are not because of the globalization but because of the countries that pursue excessive profits. Protecting policies is like closing yourself in a dark room. In this case, you can protect yourself from the wind and rain. But at the same time, you will be insulated from air and light.”7
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  7 Exhibition 2 :Major Foreign Holders of US Treasury Securies (Billion USD) In the military sense, the US is not strong enough to fight China alone in the Asia Pacific. For that reason, US is trying to develop new alliances, especially after 2010, to surround China with its regional allies. It has given new duties to his allies in the Middle East and to the terrorist organizations he has subcontracted. The United States is pushing the countries of NATO which reduced the masses in this region to some extent; has mobilized two-thirds of the sea power to surround China. The United States supports Japan in its dispute with the Senkaku / Diaoyu islands between Tokyo and Beijing. At the same time, the US is improving relations in the military field. On the other side, Japan is also strengthening its army, give weight to take armaments up. It is not possible for the United States and Japan to take a military step against China, even if they are nervous about the friction in the Sea of Japan from the moves they have made in the Pacific. Against these attacks of the US, China has responded by taking regional moves and the strategic alliance with Russia. The US also anxious about that China increases its political, economic and even military weight in Africa, Latin America, Southeast Asia and the Middle East. China; while growing his defense budget, investing in warplanes and submarine technology, shows us it thinks that an army which only protects the homeland is not enough. The main purpose of these steps is; to have an army that is effective in the open seas and can protect its economic interests far beyond the borders. An army structured in accordance with overseas missions is in line with China's economic and political ascent. In short, China; aims to be a military force constantly updating its technology on land, air, sea, space, cybersecurity and nuclear level. China; it encourages scientific studies to be both an effective economic, political and technological power and to compete with the western world. It allocates huge financial resources for this purpose. About 500 thousand Chinese students are studying at abroad, and more than 250 foreign students are studying at universities in China. Most of them are young people from Asia and Africa, as
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  8 well as youngpeople from Europe and the United States. “From the beginning of the 21st century until now, no country has captured the number of scientific articles produced by Chinese scientists. Numerous Chinese universities, such as Tsinghua and Peking universities, are among the most respected research institutions in the world today. According to Thomson - Reuters, the volume of scientific publications in China climbed from 20000 in 2000 to 13000 in 2010. China is the second largest producer of scientific publications following the United States. It is predicted that it will be the largest scientific information producer in the world in 2020. Especially in the field of chemistry and material science is unrivaled.”8 When all the developments are taken into consideration, we see that the world is going to prefer China's soft power rather than the hard power of the United States. The US which is extremely uncomfortable with this change, it chooses to resort to a trade war that can be very damaging to the world economy. 4. US-China competition to evolve into a trade war After the meeting with American steel and aluminum industry executives, US President Donald Trump announced on March 1 that he plans to apply 25 percent of customs duty on steel imports and 10 percent of customs duty on aluminum imports. Given that the US is the world's largest steel importer, this is a very important decision for the global economy. Moreover, this decision can affect not only the potential competitors like China but also the traditional allies of the US. It is not yet clear whether the Trump administration will be able to exempt its allies like the EU and Canada from this customs tax. However, many countries are already explaining that if they are affected by this tax, they will be on the same schedule as the exported products of the USA. For example, European Commission President Jean-Claude Juncker said the EU is working on a retaliatory list, and Harley-Davidson motorcycles, American whiskey and jeans are in the EU's potential tariffs. Why did the US put customs duty on steel and aluminum? Both raw materials are widely used metals in the whole production economy. For example, they are widely used in automobile, aircraft and machinery equipment production. They are used in construction, petroleum and infrastructure services, pipe and cable lines and construction skeletons, and even the food industry is used them in the production of canning and beverage can. One-third of 100 million tons of steel consumed in the US each year and 90 percent of 5.5 million tons of aluminum are imported from outside the country. The stated purpose is to increase the domestic production by protecting the domestic aluminum and steel industry. According to the theory, the American steel and aluminum industry, which has been dying for many years, will be revived with this decision. After the price of exported aluminum and steel is automatically increased, aluminum and steel demand will go to local producers and they will increase their production. Will this decision really be beneficial to American producers? Both yes and no. American steel and aluminum producers will surely see great benefit. But it is unclear whether they have the potential to meet very large demands. As a matter of fact, even the Aluminum Association, an association of American aluminum producers, considers that a certain
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  9 amount of aluminumimports are necessary. Union spokesman Matt Meenan explained that American aluminum production could meet more requests today but not all the demands. Aluminum representatives argue that customs duty should only target China, not Canada and the EU. It is also noted that aluminum imports from the EU and Canada also generate substantial employment in the United States. The Trump administration has announced the expected list of items for which it has declared that it will bring additional tax on the grounds of infringement of intellectual property rights and technological harm. Immediately after that, China responded with a list of US goods that would be subject to additional tax as a reaction. According to 2017 data, the commercial value of both lists are around USD 50 billion. It accounts for 10% of China's exports to the US and 40% of the US exports to China. However, the publication of mutual listings does not mean that a trade war has just begun. The list announced in the US is being opened to the public opinion. The list will be finalized according to the views gathered until May 22, followed by implementation regulations. China's list will come into effect if the US implements its list. So these are the first steps of a bargaining process, the parties show each other their trumps; there is still time for the agreements. But the possibility of a permanent deal is also very low. Trump management shows the USD 375 billion in the trade deficit with China as the reason for the trade war, but the main problem is China's increasing technological competition. In the US Security Report issued several months ago, China's technological growth seemed to be perceived as a risk for US.9 We can understand this concern of the US administration by looking at the development of China's solar energy systems manufacturing industry. Market share of Chinese producers in this sector was around zero at the beginning of the 2000s, but rose to 60% at the end of 2010, during this time the price of these systems dropped to about a tenth.10 It was not related to cheap labor because physical production in this sector requires very low levels of the physical labor force, the sector is a knowledge and capital-intensive sector. Chinese producers have done this with abundant financing possibilities, scholars, and entrepreneurs who have been trained abroad. For the United States, the likelihood of it being repeated in other sectors is perceived as a great risk.11 For this reason, the US is anxious about China's 2025 program, which the country's government announced in 2015, is expected to make similar developments in areas such as new information technologies, aviation, and space, robots, electric cars, new materials, biological drugs up to 2025. In recent years, In recent years, Chinese technologists and scientists have played a leading role in the field which ranging from artificial intelligence to quantum communication, and this development reinforcing the US’s concerns. 5. Who would benefit from a U.S.-China trade war? Although it may have devastating consequences for the world trade, it will be profitable for some players as it is in every war. If we were to sort them; 1. International companies that compete with American ones could see a sales bump.
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  10 2. Airbus couldgain from Boeing's loss of sales to China, although Boeing might make up for the loss of the Chinese market by diverting to India and the Middle East, says Duesterberg. 3. Japanese carmakers could benefit if retaliation slows American auto sales in the Chinese market. 4. Latin American exporters of soybeans could partially satisfy China's demand for the product as Beijing turns away from American farmers, but it's unclear whether there's enough growing capacity in South America to replace the U.S. as a source, according to Duesterberg. 5. Soybean exporters: Beijing’s new 25 percent tariffs on American soybeans – the United States’ single most valuable export to China, worth US$14 billion annually – will be a boon for other exporters of the grain, like Brazil and Argentina. China is the world’s largest buyer of soybeans, importing 60 percent of the traded crop, which it uses primarily for animal feed. With US soybeans set to become more expensive, Beijing would likely turn to other markets, including South America. Agriculture, that’s one area where it’s pretty evident China would use to hit back at Trump, said Allan von Mehren, economist at the Denmark-based firm Danske Bank Markets. On the other hand, Artyom Lukin, an international politics expert at Far Eastern Federal University in Vladivostok, said Russia might also be able to make up some of the shortfalls in supply of soybeans. 6. Pork and plane suppliers: China’s efforts to hit back at US pork products – with the US$3 billion worth of tariffs announced earlier this week – could be good news for alternative suppliers, like Germany, Spain, and Denmark, von Mehren said. Lukin said that Russian pork producers might also benefit from a slump in sales of American meat. 7. Steel importers: The tariffs imposed by the United States on steel and aluminum imports could benefit other buyers of the metal, including the Philippines, as China sought to divert its supply to other markets it could be expected to trim its margins. 6. Who would lose most? It is a fact that this trade war will harm the economies of all countries, especially the USA and China, in the long run, and it will slow down the economic growth of the world. Countries where the first effects of the war will be observed as follows; 1. Asian economies engaged in intermediary trading between China and the US will face the brunt of the impact of the trade dispute. U.S. allies in the Far East like Japan, South Korea, and Taiwan that are deeply integrated into the manufacturing processes of high-end consumer products like smartphones. Japan and South Korea, for example, are big exporters of integrated circuits to China, where they get used in the final assembly of electronic devices which are then shipped to the U.S. and other countries. As one of the world’s largest exporters Japan could also be at risk. The country shipped almost US$700 billion worth of goods last year, and China and the US were its top trading partners. Its major exports – cars, computers and electrical equipment, as well as iron and steel – have all been in the crosshairs amid the Sino-US tensions. Mainland
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  11 Chinese companies currentlyimport about US$200 billion worth of microchips a year, most of them from South Korea, Japan and the self-ruled island of Taiwan. However, if Beijing wanted to make concessions to Washington, which has called for China to reduce its trade surplus with the US by US$100 billion, it could do so by boosting its purchases of American chips, according to a recent report by Financial Times, citing people familiar with the matter. 2. European companies whose production chains have roots in both the U.S. and China are at risk. One example is BMW, a German carmaker that manufactures its automobiles in the U.S. and sells them to the Chinese. Beijing's retaliation package includes action against U.S. autos. International suppliers that work with American companies like Boeing, one of China's targets, could feel the burn if Beijing starts canceling orders and Boeing, in turn, slows down production. Boeing has suppliers in Japan, Italy, the U.K. and Canada, Thomas Duesterberg, an international trade policy expert at the Hudson Institute, tells Axios. 3. American farmers, who are the targets of China's proposed soybean tariffs, will be hurt as they lose access to the Chinese market. 4. Chinese and American consumers, who will see higher prices if tit-for-tat tariffs keep escalating. China, the world's largest consumer of pork, is targeting American pork and soybeans, which are often used to feed pigs in China. As prices for both those products rise, it'll be more expensive to eat pork across China. 5. Hong Kong: Another economy at risk is the semi-autonomous Hong Kong, which is a gateway for much of the trade that flows between mainland China and the US. Paul Chan Mopo, the city’s financial secretary, has warned that the rising trade dispute could affect one in five jobs in Hong Kong, citing US tariffs on solar panels and washing machine imports in January, then steel and aluminum last month.“Free trade is an important foundation of our success,” he wrote in a blog post. “Trading and logistics is a pillar industry of Hong Kong, contributing to some 22 percent of GDP and employing some 730,000 people.”12 7. Conclusion Since China's technological development is regarded as a strategic risk for the United States and indispensable for China, it is unlikely that the problem will be permanently resolved. President Trump does not seem to be able to make such a decision on his own since major corporations in the US are playing an active role in economic policy. Therefore, Trump is more likely to accept an agreement that highlights trade issues, but this agreement will not be long-lasting. The possibility of temporary reconciliation is also extremely low, given the dynamics of domestic politics in the two countries. How things develop if there is no agreement? The list of Trump management was expected to cover the advanced technology sectors covered in the Chinese Commodity 2025 program. But, except for labor-intensive sectors such as textiles and shoes, the list covers almost all industrial products from simple chemicals to steam boilers. In this case, the US seems to be targeting the Chinese industry in its entirety. However, since these products are also an input for the US industry, it
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  12 seems that theUS is implementing a wrong tax policy which will increase production costs and weaken the competition power of their producers. Trump seems to be taking a great deal of risk. The success of the US with this approach can only be achieved by forming a broad coalition within a similar framework of the Trans-Pacific Partnership agreement. That also does not seem very likely, since Trump distracted his potential partners with the "US First" approach. If Trump goes this way, the chances of success of the United States seem low. Failure of the first move may lead to mutual additional moves and deepen the conflict. If the problem really grows, the US and China can try to attract some countries to their side. Trump could ask the EU to take a stand against China. The EU's exemption from steel and aluminum taxes is to keep the support of the EU countries in the complicated process. China is a country that needs more support from the international community than the United States. It is unclear which party will take support from the UK, which has recently approached China. US ally India economically needs China’s support. Chinese technology companies such as Baidu, Alibaba, Didi, Alipay have made very serious investments in India. India is very good in terms of software, but they do not have as much capital as China, China has both money and experience. The Indian and Chinese markets are very similar due to their high population. India has to use the experience of Chinese technology companies. There is also an important opportunity to learn about technology for Indians.13 But if a trade war emerges, we still do not know that India will support which country. There is a lot of disagreement between China and India that originated from borders. The greatest loss for the US would undoubtedly be to loss of India. If a trade war between the two countries does escalate, it won't just be China and the US losing out. The wider Asian region could suffer too, simply because of how integrated global supply chains are. Countries in Emerging Asia export more to the US than most other emerging markets, and more generally have been among the biggest beneficiaries of globalization in the world. Any moves towards protectionism would deal a blow to the region’s most trade-dependent economies such as Singapore, Taiwan, and Vietnam. Such a trade war will do a great deal of damage to the world trade system with a chain effect.
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  13 8. References 1. http://www.businessdictionary.com/definition/customs-duty.html 2.www.sozcu.com.tr/2016/ekonomi/dunyanin-en-buyuk-sirketleri-2016-1261187 3. https://en.wikipedia.org/wiki/Asian_Infrastructure_Investment_Bank 4. https://en.wikipedia.org/wiki/Gross_national_product 5. https://www.investopedia.com/terms/b/brics.asp 6. https://en.wikipedia.org/wiki/One-China_policy 7. Economic development is for people, Aydinlik, 18.01.2017 8. OKSAY, Reyhan. China is the new superpower in science, Cumhuriyet, Science, and Technology. 22.07.2011. 9. http://nssarchive.us/national-security-strategy-2017/ 10. http://www.nationsencyclopedia.com/economies/Americas/United-States-of-America-OVERVIEW-OF- ECONOMY.html#ixzz5CSg0yP9Z 11. https://tradingeconomics.com/united-states/foreign-direct-investment 12. http://www.scmp.com/news/hong-kong/economy/article/2139844/us-china-trade-war-would-affect-one-five-hong- kong-jobs 13. https://www.heritage.org/trade/report/saving-gatt-how-prevent-trade-war 14. Exhibition 1: https://www.statista.com/statistics/268173/countries-with-the-largest-gross-domestic-product-gdp/ 15. Exhibition 2: https://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticfaq1.aspx