Donald Trump is the 45th president of the United States and he is now currently holding the office. Trump started as a business man but he participated in the 2016 presidential Campaign as a candidate from Republican Party. ‘Make America Great Again’ is a campaign slogan that he used recently. Trump may be go back to the time that America was respected and feared in the world. The president Trump focused on renegotiating trade agreements and reducing the trade deficits to protect their people, companies, workers, and national interests. The policies that Trump used are significant from others. Earlier, the United States focused on other states’ problems and about helping them but Trump thinks that these can affect their national interests negatively. Therefore, he decided to emphasize their national interests and recovery for more.
The economic relation between the United States and China is one of the strongest ties in the world and the benefits that get from trade are enormous for both. The Chinese market is the best opportunities for companies from the United States because the population of China’s middle-class is nearly the United States’ population and this can serve as a customer base for economic growth of the United States. And the relations between two made job opportunities for nearly 2.6 million American people. The United States is also a place for Chinese exports because of their cheap products that reduce inflation and China also buys goods and services from the United States. Many nations have the closely relations in trading with China because of its huge market. The major factors that can cause the rapid rise of China is the trade relations with the United States since 1979 and its accession to the World Trade organizations in 2001. In 2000, the former president Bill Clinton signed ‘US-China Relations Act of 2000’ and he paved the way to join the World Trade Organizations in 2001 and then China became the 2nd biggest trading partner after Canada in 2006. After entering WTO, the Chinese low-cost labor and resources became the interest for manufactures from the United States and they heavily invested for global markets. During the former president Barack Obama’s administration, he expressed that ‘the relationship between the United States and China is the most important bilateral relationship of the 21st century’. When the economic ties more increased between both, the imbalance trade benefits increased too and these cause worry to the leaders from the United States due to lots of deficit. They also worry about the over dependence upon the Chinese imports and unfair policies between them.
Donald Trump’s Economic Strategy
Republican Donald Trump is the 45th president of the United States. His first term is from 2017 to 2021. Trump’s economic plan focuses on ‘making America great again’.
The economic policies of Donald Trump include trade protectionism, immigration reduction, and individual and corporate tax reforms. In late September 2017, the Trump administration proposed a tax overhaul. The proposal would reduce the corporate tax rate to 20% (from 35%) and eliminate the estate tax. On individual tax returns it would change the number of tax brackets from seven to three, with tax rates of 12%, 25%, and 35%; apply a 25% tax rate to business income reported on a personal tax return; eliminate the alternative minimum tax; eliminate personal exemptions; double the standard deduction; and eliminate many itemized deductions (specifically retaining the deductions for mortgage interest and charitable contributions). In October 2017 the Republican-controlled Senate and House passed a resolution to provide for $1.5 trillion in deficits over ten years to enable enactment of the Trump tax cut. Trump has also made his anger with China over trade well known, arguing that since China joined the World Trade Organization, Americans have witnessed the closure of more than 50,000 factories and the loss of tens of millions of jobs. He wants the US government to label China a “currency manipulator” and has lambasted the rapidly growing Asian economy for “unfair subsidy behavior.
Trump has also supported lower corporate taxes, proposing to cut the business tax rate from 35% to 15%. Economists expect that Trump’s plans for tax cuts across the board will mean the US taking on more debt as its deficit – the gap between spending and income – swells jobs and growth. Unemployment in the US has dropped below 5%, a good record on the surface for Obama. He has promised to increase employment, saying his plans for lower taxes, trade barriers and tighter immigration rules would lead to stronger economic growth. As with the deficit, many economists warn his plans could make things worse not better, hindering economic growth and thereby employers’ ability to create new jobs.
Trump has indicated he would promote coal, shale gas and oil and there are worries he will curb investment into renewable energy sources as well as funding for the Environmental Protection Agency. He has pledged to scrap regulations for America’s coal industry, a stance that won him the beleaguered sector’s support. It gave around $223,000 in support of Trump, compared with none for his Democratic rival, Hillary Clinton, according to a Reuter’s analysis.
China’s Opinion on the Donald Trump’s Trade policy
China’s trade war with the U.S. couldn’t have come at a worse timing for China, which had just begun focusing to fix its debt situation. It will be relatively muted on the Chinese economy and exports to the U.S. do not hold a commanding presence in China’s economic portfolio and indirectly effects could lead to large collateral damage. China’s banks extended a record 12.65 trillion yuan in loans in 2016 as the government encouraged credit-fueled stimulus to meet its economic growth target. The depreciation of the yuan would offset the loss in export competitiveness for Chinese exporters due to higher tariffs. Over the last 15 years, whenever credit growth has risen more than warranted it has fueled concerns over financial stability and that has seeped into depreciation pressures on the currency. The credit explosion stoked worries about financial risks from a rapid build-up in debt, which authorities in 2017 pledged to contain. The rising tensions in the US-China trade have raised concerns about the strength of external and domestic demand in the second half of 2018 directly and indirectly on services such as logistics, wholesale trade and trade finance as well as on business sentiment and investment.
China and the United States escalate their trade with Tit For Tat tariffs and it has a great impact on the global economy. China said that ‘it has been forced to take a necessary counterattack’. And China also criticized US for trade bullying and warned that the tariffs could start worldwide market unrest. As a response to US’s tariff imposing, China warns its travelers to the United States for the issues such as high medical costs, the possibility of gun violence and robberies, seizures by border agents and natural disasters. On July 6, Washington imposed the first wave of tariffs on $34 billion worth of Chinese goods. China responses immediate retaliation by imposing tariff on the exports from US. The list of import tariffs include especially crops such as soybeans, wheat, corn, sorghum as well as pork. Therefore, unless the problem between China and US has been solved, the global agricultural trade would be disturbed as both of them are key players in global trade. As a result for the US, the tariff would lead to the annual losses of $1.5 billion to $3 billion in export revenue. Moreover, US domestic prices would fall by nearly 4 percent and production would decline by 1.6 percent. The soybean exports from US to Chins has been reduced from 17 million metric tons to 32 million tons. Instead of US, Brazil supplies most of the soybeans imports along with the other countries. On the other hand, As the China is the main importer for US’s sorghum, US domestic prices for sorghum fall by more than 10 percent because US has to highly depend on Chinese demand. In response to the latest US duties, China increased its tariff to 25 percent leading to a total of $50 billion worth of goods from each side. The latest tarrif from China includes 333 categories of US products. According to recent data, the US trade deficit with China amounts to $375 billion. In contrast, the US services trade surplus with China is $38 billion. So China has planned to take advantage upon services but it said China will not be the first to do so. From this bilateral trade war, the one who benefits would be the counterfeiters from China. As the brands imported from US become expensive for the higher tariffs, the customers start to favor more the same technology products but cheap. Anyway, this problem become a lose-lose situation for both countries as well as for the global market. So an open, fair, and transparent trade system is a prerequisite to avoid this disadvantageous impact on all over the world.
Current issue; US’s Trade policy and its effect on world currency market
The immediate impact right after the announcement of tariffs on aluminum and steel was the dollar of Canadian has dropped by 15 % from the usual stage which was measured against pounds and euros last year. Similarly, Peso of Mexico has notably de-strengthened right after this news. According to the assumption in July of 2018, the value of Rupee has fallen as the trade between US, China and India has risen since 2005. This trend of high tariff will create a destructive impact on the trade deficit in India. This goes effects on the Asian countries too. Many Asian economies produce intermediate goods and export them to China where these goods are assembled and finished in China and then export to final destination countries mainly US. The recent trade policies between China and US have significant implications on major Asian countries like South Korea, Singapore and Taiwan and the declining of their currencies started to happen currently.
In addition, the goods and raw material shortages will be increasing accordingly with the high tariffs while the burden of tax in every step of production may bear at the final consumer. John Normand, the head of cross-asset strategy stated that this materialistic war can leave a slow global growth of 0.4%. The very recent effect was EU lost $3.2 billion worth in June whose 25% is from vehicles and peanut butters. “Trumponomics will cause the destruction of more than $1trillion in market value” assumed by Mark Kolanovic.
On the other hand, the Commerce Department believes that this trend can help the trade gap in future as it has dropped 21% since September. Furthermore, the second quarters will strengthened the local manufacturing and consuming.
Currently, the United States tariffs on trade goods and investment restrictions has shaken China’s increasing economic process. The US trade penalties and prohibition of technology are adding more complications to China even after the global financial crisis in 2008. Now, Beijing has been in edge of struggling as it has been trying to reach the same position of the US in technology. Moreover, the US President Donald Trump’s America First ethos and policy changes has significantly and directly impacted on China’s companies which rely on US markets. Most of the China trading companies have been bankrupted because their export products have already been produced so, high tariffs on their export products and being unable to pay their costs so that not exported them, be wasted and the great loss became unsolvable problems. On the other hand, as this changes targeted for reducing most imported products of the US especially on China therefore, US has almost nothing to lose but US’s today GDP even increased than the past. Since China’s purpose of development plan of technological has threatened the US, if China still planned to improve it, this will be the long journey conflict with the United States.
Implications of Trade War on Global Economy
A full-blown trade war would affect global economic growth because of lost business confident, reduced trade volume and supply chains disturptions. The trade war that U.S. President Donald Trump started will reshape the global economy. US – China trade war is creating new momentum for the EU and Asia to speed up their markets to make closer economic ties. This will lead to even faster growth in trade between the EU and Asia, accompanied by rising investment. A new sense of urgency has rinsed to fast track regional free trade agreements. Within Asia, the Regional Comprehensive Economic Partnership is being prioritized as a major step toward Asia’s economic integration. A direct consequence of the trade war is faster and wider economic integration outside of the U.S., accelerating the shift of the global economic center of gravity towards Asia. Their tariffs against each other’s exports will come down as Europe and Asia forge closer economic ties. Businesses operating in these increasingly open markets will have to adapt to intensifying competition. The network of global supply chains will expand and become more productive across Europe and Asia. The Bank of England has done some simulations and estimated that a full-blown global trade war could end up hitting global GDP by 2.5 per cent over three years, and the UK economy would suffer a 2% hit. The Washington-based organization said the current threats made by the US and its trading partners risked lowering global growth by as much as 0.5% by 2020, or about $430billion in lost GDP worldwide. The current outbreak of confrontation may drag down the rest of the world.
Both the US’s and China’s initial round of tariffs against each other are designed to sting deeply. The US is targeting high-tech Chinese goods to put economic pressure on Beijing’s “Made in China 2025” program — a Chinese government initiative to transform China into an advanced manufacturing powerhouse. And China has deliberately targeted big US agricultural exports like soybeans that come from states in the heart of Trump country, where neither the president nor his party want to see economic instability or job losses right before the 2018 midterm elections.
So does this mean we’re officially in a trade war with China? It depends. Countries get into tiffs over trade all the time. To sort them out, they can go to the World Trade Organization and have them decide who’s right and who’s wrong; they can negotiate directly with each other to strike a deal; or they can just impose unilateral tariffs on each other’s goods. That last scenario is the one that has the potential to turn into a trade war. If two countries take one-off strikes at each other’s economies then it’s not a huge deal. But if the tit-for-tat continues, with each country putting more and more tariffs on one another, then you’ve got a trade war. Given Trump’s threats to keep the tariffs going, that seems to be what’s happening here.