The US-China trade war was escalated by the “Made in China 2025” strategy. While China attempted to become the world’s leading technological and economic super power, the nation’s foreign trade partners were slowly eliminated from the domestic markets. Subsequently, Europe, the United States and Japan lodged a complaint to the World Trade Organization (WTO) that China was restricting free trade. The WTO, however, failed to give an amicable ruling on the matter, forcing the United States to invoke protectionism strategies against China. The United States government hoped to avert the economic growth of China since, it stood to lose its position as the world leading economic super power. The protectionism strategies of the United States involved pro-growth policies such as the “America First”, tariff increments on China’s exports and vicious claims of intellectual property theft by China’s government. Trump’s administration also withdraws the United States from the Trans-Pacific Partnership and re-negotiates the North American Free Trade Agreement (NAFTA). The United States’ 25% increase of import tariffs on China’s exports received a similar retaliatory action from China. Although the manufactures in both countries were the first to experience the economic repercussions, the global economy would also be threatened by the actions of the warring countries. Furthermore, China introduced a state-led economic model that would drive the nation to self-sufficiency by producing innovative products to meet its changing demand. The United States soon realized that its technological hub, the Silicon Valley, was on the verge of getting surpassed by Chinese technology when Huawei unveiled its 5G technology. The United States responded by banning Huawei products and claiming that China’s innovativeness was driven by intellectual property theft. Even as the rest of the world is left to pick a side in the trade war, other nations recognize the imminent implication of global economic losses.
The United States and China are currently entangled in a power struggle as each country attempts to prove that their economic position and technological capabilities are the most superior in the world. In 2011, the European Union, United States and Japan filed a joint complaint to the World Trade Organization against Chinese trade practices (Kumar, 2011). The Chinese government had introduced restrictions on the export of rare earth minerals overseas, forcing foreign companies to relocate to China to avoid high import tariffs on raw materials. This strategy was aimed at putting China on the path of dominating the global manufacturing market and overtaking the United States as the world largest economy. In the filed complaint, the United States criticized Chinese companies for progressively conducting intellectual property theft of American products. Nonetheless, the complaint to the World Trade Organization resulted in a defensive move from China. In 2015, the Chinese government adopted the “Made in China 2025” strategy that would transform low-cost industrial production to highly advanced innovations and make China to be a superior technological power. China targeted the information technology, robotics, biotech and clean-energy sectors with this new strategy (Jie, 2018). Inherently, the “Made in China 2025” strategy would remove foreign technological products from the Chinese market so that domestic production could be boosted. In a retaliatory move that would protect domestic manufacturers, the United States government imposed high taxes on Chinese imports. Sadly, the trade war between the two superpowers bear dire consequences for the global economy.
The move by the Chinese government to control its economy created apprehensions among European and American manufacturers since it threatened the global export markets. The Chinese trade tariffs have downplayed the economic benefits of free trade agreements (FTAs), resulting in the struggle of multinational companies in the export market. Robinson and Thierfelder (2019) warn that the trade war between the United State and China will result in increased world prices, unpredictable changes in real exchange rates, trade diversions, capital re-allocation, decreased productivity and damages on intersectoral linkages. Both China and the US introduced trade tariffs that would reduce imports by inducing an increase in real exchange rates to levy high taxes on imports. The tariffs imposed on various sectors will cause the global markets to divert trade from the warring countries and/or increase the prices of their products to thwart the high tariffs. The increase in tariffs will also reduce imports of raw materials and exports of finished goods which will, in turn, decrease the productivity of multinational companies. Companies operating in sectors that have been levied high tariffs may be forced to reallocate their investments to alternative sectors, a move that will be costly for them. Ultimately, the effects of the high trade tariffs will be replicated in all economic sectors since they are interlinked through intermediate inputs (Robinson and Thierfelder, 2019). Kumar (2019) notes that the trade war between China and the United States is, therefore, intended to “reset China’s trading relationship with the world” and avert the potentialities of China’s globalization strategies. The election of Trump into office resulted in the introduction of protectionism strategies and attacks on the Chinese technological sector. This article highlights the escalation of the trade war, the strategies adopted by the warring countries and the implications of the trade war on the global economy.
The beginning of the 21st Century indicated a positive outlook in the trade relationship between the United States and China. Both countries signed the U.S.-China Relations Act of 2000, significantly increasing the trade between them (Council on Foreign Relations, 2020). The trade partnership was highly beneficial for China which became an economic super power. Initially, the United States congratulated China for its progress and urged the country to be a responsible stakeholder. However, the partnership between both countries resulted in a threatening financial predicament when United States’ debt to China rose to disproportionate amounts. In addition to the trade imbalance between both countries, the Chinese government introduced trade restrictions that had dire consequences on their global trading partners. Beijing waged a trade war with foreign countries that greatly depended on the import of raw materials from China. The U.S. adopted a similar strategy and introduced protectionism strategies that would safeguard its domestic manufacturers from the trade war waged on by China. Currently, the US-China trade war is waged from a technological warfront as both nations attempt to assert their supremacy in wireless technology, artificial intelligence, robotics and utilization of renewable energy sources.
Since the Nixon and Reagan administrations, the U.S. and China have shared a great relationship. China’s economic ascension to globalization was boosted when it joined the World Trade Organization (WTO) and during the 2008 financial crisis. During President Clinton’s era the U.S. played a crucial role in ensuring the inclusion of China in the WTO. U.S and China signed the U.S.-China Relations Act of 2000, paving way for China to join the WTO (Council on Foreign Relations, 2020). The U.S.-China trade rose to $231 billion and China soon started to emerge as a superpower. In 2000, the U.S. recognized China as an emerging superpower and sent former Deputy Secretary of State Robert Zoellick to engage the country in strategic talks that would solidify the relationship between both countries. The U.S. remained unchallenged as the world greatest super power till 2008 when it was hit by the global financial crisis. The economic recession experienced by the U.S. and the great debt to China came as a wake-up call to the American government which risked losing its global economic position to China.
Unlike the U.S that experienced an economic depression during the global crisis period, China had a fast-growing economy that prevented it from going into economic recession. China had also become the greatest foreign creditor to the U.S. by 2008. The U.S. debt to China amounted to about $600 billion (Council on Foreign Relations, 2020). The competitiveness between the U.S. and China to dominate the global markets stiffened after the global financial crisis in 2008. Initially, the Chinese government had announced an 18% increase of their military expenditure in 2007. This intention would, therefore, call for China to elevate its position in the global economy to afford the increased military spending. Goldman Sachs released a report in 2010 warning that China would soon overtake the U.S. as the greatest economy of the world (Council on Foreign Relations, 2020). The Obama administration started to recognize that China’s spontaneous economic growth coupled with the huge debt that the country owed to the Chinese government put the U.S. at a risk of losing its global economic domination to China. In 2011, Hillary Clinton announced the government’s plans of increasing investments into the Asian-Pacific markets, hoping that this move would assert the United States’ economic power and offset the economic growth of China. Subsequently, the U.S. and 8 other nations signed the Trans-Pacific Partnership (TPP) deal which was inherent to a multinational free trade agreement (FTA).
The Chinese government res