US-China trade war

Reading time: 6-8 minutes.

In order to understand the China-USA bilateral today, one must know how exactly the Sino-American war started. China has a population of 1,436,671,834 whereas that of the United States of America is just 330,074,622.

The demography itself suggests as to which country is a bigger market. On an average, American consumers purchase around $500 billion of goods from China whereas Chinese consumers purchase only $100 billion worth of goods from the United States.

The two States are now into a fight of egos. The USA imposed a 25% tariff on $34 billion worth of imports from China. In retaliation, the Chinese government almost doubled its own tariff rates, and it goes further on. The United States later increased the rate of tariff from 3.8% to 6.7% and in retaliation the Chinese more than doubled their rate of tariff.

The passive-aggressive battle grew so severe that during the 2016 Presidential Campaign trail, the main contention of President Donald Trump was that he would not “let China rape USA anymore” and he is working to implement it as well. This race of increasing tariffs is adversely affecting the taxpayers of the two countries.

Tariffs:

Tariffs are essentially taxes that are levied by the government of a country on the imports of goods and services produced in some other country at a specific place. Therefore, when one country desires to reduce trade with some other country, the former increases the tariff rate, as a result the latter is discouraged from exporting products that levy high tariffs.

This scenario is similar to that of the US-China Trade war where, USA wanted China to purchase goods and services from them and not merely take imports from China. As a result, this trade war ensued.

Implications for global trade:

With the world’s two superpowers at a trade war, one being the ever-powerful USA and the other being the world’s factory, the global economy is tripping and falling very hard. The International Monetary Fund has said that the economic growth in the world decrease substantially due to the tension between China and USA.

This trade war is not only harming the global economy but also putting at stake the citizens of the world, by making them suffer in the ego war of two very powerful nation.

On the other hand, other Asian countries like Taiwan (China’s province), Thailand, Singapore, Vietnam, and the Philippines have reportedly earned more than substantial benefits from the Trade War due to their geographical location in the globe.

Implications for India:

In the war between the two nations, India as a third party has gained substantial profits. The US tariffs on China have proven beneficial for India, gaining $755 million in additional exports to the US in the first half of 2019 by selling more chemicals ($243 million), metals and ore ($181 million), electrical machinery ($83 million) and various machinery ($68 million) as well as much more increased exports in areas such as agricultural products, furniture, office machinery, instruments, textiles and apparel and transport equipment than earlier as reported by The United Nations Conference on Trade and Development (UNCTAD).

India has gained around $755 million in additional exports, mainly of chemicals, metals and ore, to the US in the first half of 2019 due to the trade diversion effects of Trump’s tariff war with China, as reported by the UN trade and investment body.

International legal provisions regarding unfair trade practices:

The important promise that China made when it became a member of the World Trade Organisation (WTO) in the year 2001 was that it would not continue some of the unfair practices that were popular with the Chinese earlier, and would start to obey the principle of balance of rights and obligations. By being a WTO Observer, China had opened their markets to the world, making commitments to obey the rules set up by the Organisation.

Since then, there have been allegations from the US that the Chinese have stolen their Intellectual Property by unfair means of trade. This has resulted in China’s indulgence in unfair competitive practices.

The World Trade Organisation’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) that came around during the 1986-94 Uruguay Round, introduced intellectual property rules into the multilateral trading system for the first time.

The TRIPS Agreement covers five broad areas:

  1. The application of general provisions and basic principles of the multilateral trading system which apply to international intellectual property;
  2. The minimum standards of protection to be provided for intellectual property rights by the members;
  3. The procedures in which members should provide for the enforcement of those rights in their own territories;
  4. Amicable settlement of disputes on intellectual property between members of the WTO;
  5. Special transitional arrangements to be entered upon by the members for the implementation of TRIPS provisions.

The TRIPS Agreement also provides that the government should discourage anti-competitive agreements in multilateral trading restricting anti-competitive agreements and obstructing technology transfer.

In the case of the USA, the government can act on such companies that they claim to have stolen their intellectual property. There is actually more to the trade war than just tariffs, USA has already imposed restrictions on some Chinese firms especially in the tech industry.

Conclusion:

The two nations need to understand that the only sufferers in the war are the taxpayers of the two countries, since they pay the taxes for their better future, for better life style, for their country to flourish not to nurture the arrogance of the governments of these nations.

The United States of America has a largely aggressive approach towards the trade policies in general, not only with China. They must cool it down and work on building more amicable bilaterals with their trade partners, or else there is no probable coming back of the Republican Party in 2020.

At the same time China must obey the rules of the WTO agreement and make sure that there are no unfair practices on their part. Over the years China has done a lot to frustrate the interest of USA by isolating the US companies and treating the Chinese companies differently. This war should end and with the Phase One being signed, maybe it’s the beginning of the end of the War.

Author: Samruddhi Sunil Joshi from D.E.S. Shri Navalmal Firodia Law College (Fergusson College), Pune.

Editor: Anna Jose Kallivayalil from NLU, Delhi.

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