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RESEARCH AND ANALYSIS: WORKING PAPERS

An economic analysis of the US-China trade conflict

This paper provides an economic analysis of the trade conflict between the US and China, providing an overview of the tariff increases, a discussion of the background of the trade conflict, and an analysis of the economic effects of the trade conflict, based both on empirics (ex post analysis) and on simulations (ex ante analysis).

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Bilateral tariffs have increased on average to 17% between the US and China, and the Phase One Agreement signed in January 2020 between the two countries only leads to minor reductions in the tariffs to 16%. The trade conflict has led to a sizeable reduction in trade between the US and China in 2019 and is accompanied by considerable trade diversion to imports from other regions, leading to a reorganization of value chains in (East) Asia. The simulation analysis shows that the direct effects of the tariff increases on the global economy are limited (0.1% reduction in global GDP). The impact of the Phase One Agreement on the global economy is even smaller, although the US is projected to turn real income losses into real income gains because of the Chinese commitments to buy additional US goods. The biggest impact of the trade conflict is provoked by rising uncertainty about trade policy and the paper provides a framework to analyze the uncertainty effects.

No:  ERSD-2020-04

Authors: Eddy Bekkers and Sofia Schroeter

Manuscript date: February 2020

Trade conflict, Economic simulations, Trade effects of tariffs

JEL classification numbers:

F12, F13, F14, F17

Disclaimer 

This is a working paper, and hence it represents research in progress. The opinions expressed in this paper are those of its author. They are not intended to represent the positions or opinions of the WTO or its members and are without prejudice to members' rights and obligations under the WTO. Any errors are attributable to the author.

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• 1.  Introduction
• 2.  U.S. perspectives on economic engagement with China
• 3.  The emergence of a new majority coalition on China trade
• 4.  Globalization (especially, the China Shock) and U.S. labor market outcomes
• 5.  China's non-compliance with its WTO obligations
• 6.  Concerns about China's technology policy
• 7.  Dissatisfactions with WTO's governance of the world trade system
• 8.  The effects of the U.S.–China trade war on the United States and the global economy
• 9.  Moving on from the U.S.–China trade war

The Politics and Economics of the U.S.-China Trade War

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Deborah L. Swenson , Wing Thye Woo; The Politics and Economics of the U.S.-China Trade War. Asian Economic Papers 2019; 18 (3): 1–28. doi: https://doi.org/10.1162/asep_a_00710

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The United States declared trade war after substantial defections from the internationalist (in geo-strategy and economics) lobby in U.S. politics to a new coalition between conflict-is-inevitable activists and anti-globalization proponents. Many internationalist businesses changed sides after experiencing disappointments on economic fronts including China's non-compliance with some of its World Trade Organization (WTO) obligations, China's acquisition of foreign technology at lower-than-expected prices, and the serious inadequacies in the WTO's governance of global trade. Many of the disillusioned internationalists have given too much weight to the contribution of globalization to negative developments in the U.S. labor market, and too little weight to the role of powerful capital-biased technological changes and to the inadequacies of state-provided programs for social insurance and human capital formation. Resolution of the trade war and prevention of its frequent occurrence will become more likely when (a) China adopts much greater reciprocity in its economic engagement with the advanced countries despite its status as a developing country under WTO rules; and (b) the United States stops equating geo-strategic competition with economic competition, recognizes that economic dynamism and economic resilience comes from strengthening indigenous innovation capability rather than from holding China back technologically, and institutes social programs to significantly reduce the trauma that is created by frequent job changes. Deep reform of the WTO is urgently needed but is unlikely to happen in the medium run. For the medium run, the United States should mobilize country cooperation in regional settings (like the Trans-Pacific Partnership [TPP]) to introduce policy innovations to serve as templates for a re-designed WTO architecture, and to harness collective market power to be used in future negotiations on WTO reform.

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China-US Trade War and Trade Talk

• © 2020
• Miaojie Yu 0

China Center for Economic Research (CCER), National School of Development (NSD), Peking University, Beijing, China

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Provides a solid analysis of the causes and potential welfare impacts of the current China-US trade war and trade talks

Analyzes China’s success in developing its opening-up strategy, based on comprehensive empirical evidence

Offers numerous policy suggestions for China’s broadening opening-up strategy for future development

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Table of contents (38 chapters)

Front matter, china’s trade development and opening-up policy design over the past four decades, processing trade, trade liberalization, and opening-up: china’s miracle of international trade, understanding the recent sino-u.s. trade conflict, the day after tomorrow: evaluating the burden of trump’s trade war, the status of china’s market economy and structural reforms: essentials behind the china-u.s. trade war, three tasks for building an all-around opening-up strategy, china’s free trade ports: effective action against the threat of de-globalization, expanding opening up: china’s olive branch to globalization, potential impact of china–u.s. bit on china’s manufacturing sectors, rmb internationalization and belt and road initiative, exceptional performance of chinese outward direct investment firms, forty years of opening up has greatly benefited china’s foreign trade, china’s opening-up policies: achievements and prospects, columns and media, booming chinese investment a key factor in fighting african poverty, minor u.s. trade sanctions on china possible, experts say, china slashes tariffs on range of consumer goods.

• China-U.S. Trade War
• Trade Liberalization
• Protectionism
• Gains From Trade
• Belt And Road Initiative
• Outward Foreign Direct Investment
• Free Trade Port
• Processing Trade

About this book

“China’s tremendous growth over the past several decades has greatly expanded its role in the world economy. Neighboring countries in Asia, those in Africa, as well as in Europe and the United States are all tied to China through global production chains. Professor Yu Miaojie provides us with an insightful analysis of how this system has evolved and how it is being challenged by the trade war with the United States. These topics are important to all those interested in the state of the world economy and in what the future might bring.” (Robert C. Feenstra, Distinguished Professor, University of California, Davis)

“Professor Yu has produced a masterful account of the economics underlying the US-China trade conflict. Central to the trade tensions are asymmetric flows of trade and capital between the countries. This timely book unpacks these flows and provides a thorough analysis of how these imbalances arose and how an unsuccessful resolution of the conflict would affect China, the US and the rest of the world. It is essential reading for those who want to understand the origins and possible future directions of the trade war.” (Gordon Hanson, Peter Wertheim Professor, Harvard University)

“This objective and authoritative study of current US-China trade conflict is a must read for anyone who wants to understand the roots and likely evolutions of one of the most important issues in our time.” (Justin Yifu Lin, Chair Professor, Peking University; Former Chief Economist, the World Bank)

“With tempers flaring on both sides of the Pacific and a China-US trade war rearing its ugly head, it is time to step beyond the rhetoric and listen to the voices of reason. Professor Yu is one of those rare voices. Trained in the United States and senior faculty at China’s premier Peking University, he has established himself as China’s leading authority on international trade and the current China-US trade war. In a series of essays, he puts the current trade war in context and provides a way past the rhetoric and towards dialogue.” (Daniel Trefler, J. Douglas & Ruth Grant Chair Professor, University of Toronto)

“This is the book on China trade that every China-watcher and every trade economist keeps on her book shelf.  The book not only gives a comprehensive analytical account of China’s transformation from an autarkic economy to a major world trader, it also covers the still-ongoing US-China trade war and the ambitious Belt-Road Initiative, and speculates insightfully on the internationalization of the RMB. A first-class book by a first-class economist.” (Wing Thye Woo, Distinguished Professor, University of California, Davis & Research Professor, Sunway University, Kuala Lumpur)

Authors and Affiliations

About the author, bibliographic information.

Book Title : China-US Trade War and Trade Talk

Authors : Miaojie Yu

DOI : https://doi.org/10.1007/978-981-15-3785-1

Publisher : Springer Singapore

eBook Packages : Economics and Finance , Economics and Finance (R0)

Copyright Information : Springer Nature Singapore Pte Ltd. 2020

Hardcover ISBN : 978-981-15-3784-4 Published: 27 May 2020

Softcover ISBN : 978-981-15-3787-5 Published: 28 May 2021

eBook ISBN : 978-981-15-3785-1 Published: 26 May 2020

Edition Number : 1

Number of Pages : XI, 274

Number of Illustrations : 8 b/w illustrations, 27 illustrations in colour

Topics : International Economics , Economic Policy , Globalization

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U.S. Imposes Sanctions on Chinese Companies for Aiding Russia’s War Effort

The penalties came after top Biden administration officials warned China not to help Moscow restock its arsenal to attack Ukraine.

By Alan Rappeport

Reporting from Washington

The Biden administration on Wednesday announced nearly 300 new sanctions on international suppliers of military equipment technology that the administration said have been helping Russia restock its arsenal as it carries out the war in Ukraine.

The sanctions represent a broadening of U.S. efforts to disrupt Russia’s military industrial complex supply chain. They include more than a dozen targets based in China, which the United States says has increasingly been helping Russia arm itself. The Biden administration has expressed growing alarm about the weapons technology alliance between China and Russia. Top U.S. officials have voiced those concerns to their Chinese counterparts in recent weeks.

“Today’s actions will further disrupt and degrade Russia’s war efforts by going after its military industrial base and the evasion networks that help supply it,” Treasury Secretary Janet L. Yellen said in a statement on Wednesday.

The sanctions follow Ms. Yellen’s trip last month to China, where she confronted Chinese officials over support for Russia . She warned them that Chinese companies and financial institutions that facilitate support for the Kremlin’s war effort would face penalties. The Treasury secretary said her counterparts told her that China had a policy of not providing Russia with military aid.

Secretary of State Antony J. Blinken expressed similar concerns to China during a separate visit last week.

“Russia would struggle to sustain its assault on Ukraine without China’s support,” Mr. Blinken said at the conclusion of his trip . “I made clear that if China does not address this problem, we will.”

The Chinese companies that are facing sanctions are accused by the Treasury Department of providing Russia with infrared detectors, components for Russian drones and pressure sensors used in Russian missiles.

The sanctions, which were coordinated with the State Department, also include targets based in Azerbaijan, Belgium, Turkey and the United Arab Emirates. Several Russian companies and individuals associated with Moscow’s procurement of materials for its chemical and biological weapons programs were also hit with sanctions, along with Russian importers of cotton cellulose and nitrocellulose, which the country uses to produce gunpowder and rocket propellants.

The Treasury Department is hopeful that the sanctions will have greater impact after President Biden signed an executive order last year that gave the United States authority to crack down on banks and financial services firms that are helping Russia evade strict sanctions on access to military technology and equipment.

Alan Rappeport is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters. More about Alan Rappeport

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• International edition
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• Europe edition

Xi Jinping arrives in France with Ukraine and EU trade row at top of agenda

On his first visit to Europe since 2019, Xi is set to meet with Emmanuel Macron before heading to Serbia and Hungary

Xi Jinping has lauded China’s ties with France as a model for the international community as he arrived in Paris amid threats of a trade war over Chinese electric cars and French cognac.

On his first visit to the EU in five years, China’s president will meet his French counterpart, Emmanuel Macron, and the European Commission president, Ursula von der Leyen , who will urge him to reduce trade imbalances and use his influence with Russia over the war in Ukraine.

Ahead of the visit, Macron told the French newspaper La Tribune that an update of relations was necessary “because China now has excess capacity in many areas and exports massively to Europe”.

In September 2023 the EU launched an investigation into whether to impose punitive tariffs to protect EU producers against cheaper Chinese electric vehicle (EV) imports that it says are benefiting from state subsidies.

On Sunday night, Von der Leyen signalled the EU’s continued discontent with China , which she said was “currently manufacturing with massive subsidies”. An oversupply of cars and steel due to weak demand at home was leading to unfair trade and unacceptable market distorting practices, said Von der Leyen, that “could lead to deindustrialiasion in Europe” and loss of jobs, particularly in the German car industry.

Macron will try to talk Xi out of retaliating over the EV investigation, potentially with import duties on French cognac and agricultural goods.

The EU is also expected to raise suspicions that sanctions on exports to Russia are being circumvented by Chinese companies trading with its neighbour. They believe multinationals based in Asia are selling legitimately into Hong Kong and mainland China but the destination of the goods is Russia.

Xi, who was welcomed in Paris by the French prime minister, Gabriel Attal, said in a statement released on his arrival that ties between China and France were “a model for the international community of peaceful coexistence and win-win cooperation between countries with different social systems”.

In a separate op-ed published in the French daily Le Figaro, the Chinese president said he was coming to France with three messages: that Beijing was committed to opening up “new vistas” in its relationship with France, opening up “ever wider” to the world, and to upholding world peace and stability.

“While opening up itself, China also encourages Chinese companies to go global,” Xi wrote. “France is advancing reindustrialisation based on green innovation, whereas China is accelerating the development of new quality productive forces.”

On the war in Ukraine , he wrote that China “understands the repercussions of the Ukraine crisis on the people of Europe”. He emphasised that Beijing was not “a party to or a participant in it”, adding that “China has been playing a constructive role in striving for peaceful settlement of the crisis”.

Xi’s six-day visit to Europe is the first since 2019 and will also see him visit Serbia and Hungary . The latter is hoping to become the European hub of Chinese electric vehicle manufacturing after BYD in 2023 sealed a deal for its first EV factory in Europe.

One of Macron’s key priorities will be to warn Xi of the danger of backing Russia in its invasion of Ukraine , with western officials concerned Moscow is already using Chinese machine tools in arms production.

The west wants China above all not to supply weapons to Russia and risk tipping the balance in the conflict.

“It is in our interest to get China to weigh in on the stability of the international order,” said Macron in an interview with the Economist published on Thursday.

“We must, therefore, work with China to build peace.”

China opened an anti-dumping investigation into brandy imported from the European Union in January, sparking fears cognac could suffer a similar blow to that taken by Australian wine when China introduced tariffs of more than 200%.

“We want to obtain reciprocity of exchanges and have the elements of our economic security taken into account,” Macron told La Tribune.

Von der Leyen said on Monday: “We have to act to make sure that competition is fair and not distorted. I have made clear that the current imbalances in market access are not sustainable and need to be addressed”.

The European Commission, the European Union’s authority on trade issues, has opened more than 20 competition probes targeting China in recent months including into the supply of cars, wind turbines and medical devices.

Beijing has reacted furiously to the most recent investigation, into suspected inequitable access to China’s medical devices market, calling it a sign of EU “protectionism”.

The EU’s 27 members – in particular France and Germany – are divided on their attitude towards China.

The German chancellor, Olaf Scholz, will not join Macron and Xi in Paris due to prior commitments, according to sources.

“In Europe, we are not unanimous on the subject because certain players still see China as essentially a market of opportunities,” Macron said, without naming any countries.

France will also seek to make progress on opening the Chinese market to its agricultural exports and resolve issues around the French cosmetic industry’s concerns about intellectual property rights, officials have said.

China may announce an order for about 50 Airbus aircraft during Xi’s visit, but it remains uncertain whether it will be a new deal, people familiar with the negotiations have said.

On Tuesday, Macron will take Xi to the Pyrenees, a mountainous region dear to the French president as the birthplace of his maternal grandmother, before Xi heads to Serbia and Hungary .

Reuters and Agence France-Presse contributed to this report

• Ursula von der Leyen
• Emmanuel Macron

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