US-China Trade Wars: Ramifications for Both Sides By Jun Kwon and Sung Jang
Donald Trump has been trying to deliver on his campaign promise of tougher tariffs on foreign countries, especially on China, in order to protect American businesses. While this has resonated well with many supporters, particularly in the rust belt region, there are negative ramifications to the U.S. as well as China.
While Donald Trump has been successful in the past in renegotiating what he believes to be unfair trade deals with states like Mexico and South Korea, the U.S. should be careful in prolonging the trade war with China due to the unique nature of China’s system of governance and the size of the economy. As China is the net exporter to the U.S., it stands to lose more economically; however due to the power of the Chinese economy combined with its authoritarian system of governance, the China is abler to take damage from this trade war than the democratic U.S. is.
According to the Department of Commerce, Chinese exports to the U.S. have declined more than 10% this year. This can be attributed to the tariffs that are worth $250 billion imposed by the U.S. on Chinese goods coming into the country in 2018. The Chinese manufacturing sector’s growth has suffered a slowdown as a result of these tariffs as well as Chinese domestic consumers having less demand. Perhaps the most prominent effect on the Chinese economy is the uncertainty that it is causing with China’s center of electronics manufacturing Shenzhen expressing some anxiety over the future. Nevertheless, it seems that while China has more to lose than the U.S. in this trade war, the political ramifications seem to be minimal.
As total exports to China from the U.S. total only $120 billion in 2018 as compared to the $539 billion that China exports to the U.S., the Chinese response to the U.S. has less drastic with only $110 billion in tariffs being put on. Nevertheless, the negative ramifications for the U.S. particularly U.S. firms have been more visible. Despite the relative strength of the economy with high levels of job creation and low unemployment in the U.S., the manufacturing industry has suffered. Ford, GM, and Fiat-Chrysler have all cut their revenue forecasts as of 2018, and soy bean farmers have suffered as a result of not being able to export their products to China as competitive prices.
In comparing the ramifications that are caused by the trade war between these two countries, China would suffer more economically, whereas the U.S. would suffer more politically. This is mainly down to two main reasons, the state of the economy in these two states, and their system of governance.
The U.S. economy is currently in good health with low unemployment and high levels of job creation yet there have been warning signs. In May 2019, only 75,000 jobs were created which was far below forecasts and wage growth has slowed signalling that there may be more economic difficulties to come. While political leaders generally are unable to control the whims of the economy, voters will react negatively to the party in power should an economic downturn occur. As such Donald Trump and the Republican Party stand to lose a lot. This is something that is typical of almost all democratic states around the world; Democrats swept into power as a result of the 1929 Great Depression, 1992 Clinton victory, and the 2008 Financial Crisis. And the Conservative Party swept into power as a result of 1978 Winter of Discontent in Britain. As the power of these states are ultimately derived from the people, therefore politicians are much more vulnerable.
China on the other hand is an authoritarian state where the citizens do not have much power over the decision making and the composition of the government. Typically, authoritarian states and leaders only lose power through a forcible removal from power, an effort to transition to democracy, or a resignation. Considering China’s political stability and the prowess of the Communist Party’s state apparatus, Xi Jinping is not as vulnerable as Donald Trump is to his citizens respectively. Furthermore, China’s economy while reliant on international trade is in a better place debt-wise to weather the effects of a potential downturn. While being authoritarian in nature does not give states immunity from outside economic and political pressures, China is unique in the sense that it is a large economy, and great power in direct competition with the U.S.
Given the realities that these two states face, one can see that this trade war is no beneficial to either but are in fact something that can cause great damage. There are many pundits who have argued that China would certainly suffer more in regards to this trade war, but there are been little consideration in regards to the political ramification. As aforementioned, due to China’s nature as an authoritarian state and large economy, it looks as if China, or at least, the regime that rules China will be able to outlast the current regime that runs the U.S.
Jun Kwon is Chair of Government and International Studies at Utica College
Sung Jang is a Ph.D. candidate in Political Science at SUNY-Binghamton