China-U.S. Trade War Must Be Avoided

If the Obama administration lists China as a currency manipulator, as some congressmen hope, higher countervailing duties would be collected upon a wide range of Chinese commodities exported to America. Under those circumstances, as Commerce Secretary of China Chen De Ming declared, the Chinese government would inevitably adopt countermeasures, which would mean an unprecedented, full-scale trade war between China and the United States. And that, needless to say, would be a lose-lose battle, with strong impact on the global economy.

So far, the U.S. is still one of China’s main export markets. Chinese export trade would be greatly affected if higher tariffs were required by the U.S. Certainly, there would be negative effects on Chinese economic growth, but China wouldn’t be the only loser in the battle. The Americans would suffer great losses instead of the results they want.

U.S. consumers would be the first to bear the brunt.

American consumers, especially middle- and low-income, would be the first to bear the brunt. Over the years, “good buys” imported from China have been well-received by American consumers. In America, 70 to 80 percent of commodities in Wal-Mart are imported from China. To impose high tariffs on those commodities means consumers would have to pay more for what they need or turn to merchandise made in America or other countries, which would prove to be much more expensive. It is easy to see that American consumers would be the ones who would pay the bill.

American businesses in China would be the next on the victims list.

American businesses in China would be greatly influenced by the tax hikes, too. By the end of 2009, U.S. direct investment to China reached $62 billion. According to statistics from the U.S. Chamber of Commerce, 74 percent of all American businesses in China are profitable, and the rest expect to make a profit in the near future. In 2008, American businesses earned $8 billion in China. The three main U.S. automobile manufacturers in China proved to be among the lucky few that stayed in the black during the financial crisis.

The products of U.S. companies are sold in China and elsewhere around the globe, and some are sold in America; the best example is the U.S. sports shoe. High appreciation of the RMB would result in a sharp increase in the production costs of those companies, undoubtedly constituting a setback.

Also, those jobbers, retailers and employees who work in transportation and ports, whose livelihoods rely on the trade between the two countries, would suffer losses from the decision, too. Numerous jobs created by Sino-U.S. trade are now in danger. Due to the fact that “Made In China” enjoys great popularity in America, big money can be made from Chinese products. Higher tariffs would means less profit for jobbers and retailers.

It can be predicted that American companies involved in exportation to China would become losers, too. It is scarcely imaginable that China would import merchandise, like aircraft and farm produces from the U.S., as usual, if high countervailing duties are required by America. A decline of exports indicates job loss in these industries. Without a doubt, this would be a head-on blow to Obama’s plan to double exports within five years.

A trade war between China and the U.S. would influence the American economy, perhaps leading to higher inflation. Over the years, due to great popularity in the American market, products imported from China help the U.S. maintain a relatively low rate of inflation. Without those good buys imported from China, there would be an inevitable fueling of inflation; and that would produce negative effects for economic recovery.

Making things worse for the global economy

The Sino-U.S. economy would not be alone in experiencing damage. On the whole, China has a trade deficit with its partners in Eastern Asia: Japan, Korea and Taiwan. In fact, it is China that serves as the transit station where all semi-finished products imported from those places are processed or assembled and then sold to all parts of the world, including the U.S. Declining exports from China to America would indicate declining export of semi-finished products to China, which would mean that all countries enjoying a favorable trade balance with China would be destined to take losses.

Both the U.S. and China are trading superpowers. International cooperation prevented the financial crisis from developing into a Great Depression like that of the 1930s. Relevant countries, especially the major economies, have cooperated with one other on macroeconomic policies; every country has resisted trade protectionism. All this has made free trade between countries possible, thus revitalizing the economy. Sino-U.S. trade accounts for 11 percent of the total trade volume for U.S. and 14 percent for China. A trade war between the superpowers would inevitably influence global free trade, which would make things worse for the economy, which is still in trouble.

America and China, as economic super powers, should contribute their strengths to the recovery of the global economy and conduct themselves as examples for other countries. The subprime mortgage crisis has already had negative impact on the world’s economy. At this critical moment, the U.S. must not start a trade war with China that would drag down the global economy. The Obama administration does not lack for sensible members. It makes sense for both sides to handle the trade friction in the light of reciprocity.