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Mainstream, Vol 62 No 29, July 20, 2024

USA-China Trade Relations during 2018-2022: Issues and Challenges | Anil K Kanungo & Ujjvala Kanungo

Friday 19 July 2024

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Introduction

USA-China trade relations have often been at loggerheads. Last two to three decades have witnessed trade relations between the two ballooning to a higher degree bringing enormous benefits to consumers and creating frictions between the two governments. A glaring example of such dynamics in terms of benefits can be noticed in ‘Made in China’ brand which virtually captured the imagination of every consumer, and in terms of friction- the ‘Trade War’ with China engineered by former president Mr Donald trump. The Trade War which culminated in severe restrictions of trading activities between USA and China proved to be harmful for both the economies. That is because USA consumers could benefit from lower prices of Chinese made products and US companies could get deep access to Chinese markets to establish their companies and re-export those products to East Asia and African markets and also to other parts of the world. Similarly such huge demands of Chinese products from USA and rest of the world helped Chinese government to strengthen its manufacturing base to capture the large markets thrown open by globalization. Trade war witnessed imposition of higher tariffs, restriction of movement of people and technological derailment which ultimately put a brake to such a flourishing economic and trade relations between these two countries.

With Mr. Joe Biden coming into power, relationship with China has mellowed down a bit, but Mr. Biden has largely followed the same policies and principles trying hard to keep China at bay. Trade is often considered a pivot in establishing a firm and sustained relationship between these two biggest economies. However, inflexible trade policies, imposition of high tariffs on certain products, restriction on movement of professionals and rise in non-tariff barriers have stymied the true potential of trade gains between the two nations.

Against this background, the current article makes an attempt to understand and analyze the trade relations between two prominent economies by resorting to series of data obtained from ITC Trade Map, Department of Commerce and WTO. The article focuses during the period 2018-2022.
Analysis of Bilateral Trade between USA and China

During the last five years starting from 2018 to 2022 trade relations between the two economies saw fluctuating trend. Total trade between them in 2018 registered 682.99 billion USD which finally increased to 729.55 billion USD showing an increase 6.8 per cent. In the year 2019 bilateral trade plummeted to 577.40 billion USD showing a negative growth of 15.45 per cent over 2018. In 2020, it witnessed a marginal increase over 2019 by clocking 580.93 billion USD, registering a 0.6 per cent increase over 2019. Bilateral trade further increased to 691.52billion USD in 2021.

Fig-1
USA-CHINA Bilateral Trade (2018-2022)

Source: ITC Trade Map

Such fluctuation in bilateral trade during this period was noticed because both governments imposed restrictive measures on trade flows which include exports and imports of products and services. Raising tariff became a prominent feature of this restrictive policy. As USA raised its tariffs on Chinese imports, China also took the measure to raise its tariffs on American products. So the policy of ‘Tit for Tat’ became the mantra of this growing trade disturbance. Imposition of tariffs reduced the intensity of trade between the two in terms of volume and value as products and services didn’t remain cost competitive and consumers were denied the access and affordability of such products and services.

This huge reduction in demands of exports and imports in both countries affected the overall productivity of manufacturing sector and services sector. Reduction in productivity led to decline in investment which in turn created unemployment in both countries as demands shrunk. Workers were laid off. This led to huge unemployment.

Further analysis of data relating to USA’s exports to China showed some significant results during 2018-2022. Fluctuating trend in exports noticed when exports declined to 106.40 billion in 2019 from 120.80billion USD. This again marginally increased in 2020 to reach 124.40 billion USD. The years 2021 and 2022 registered marginal increases by recording 151.40 billion USD and 153.80 billion USD. Figure-2 in the article demonstrates this dynamics of change, fluctuation etc.

Fig-2
USA-China Exports (2018-2022)

Source: ITC Trade Map

Similarly, USA’s imports from China have also witnessed certain volatility during 2018-2022. Total imports of USA from China registered around 562.70 billion USD in 2018 and finally recorded 575.70 billion USD. The imports from China in 2019 reached 470.90 billion USD which further decreased to 456.40 billion USD in 2020. The year 2021 witnessed some marginal increase from 2020 to reach 540billion USD. During 2018-2022 negative trends in USA’s imports were also noticed as were the case with its exports.

Fig-3
USA-China Imports

Source: ITC Trade Map

Above analysis indicates that during this period of conflict and also pandemic, trade relations between these two countries suffered immensely leading to substantial decline in consumer’s benefits, trade and industry activities, governmental decline and more importantly loss of jobs and rise in unemployment. This trade reduction between USA and China led to trade diversion which means more trade with third countries. Countries that gained from such trade diversion are Vietnam, Taiwan, Indonesia, and African countries.

Conclusive Remarks

US-China trade conflict has done more harm than good to these two burgeoning economies and to the world at large. During this period policies like raising tariffs, ‘America First’, bring back manufacturing jobs and reducing trade deficit with China were the major objectives. Such policies were vociferously pursued during Mr Trump‘s presidency. Raising of higher tariffs on Chines imports was carried out with the assumption that USA would be able to minimize its trade deficit with China and that would, in turn, will reduce overall its trade deficit with the world.

Another conclusive remark could be learnt that with this trade diversion, USA could establish or strengthen its trade relations with other countries as mentioned above such as such as Vietnam, Taiwan, African countries, etc.
Emergence of Covid-19 Pandemic during 2019, 2020 and 2021 and in 2022 also decelerated significantly Chinese economic activities with USA and the world. All economic activities cam e to a standstill and China faced enormous challenges to control and eradicate Covid-19. The spectre of Covid-19 still haunts China even now, as sporadic cases in certain cities spring up. However, the economic, social and political impacts it had on world trade are more dangerous, challenging and difficult to handle for China. Many factories were closed; workers were laid off; government faced infrastructural and health care challenges. All these created much more uncertainty in world trade. China as observed by world economy as ‘factory of the world’ lost its sheen. Global supply chain came under a scanner as China is to provide the real link in the whole supply chain. The backbone of supply chain management was shaken to a great extent as China failed to provide the manufacturing linkage to the world.

To capitalize on this opportunity strong arguments have been made by policy makers, corporate leaders and prominent economists that this is a golden opportunity for India to fill this void and establish itself as a major link in the global supply management. However, the period 2018-2022 is witnessed as an era of tumultuous ups and downs in the history of USA-China trade relations.

(Authors: Former Professor, IIFT, New Delhi, India and Final Year B. Com (Hons), Gargi College, University of Delhi respectively)

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