![]() ![]() Some of the main issues stated in the agreement were intellectual property rights, technology transfer, currency manipulation, and foreign exchange practices. In early 2020, Trump and Xi signed Phase One trade agreement that stipulated structural changes to China's economy and trade regime. Due to China’s retaliatory measures, farmers have lost a large portion of their Chinese sales, which was once one of the largest agricultural export markets for the US. Moreover, Oxford Economics indicates that “significant decoupling” of the US and China would reduce American GDP by $1.6 trillion over the next five years. As of now, American companies accept lower profit margins, workers receive reduced wages, and consumers pay higher prices. ![]() On the flip side, if both sides start lowering tariffs, there will be an additional 145,000 jobs in the US by 2025. According to the US-China Business Council, the trade dispute resulted in the loss of 245,000 jobs in the US. Understanding the economic impact of constantly evolving dynamics between these two countries is critical for any business operating in today’s environment. China has since retaliated by imposing tariffs on American imports - without ceasing its devaluation practice. It is also crucial to recognize that tariffs are not levied directly on the trading partner’s exports but are instead paid by local consumers. However, tariffs cause allocative inefficiency, since domestic resources are over-allocated to the production of certain goods. Some of the key industries that are severely injured because of the trade war include automotive manufacturing, tech, and agriculture by implementing tariffs, the US government hopes to reduce unemployment in these industries, improve the balance of trade, and raise revenue for the government. This protectionist strategy restricts China’s growing role in international financial markets, and most importantly protects American domestic industries from unfair foreign competition. Stating that the International Monetary Fund (IMF) requires governments to avoid manipulating exchange rates, the U.S levied tariffs on Chinese goods, making them less desirable in comparison to domestic goods. US officials consider China’s attempt to sell products below the cost of production as unfair competition, hence designating China as a currency manipulator. ![]() Given the major financial impacts of China’s devaluation policies on American exporters, the US trade deficit has risen from $10 billion in 1990 to $315 billion in 2012. As a result, American exporters struggle to compete with Chinese exporters because of the price levels. By devaluing the yuan, China gains a competitive advantage in the international markets and improves its current account, as it makes Chinese exports cheaper to buy with foreign currencies. To apply this pricing policy, China buys US dollars from the market and supplies yuan in exchange. To keep the current account balance in a surplus, China regularly devalues the yuan. After reshaping trade patterns around the world and damaging global economic activity, the continuous US-China trade dispute is estimated to lower world GDP by 0.4%.ĭue to the self-correcting nature of the economy, an increase in the demand for exports causes currency appreciation, forcing export levels to fall. However, the deal didn’t come in time to mitigate the toll of US tariffs on Chinese goods, imposed with the goal of preventing China's currency manipulation measures. The trade tensions between the world’s largest economies, the United States and China, reached a turning point in January 2020 with the Phase One trade deal. ![]()
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