Trade Conflicts between the U.S. and China Essay Example

Trade Conflicts between the U.S. and China Essay The rapid increase in the trade deficit is sharpening Sino-US trade friction. On the one hand, American accused that Chinese used unreasonable exchange rate policy and dumping strategy, which increase unemployment in US, in addition, this result in damage to American economy. So US government pushes strong pressure to Chinese government for appreciation of the RMI. On the other hand, American government takes some protectionist policies, such as raises tariffs, anti-dumping and other policies. As known, trade protectionism will only lead to world trade war which damage to the overall welfare of general public. Actually, trade protection is widespread in many nations. Several experts have explained from a political economic perspective. The overriding presumption of world trade presents varying views on one hand, free trade can increase the international interests with maximum restriction. On the other hand, unilateral liberalizing of trade can enhance a nations benefit with maximum restriction. Therefore, rational understanding of the causes Sino-USA trade conflicts bears important practical significance to prevent trade protectionism. In recent years, America trade deficit with China continued to increase. In 2001, American trade deficit with China reached 83 billion , which soared to 103 billion in 2002, and climbed to 124 billion in 2003. A rapid increase in the trade deficit is sharpening Sino-US trade friction. On the one hand, American accused that Chinese used unreasonable exchange rate policy and dumping strategy, which increase unemployment in US, and result in damage to American economy. So US government pushes strong pressure to Chinese policies against Chinese color TV, furniture and textile, and other products. We will write a custom essay sample on Trade Conflicts between the U.S. and China specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Trade Conflicts between the U.S. and China specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Trade Conflicts between the U.S. and China specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Trade friction was defined as confrontation between various countries, which defend for heir own interests by taking economic, political, military, import restrictions and expanding exports, with the core objective to adopt various means to fight for the world market (Petri Crook, 2007). For example, a country limit the number of importing goods coming the country, will get corresponding retaliatory measures, which formed the trade friction. Some developed countries with advanced environmental protection technology, make a very high environmental standards to protect the domestic goods, forming a green trade friction with other countries. The duty of international economics suggests that, there are two basic reasons for countries in international trade, namely comparative advantage and scale economy. Comparative advantage and scale economy economies constitutes the origin and development of international trade, also contains the undercurrent against international trade. Participating in international economic intercourse, being engaged in international trade, whether it is for comparative advantage or for reasons of scale economy, the trade income can not be equally balanced. And some countries even lose benefits from trade. A typical example of such trade is North- South trade, which causes increasing global wealth gap between the south countries and the north countries. Thus, the existence of non-balance pattern of international trade, results in todays world trade policy environment and trade disputes. With the development of globalization, the economic ties between countries are increasingly close. Economic internationalization and economic development has gradually deepened. Economic globalization makes the world resources get reasonable allocation (Petri. Crook, 2007). This requires a global unified trade rules. However, the political system is not uniform, so it is easy to cause trade friction. In the era of economic globalization, global production and unified world market, it needs a unified global standard competition rules. But in fact, a variety of domestic regulations have serious impacts on the economic development and trade between countries . At the same time, as a result of economic globalization, the competition among countries is gradually strengthening. But at the same time, the international environment is complex and changeable, and unstable and uncertain factors are increasing. The developed countries will take the economic and scientific dominance for a long time, which aggravate the imbalance in world economic development. The rise of trade protectionism has brought new challenges to many countries. In this context, increasing trade friction is the normal state. Because of this, some experts claimed that global economy has entered a so-called trade friction era. In the era of economic globalization today, because all the countries in the world are seeking to maximize their own interests, trade friction will be normal. Economic globalization is triggered another important reason of Sino-US trade friction. Because China is a developing country with imperfect economic and political system, which is different from USA, it is easily leads to trade friction. As long as the two sides follow the principle of equality and mutual benefit, the friction can be completely resolved. However, the Sino-US trade friction has intensified these days. If it can not be solved correctly, it will seriously affect the bilateral trade relationship development and the economic sustainable development. POP-Unified On March 16th, 2007, an American pet food manufacturer announced the recall of a large number of pet foods from the North American market. The U. S. Media said pet food poisoning was from China source. In June, Chinese toys encountered cold wind, USA companies announced three massive recalling of 21 million Chinese toy productions, which involving exceeded standard of paint and lead for coating. In order to balance the trade deficit, the restriction policy, in general, is not helpful to increase the total economy and welfare of USA. It is proved by economic theories that free trade can improve allocation of resources and social welfare. In fact, imported cheap products can curb rising prices. With deepening of trade liberalizing, various countries have cut riffs barriers. But as substantial reduction in tariff levels, at the same time, countries also sought non-tariff barriers to protect domestic industry. Anti-dumping is a kind of important non-tariff barrier. Due to its characteristics of damage and convenient operation, it is allowed by WTFO rules as trade remedy measure. So it is popularly adopted around the world. America as the number one economy in the world has a long history of antiquating to limit foreign imports and to protect their own particular industry. With increasing GATORS trade talks was held successfully, USA and other industrialized countries cut the tariff level down to 4. So America takes anti-dumping as powerful weapon. In recent years, there is growing number of anti- dumping cases. China is USA important trade partner since establishment of diplomatic relation in 1979, bilateral trade volume increased year by year. But at the same time, USA trade deficit with China increased, resulting in bilateral trade friction happened frequently. USA builds high no-tariff barriers on Chinese products, and frequently uses various means to limit imports of Chinese products. Therefore, anti- mumping has become one of the most important means. Bonn and McCullough (2005) pointed out that, ISIS anti-dumping measures has been obvious discriminatory to China. Since 1990, China has become the number one target of America anti- dumping investigation. China is often the only countries being investigated. II. Literature review In the field of international economy, trade friction has a long history, with the early trade disputes including Anglo-Hansen trade war, Franco-Italian trade war and Hawley Smooth trade war. Since sass, with the deepening of economic globalization, the trade protectionism, is sweeping across the world. The trade friction between the countries has shown new trends and characteristics, which are diversified, concealed, and efficient. The trade conflicts between developed countries and developing countries, especially Sino-US trade friction, have become the focus of concern. Various theorists have studied trade conflicts from political and economic approach (Baldwin, 1985 Leverage, 1983 Rowley et al, 1995). At present, many scholars put forward that the trade frictions generated in the political process. Political economy about trade originated in the inability to explain trade intervention logic in real international trade. The classical trade theory or new trade theory can not explain trade intervention policy, which has prompted economists to search trade policy from a new point of view. A formed policy will impact different interest groups, mainly influence their benefits. The traditional economic theory explained that government behaviors are driven by external actors. Political economic theory makes a breakthrough to consider the influence different interests groups. The political economic approach of trade policy can clearly explain forming process and operation mode of the political market. Stiller (1971) pointed out that, interest groups through lobbying and pressing politicians to seek their favorable policies. The politicians who seek political support minimization would likely to give favorable policies to specific interest groups. So, political market, in which a public policy is the commodity, is formed, with interest groups as the buyers, politicians as commodity sellers. Grossman and Hellman (1994) created a description of interaction model describing government and interest groups. The authors assumed that interest groups are consisted of exclusive elements, which provide the government with the lattice capital and in return they seek for tariffs or export subsidies. Different political donations are corresponding to different tariffs or subsidies, which formed the so-called donation price list. Grossman and Hellman believed that protection level is positively related to capability of interest groups, but is negatively correlated with the elasticity of import demand. The above documents indicated that interest groups eventually will have an important impact on trade policy, but the interest groups lobbying and donation activities are directed at the Congress, not for the TIT and TIC members. Baldwin (1985) set up a bridge between interest groups and the government officials. He pointed out that, the important congressional committee can exert very important influence on the process of TIC, because members of Congress can not only directly persuade and press members of TIC, but also can control TIC through budget constraint. When a member of some interest groups, for example, a manufacturer or labor organization, puts forward anti-dumping litigation, he will see help from closely related members. Congressmen put pressure on the TIT and TIC, so that the decision is beneficial to the interest group. Hansen the empirical test (1990) confirmed Baldwin hypothesis (1985), she pointed out that members of Congress can to control the administrative officials through a series of incentive measures, such as budget allocation, oversight hearings, legislative activities, public opinion propaganda and so on. Different from the above view, Appellant. Et. Al. (1976) pointed out that the government rarely seeks to maximize social welfare policy the government is seeking policies that made the political support minimization. These policies typically reflect interests of the most influential interest groups. In fact, economists and political scientists have paid great attention to influence of interest group on trade policy. The earliest literature can be traced back to Starchinesss Politics, Pressure and the Tariff. In this book, Scatterbrained studied the influence of interest group in American Smooth Hawley Act in 1929-1930, which opened up the study of interest groups role in the formation of trade policy. In the sass, C. P. Kindergà ¤rtner published Group Behavior and International Trade. He proposed, in some cases, international trade can be studies from national group action. He analyzed the status hanged of different interest groups in European countries. Obviously, Scatterbrained and Kindergà ¤rtners study on the interest group mainly referred from study methods of sociology and politics. After the theory of public choice in sass-sass, scholars have conducted in-depth analysis of influence of interest group on trade policy. In sass, especially after sass, many scholars have studied the formation process trade protection, and put forward different political economy model. Grossman and Hellman (1994) developed a formal framework to integrate the domestic politics into international trade relations. They assumed that the government is both concerned about the general interests of voters and special interests of political donations. They analyzed the game and strategic interaction between the domestic interest groups and government officials. They analyzed non- cooperation and cooperation tariff game model, and testified how domestic politics determined the government international goals. In addition, Gould and Woodbine (1998) investigated the dynamic process of trade protection, revenge and trade war. They found that the decision and implementation of foreign retaliation tariff and there trade policy are as same as domestic political process. Trade policy is not determined by exogenous target of government, but by internal competitive interest groups. They concluded that liberalizing, trade protection, and revenge are the interactive process between foreign political power and domestic political power. These analyses will undoubtedly increase understanding the political reasons for trade friction. Sino-US textile trade dispute problem is most typical case. Textile and apparel commodities are the largest exports in Sino-US bilateral trade, because textile has always been regarded as sensitive goods. Therefore problem of Sino-US textile trade between the two countries is very difficult to solve. Since textile trade problems in 1972, the two countries have signed several textile trade agreements. USA protectionists try strong efforts to prevent Chinese textiles into the USA through quota restrictions and other measures in bilateral agreements. After China entered WTFO, Sino-US textile trade entered into a relatively quiet period. But because of increasing textile exports to the United States, America Textile Manufacturers Association constantly accused Chinese manipulation of the RMI exchange rate, which weakening the American textile competition ability and pressed on the Bush government, eventually forced America Ministry of Commerce enabled China-U. S. WTFO Agreement. Once the Chinese textiles disrupted U. S. Market, the export growth rate of the related products would be restricted within 7. 5. In 2003, US government officially implement a one-year guarantee measure to from Chinese three categories of textile products knitted fabric, brassiere and gown, which caused strong protest from China Chamber of Commerce, who pointed out that it violates WTFO regulations. The United States contradict WTFO fundamental purpose and spirit, and cause a negative impact on Sino-US textile trade relations (Petri. Crook, 2007). Due to the transformation and upgrading of the ISIS economic structure, the textile industry and clothing industry declined. Contrarily, Chinas textile industry was quite competitive because of cheap labor force it seemed China will be the biggest benefited party during this trade. Since China Joined the WTFO, US textile industry always kept an eye on Chinas textile industry. They found Chinas production capacity of textile industry kept strengthening. At the same time, benefiting from the cancel of quota restrictions, the unit price of Chinas textile product decreased sharply and the market share of Chinas textile industry increased very fast. US textile industry also thought China took unfair action to compete, which meaning China offering privilege on tariff barrier, market access limitation, technology transfer regulations, confessional loan and other aspect to support the textile industry development. Early 2005, Chinas cheap products flow over into the US market and resulted in 19 factories bankrupting along with 26000 people losing Jobs. Then on April 4, 2005, the US Commerce Department announced to start the special protection procedure against Chinas third kind of textile (including cotton shirts, pants, underwear and other products) for the reason of threat of market disruption, which was the first time to restrict Chinas textile industry export by using special terms since MFC (Multi-Fiber Arrangement) was abolished. On May 18th, the United States Commission on Implementation of Textile Agreements made decision to take special restrictive measures to abandon Chinas textile export. This caused textile trade conflicts teen the US and China. Although Chinas textile export had bad effect on the ISIS textile industry development and employment, the ISIS action was partly haunted by trade protectionism. They provoked the trade conflicts for strategic reasons (Petri. Crook, 2007). The imbalanced industrial structure is deep-seated cause of frequent international trade friction. According to classical theory of international division of labor, the comparative advantage is the foundation of division of labor and cooperation between countries. In this case, all countries play their strengths and make up weakness through trade. The developed countries are at the top of the international division of labor, mainly engaged in production of high value-added products. While developing countries are at the bottom of the international division of labor, they are mainly engaged in the production of low value-added goods. However, due to inconsistencies in balance and economic benefit of economic development between countries, industrial division of labor is not entirely has perfectly competitiveness. On the contrary, driven by economic interests behind the trade, developed countries tend not to give up low-value-added traditional industries. When the developed countries are threatened in these traditional areas, they will take protective measures without hesitation, and then lead to trade friction. For example, America implements consistent protection for its steel industry for decades and caused relevant trade friction. On the other hand, the emerging industrial countries or developing countries want to catch up or stand on ones own need, implement import substitution strategy to enhance the government intervention in trade. In sass, the strategic trade policy is generally accepted by countries. Because the national policy intervention can change their interests in articulation in the international trade, it often leads to retaliatory measures from other countries. At last, the pursuit of profit redistribution causes international trade friction between countries. What are basic principles of American foreign policy Some scholars believed the interests of the State shall be the basis for America foreign policy some scholars considered domestic values as basis of diplomatic behavior. Other scholars believed that, America diplomatic ideas are composed from three opposing ideas, namely the world liberalism, xenophobia and multiculturalism. This pluralism is based on interest group politics. In other word, American foreign policy is results of conflict and negotiation between different types of interest groups, which include economic, political, ideological, cultural, religious and ethnic groups. However, one theory is often cited social and economic base theory of American foreign policy, which is commercial leading theory. Based on this theory, the wealthy capitalists dominated America society, while political competition is essentially the competition between commercial groups. The powerful economic groups manipulate public opinions and democratic and pluralist politics. Foreign policy bureaucracy mainly enrolls elite from legal, financial and commercial background. These people in the office are closely contacting with commercial circles. American interest group scholar David B. Truman pointed out that interest group is group of people holding the same attitude, who have request from other groups. When it passes the requirements to the government institutions, it becomes a political interest group. Interest group politics is an important feature of American politics. To a certain sense, American politics is the interest politics, in which different interest groups eek and protect their own interests by competing for the government policy. Ill. Causes of Sino-US trade Conflicts America steel workers website published an article August 4, 2008 entitled the poison facts unfair trade killer, which reported a 4-year-old American child died of lead poisoning from swallowing China imported shoes pendant. The article listed a large number of China products problems, environmental pollution, enterprises exploiting workers and illegal use of child labor problems. The article cited that lots of children toys are with poison, and Chinese pet food and seafood are contaminated with toxic drugs and poison. It accused China industrial pollution has made cancer as the Chinese number one killer, China pollution spread toward the international diffusion. ASS and NO with acid rain have fallen into Seoul, Tokyo and Los Angels. 3. 1 Economic Factors 3. 1. 1 Trade deficit There is trade imbalance in Sino-USA trade. With the deepening of globalization, China and America are the worlds largest trading nations, and the amount of bilateral trade continues to grow. Chinas surplus on US has continued to increase. USA economist Stilling raised the economic model to testify that, if the deficit is 1. 5 than GNP, there will be intense friction two countries. Than GNP, it will cause retaliatory measures. If 25 to 30 than GNP, then it is not only an economic problem, but also a political problem. In 2005, the Sino-US trade amounted to 211. 6 billion, Chinas surplus on America was 114. 2 billion, accounting for 53. 7 of the total amount of the Sino-US trade. The size of Sino-US trade imbalance has evolved into a political problem. It can be expected in future, trade friction between China and the United States will exist for a long time, and will continuously upgrade. 3. 1. 2 GAP growth The economic downturn causes the revival of new trade protectionism. In recent ears, American economic downturn and Chinese peaceful rise forms a strong contrast. According to preliminary statistics of USA Ministry of Commerce, American economy grew only 1. 3 at the first quarter of 2007, lower than 1. That analysts had expected, which was the lowest over the past four years, while the decline in housing investment is still the main reason of the economic slowdown. Historical experience shows that, trade protectionism has a certain relationship with economic development. So as long as American domestic industry suffer declining competitiveness and recession, trade protectionism will rise again, and Sino-US trade ruction is inevitable. Since sass, global economic growth is get slow, America also entered a recession. The industrial structure transited from traditional industrial economy to high-tech economy. The traditional industry in the economic lost the cost advantage, and high-tech economy cannot quickly open up the market. This will increase the trade deficit. As everyone knows, America trade policy has dual character, namely implementation of free principle in the export trade and protectionism in the import trade, in accordance with the requirements of the so- called fair trade. Economic inflation and unemployment situation will inevitably lead to the enhancement of American trade protection. And due to WTFO-entering effect. There is a rapid increase in exports in China. For Chinas cheap labor resources, Chinas price of labor-intensive products is lower than the price in the international market, which has a strong price advantage, causing a great impact on American labor-intensive industry. Employment in USA sunset industry is greatly reduced. USA politicians dont want this kind of contradiction intensified, and evolved into peoples dissatisfaction with the government.