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What are the views on the US - China trade war? Show more Show less

Donald Trump's protectionist economic policies led to the introduction of tariffs on $550 billion worth of imports from China. President Xi Jinping responded with tariffs of his own, affecting some $185 billion worth of US-made products. As the two global economic behemoths enter a trade war, what are the implications for both economies and the rest of the world?

The trade war is good for China Show more Show less

The trade war is good for China because it provides an incentive for market expansion in domestic consumption and exports, encourages innovation, and necessitates diversifying where it imports from. Also, China is more likely to win the trade war because it can last longer and cause more damage to the United States.
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China is more likely to win the trade war

China can win this war. It can last longer because China’s economy has more room to maneuver than the United States economy. Also, China can cause more damage to the U.S. by devaluing U.S. debt.
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China US economics trade trade war

Context

This trade war will cause short term damage to both China and the United States. Whether the trade war benefits China long-term is dependent on the likelihood of it winning the war. If China can win and get important concessions out of the U.S., this might be a net good.

The Argument

China is an economy whose growth far outpaces that of the United States and most of the world in general. Regardless of any tit-for-tat tariffs, this leaves them with more space to maneuver and adjust. China also has an expanded arsenal of tools to pressure the United States. The way the trade war has proceeded so far has been through a tit-for-tat increase of tariffs. Given that the United States imports more Chinese goods than China imports U.S. goods, the scope of the damage that the U.S. can do is greater. However, China has another source of leverage. It is the single largest holder of American debt. China always has the nuclear option of selling that debt to tank bond values. On the less extreme side of the scale, simply halting the purchase of debt could similarly disrupt the value of U.S. bonds. This attack on U.S. bonds would certainly harm China, but the damage to the U.S. (and the rest of the world) would probably be greater. Additionally, China can also further devalue its currency. This lowers the price of its exports which gives them a more competitive advantage.[1] This advantage can offset the effect of the tariffs. Regardless of the methods they choose, China has the tools to do more damage to the U.S. economy before its own economic bleeding becomes too severe.

Counter arguments

This argument overestimates both China's willingness to engage in such economic warfare and the impact that it would have on the United States. Even if China would consider these actions, any devaluation of U.S. debt would be extremely damaging for China and unsustainable in the long run. Aggressive currency devaluation, on the other hand, would simply serve to strengthen the resolve to continue the trade war, given that such perceived 'dirty play' is a large part of its rationale. Therefore, the U.S. has the defining advantage in this trade war.

Framing

Premises

[P1] China can and will employ the economic weapons in its possession. [P2] These economic weapons will hurt the U.S. more than they do China. [P3] Causing more damage to the U.S. is likely to lead to winning the trade war. [P4] Winning the trade war is good for China.

Rejecting the premises

[Rejecting P1] China is not likely to engage in such economic warfare. [Rejecting P2] Any devaluation of U.S. debt would be extremely damaging for China.

Proponents

Further Reading

References

  1. https://www.investopedia.com/trading/chinese-devaluation-yuan/#:~:text=By%20devaluating%20its%20currency%2C%20the,to%20aid%20the%20domestic%20industry.

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This page was last edited on Friday, 19 Jun 2020 at 01:26 UTC