TRADE WAR BETWEEN USA AND CHINA

Table of Contents

1. Introduction ................................................................................................................. 2

2. Understanding on the current Trade War between USA and China ............................ 2

3. Effect of the war on the economic development of USA, CHINA and the rest of the
world................................................................................................................................ 4

4. The effect on Supply chain and Malaysia Economy .................................................... 9

Reference...................................................................................................................... 11

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1. Introduction

The report aims to develop an understanding of the current trade war between China
and the United States and its impact on the economic development and supply chain.
In addition to this the trade war between China and the US was waged by Donald
Trump and Xi Jinping which became a cold war and effect throughout the world. The
effect of this cold war on the economic development of China, the US, and the rest of
the developed countries of the world can be demonstrated in this report. Moreover, this
report portrayed how Malaysia has benefited in economic development through the
impact of the trade war.

2. Understanding on the current Trade War between USA and China

China and the United States are the largest financially established countries in the
world, but the escalations of this trade war have economically destroyed both
countries. The presidents of China and the US, Xi Jinping, and Donald Trump have
faced social, economic, and environmental conflict with the increased reverberation
and damage across the globe [8]. China and the US imposed tariffs on imports from
the foreign countries that indicate that buyers from the opposite country need to pay a
higher tax for the importation of goods to continue purchasing foreign countries. By the
end of 2019, the United States had forced tariffs on approximately US$360 billion worth
of Chinese products when China tried to retaliate import activities around US$110
billion on US goods [16]. As a result, a trade war has started between China and the
US with almost US$559 billion US dollars in 2019 [16].

The cold war was lopsided as a growing and large trade deficit was running between
US and China that refers to critical political issues in the US campaign of 2016.
Moreover, in 2017 the trade shortfall of the US has increased up to US$376 billion from
US$104 billion before starting this war in 2002 [16]. In 2018 the deficit rose to US$378
billion and in 2019 it slightly raised further approximately US$345.6 billion according to
the US trade representative office [16]. In the 2016 presidential campaign Donald
Trump, the US President, had promised to reduce the maximum trade deficit on

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Chinese products with trading practices [13]. In contrast, he claimed that unfair trading
practices of China include forced technology transfer, intellectual property theft, and
poor market access for US companies and results in improper market fields with
unfavourable subsidies. The trade war between China and USA created massive
problems regarding the export and import of goods from either country affecting the
businesses and subsidiaries of organizations both situated in these two nations. This
affected the very cornerstone of economic development and lowered the GDP of China
and also affected the employment rates of both nations. Joe Biden, the present US
president has amplified business communities and predecessor's policies through
implementing potential sanctions and strengthening the economy as much as possible
after the ill effects of the trade war.

Apart from this, the Chinese president understood that the US was trying to reject or
restrict its growth as an economic power of the world. In 2018, the US had placed a
minimum of 25% activities on approximately US$35 million on Chinese imports
including hard disc cars and aircraft parts [6]. Similarly, China retaliated by forcing
around 25% tariff on 546 goods of the US including automobiles, agricultural and
aquatic products that are worth US$35 billion. Moreover, in September 2018 US placed
10% taxes on Chinese imports around US$200 billion and China responded to custom
activities on US$60 billion of US products [16]. Agricultural goods such as beef, pork,
soybeans, chicken, chemical whisky crude oil, and seafood halved, and poultry
products were banned through China in 2019. The increased protectionism between
these emerging largest worldwide economies directly affected the trade war that
impacted resources, labour, and transportation of firms [3].

On 15th January 2020, the chief negotiator vice premier of China and US President
signed the one-phase trade deal in the White House. Moreover, as a part of one trade
deal, American products and services worth US$200 billion were agreed to be bought
through China for two years. According to the deal, the additional purchase of
American service and goods need to be made of US$53 billion in energy, US$77 billion
in manufacturing [16]. Besides that, US$31 billion in agricultural goods and US$38
billion in import services of the US services and products [16]. This deal includes

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financial tourism and cloud services as a result of removing barriers to agricultural
automobile and service exports of the US. As a result of this deal, it is reported that the
US suspended the 15% tariff planned for around US$162 billion on Chinese products
in December 2020 [24]. The tariffs at 25% have negatively affected the economic
development as well as product price, transportation charges, and quantity [7].

Apart from this, implementation of the one trade deal was taking potential steps to
achieve social and economic commitments on the import of foreign products and
services. The speed of the covid-19 outbreak had raised confusion about whether
China is willing to continue the agreements of the deal. In 2020 before performing the
presidential election of the US, the Chinese trade surplus with more than 46% on the
US products maximized approximately 18.74% from 2017 to 2019 [16]. A minimum of
0.9% retail price impacted household products like linens, furniture, toaster-oven,
umbrellas, dishes that statistically and economically impacted through 20% tariffs [11].
However, this one trade deal along with maintaining a multilateral system and free
trade is helpful for social and cost benefits on import of products and services.

3. Effect of the war on the economic development of USA, CHINA and the rest of
the world

The trade war between China and the US has affected both countries along with the
rest of the world that refers to long-term economic damage and consequences with
political restrictions on growth.

Impact on US economic development

The administration of Donald Trump threatened and imposed diverse stages of

retaliatory tariffs on economic development, approximately $80 billion with the largest
tax enhancement in the decade. retaliatory tariffs minimize the financial and social
opportunities of business industries of the US by reducing economic income output
and employment. In addition, administration of Biden, the long-run flow of the GDP rate
was reduced by $57 million or 0.23 percent, and full-time equivalent employment was
eliminated by approximately 176800 [1]. According to the tax foundation and growth

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retaliatory tariffs have destroyed the well-being of economic development of the US
that introduces annual loss in employment production and income. Moreover, foreign
countries have announced tariffs on US exports that can decrease $9.8 billion by
0.04% of the GDP rate and an equivalent employment level of 30300 [19].

Figure 1: GDP rate of the United States

Historical and statistical evidence shows that the enhancement of tariffs increases the
price level of every product as well as decreases quantities and qualities of services
and goods increase in the US businesses [4]. Free trade maximizes economic income
and output, but trade barriers reduce the annual income and financial growth of a
country [9]. Increase price and production of service and good quality impact consumer
buying behaviour that affects economic factors of business organizations in the US.
The increased protectionism between these emerging largest worldwide economies
directly affected the trade war. In the case of imposed tariff significantly results in
expenses and negative economic growth of the US with policy uncertainty. Higher
tariffs of the US increased the cost of product manufacturing with material and parts
that reduce the input and output of private sectors [23].

Higher tariffs can destroy the demand for products and services that affect tax value,
capital income, and labour effort. As a result, it is noticed that Americans were intent
to invest capital's labour and working engagement within the workplace. Joe Biden, the
present US president has amplified business communities and predecessor's policies

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through implementing potential sanctions and strengthening alliances related to anti-
China. The US has faced 10-50% tax enhancement on import tariffs on $284 billion in
2018 that injured industrial growth and consumer demand towards US businesses [1].

Effect on China financial development

The cold war has threatened and puts excessive pressure on the economic
development of China in these decades. Moreover, this trade war has impacted an
uncertain increase of 3% in average tariffs on Chinese products and services in 2018
and more than 20% in 2019. Chinese economic development depends on forest direct
investment and export-import accountability, and this war damages foreign investors'
trust towards Chinese business [9]. The official growth of the GDP rate of the Chinese
Market has lowered down more than 6% in 2019 and the covid-19 pandemic
significantly affects the economic sector of this country [18]. On the contrary, China
has benefited from the economic effect of US tariffs. Furthermore, the reasonable
industrial policies of China have improved the industrial chain and transformed
emerging industries' capabilities into multinational innovation to reach economic
success.

Figure 2: Projection of Chinese GDP rate from 1985-2025

China increased its capability of compensating a small amount of 2.8 billion dollars to
contract foreign exports and enhance the sales network of Chinese services and
products. In addition, this country's exports increased approximately $38.5 billion to

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Southeast Asia and increased export channels to sub-Saharan Africa, Europe, and
other regions [12]. As A result of a sharp decline in the import and export process of
manufacturing goods to the US, China has cut back on imported products from South
Korea, Japan, and Taiwan.

Figure 3: Expansion of Chinese and the US economic development

This huge amount of decline in Chinese imports resulted in long-term improvement of

the entire trade balance of China across $60 billion in the last year [20]. In addition,
China has accounted for 14.97 trillion US dollars as the GDP rate of 2020 compared
with developed countries like the US India Brazil as well as Russia [19]. Moreover, this
country has rebalanced manufacturing such as textile and clothing along with structural
services with a capital investment that intends to reduce trade incentives. In late 2020
effective leadership of the Chinese President and the present secular trend line was
helpful to surpass the economic development of the US [20]. In addition, the North
American free-trade agreement stated that the spreading trade conflict practically
impacts multinational and local business duties of the US compared to China.

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Impact throughout the globe

Figure 4: Global Growth and US-China Import tariff

The business operating conditions of International Trade and the global economy has
significantly impacted the worldwide business network in the trade war between China
and the US. by the end of 2019, China and the US had imposed a 20% tariff on the
trade of more than 60% bilateral merchandise that resulted in 0.5 % reduction of GDP
growth throughout the world [10]. The tariffs have affected Global markets as well as
product prices to adjust or divert trades across the warring and developed countries.
In the comparison of import prices and export prices, the majority of countries were
raising trade in terms of international business that tends to damage market and
consumer demand. Market changes depending on the pricing of products and services
with elasticities demand and supply chain facilities [14]. In addition, this trade war has
lowered down growth and global economic development including manufacturing
investment sentiment and purchasing.

US-China trade war significantly created a negotiation situation that resulted in volatility
on present market security, share prices, financial disruptions, and consumer
behaviour. Global investment soared to approximately $2 trillion before the start point
of the financial crisis throughout the world due to the trade war [10]. In the last decade
foreign direct investment decreased around 20% from the previous level of the global
index [11]. Since 2014, the Gross Domestic Product rate of the world has remained
around 169% but economic development has become swell in the present situation

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[15]. Besides that, the shifting structure of employment and productivity are affected
through the China-US trade war and tariffs that involve capital reallocation of the global
economy.

4. The effect on Supply chain and Malaysia Economy

Malaysia is an open and small economy country that is highly dependent on trades to
integrate its global supply chain and economic development. Malaysia is one of the
countries that has benefited from the us-china trade war because of the social or
political issues between these two biggest financially developed countries. In addition,
Malaysia has increased 0.1 % GDP growth from moving manufacturing companies of
China and the US that have developed financial growth of this country [5]. The elevated
tariffs of the US have started operating to the geographic location in Southeast
countries such as Thailand, Malaysia, and Vietnam that increase train diversion of this
Malaysian business. Malaysia has picked up investment and consumption in business
improvement to remain constant the growth of economic development [22]. Besides
that, the Malaysian government is working to streamline forest investment and to
increase incentives to the local companies for integrating business processes.

Figure 5: Estimated impact on Supply chain for Trade war

The Malaysian government believes that real investment and business confidence
refers to the innovative setting of business operations in foreign countries that expand
demand for services. In addition, suitable business relations with China, the largest

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trading partner and top exposure of business resources, can enhance tourism activity
within Malaysia. Disruption of the Chinese supply chain has a positive knock-on impact
on the export and import activities of this Malaysian business market [17]. Malaysian
exports of non-tariff and tariff-affected goods have been affected through the decline
of US exports that are worth US$90 billion on average of monthly income [2]. However,
Malaysia has increased 0.20% market supply of textile plastic chemical machinery
electronic, and other apparatus products due to the China-US trade war. The
integration of Malaysian GDP and supply chain ensures export facilities' financial
availability including export production and trade finance to improve economic
development [21].

5. Conclusion

It is concluded that the report aims to demonstrate understanding of the current trade
war between China and the United States and its effect on global economic
development. This trade war has impacted a growing as well as large trade deficit
between the two biggest financially developed and established countries throughout
the world. According to the report of the US trade representative, the trade deficit
increased approximately 346 billion US dollars in 2019 due to the China-US trade war.
During this cold war, China has banned import duties on US products for around 110
billion US dollars at the end of 2019. On the contrary, it can be concluded that China
has slightly benefited in economic development compared to the US financial condition
and business opportunities. In addition, the global GDP growth has reduced 0.5% as
the US and China had imposed 20% tariffs. In contrast, Malaysia has improved its
supply chain and 0.1 % GDP growth rate as a result of the China-US trade war.

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