The Impact of U.S.

-China Trade War on Global Economy: A Case Study on the Gulf

Cooperation Council (GCC)

Committee Comments

i
 Abstract

When economic growth is sluggish, it is common for countries to impose protectionist trade
policies, as is the case now. There has been an increase in protectionism since the recent tariffs on
trade imposed by China and United States in their current trade disputes. Trade war existing
between China and U.S was sparked by the anti-globalization policies by these countries, which
negatively impacted the global economy. Only a few studies have looked at the implications of the
trade wars by the US-China on nations other than the two economies (US and China) and those
studies haven't examined the GCC region as a whole. There is a direct link between the Gulf
Cooperation Council (GCC) economies and the global economy because they rely on foreign
commerce for growth and development. The GCC (Gulf Cooperation Council) economy was
examined in the current study to establish the impact the US-China trade war on it. The researcher
examined the impact of the US-China trade war on the GCC’s oil prices, GDP, export and import
rates, and the stock market through a thorough examination of the literature. According to the data,
GDP, export volume, and imports all decreased in the Gulf Cooperation Council (GCC) area. Oil
prices were also seen to fluctuate. The research also indicated that trade war had an impact that
was negative on stock prices in the GCC's major stock exchanges. If the conflict continues, the
U.S and China ought to hunt for new trading partners. The GCC should resist protectionist
emotions and strengthen its commitment of Mercantilism, be open to establishing preferential
agreements of trade and position itself as a manufacturing hub globally to build new partners in
trade which include both United States and China.

Key words: Protectionism, US-China trade war, Gulf Cooperation Council (GCC) Economies,
Trade Tariff.

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 Table of Contents

CHAPTER 1. INTRODUCTION .............................................................................................8

1.1. Historical background .......................................................................................................8
1.2. Research Problem and Justification ................................................................................. 13
1.3. Research Questions ......................................................................................................... 16
1.3.1 Research Objectives .................................................................................................. 17
1.3.2 Research Hypothesis ................................................................................................. 17
1.3.3. Significance of the Study .......................................................................................... 17
1.4. Literature Review and Gap Identification in the Literature .............................................. 18
1.4.1. Mercantilism versus Protectionism .......................................................................... 19
1.4.2. Implementation reasons for the Protectionism Policies ............................................. 22
1.4.3. Protectionism in the US and China Context .............................................................. 25
1.4.4. Protectionism Policies Implications .......................................................................... 29
1.4.5. Gulf Cooperation Council (GCC) Trade and Investment at a Glance ........................ 33
1.5. Theoretical Framework ................................................................................................... 36
1.5.1. Protectionism impact on Consumers ......................................................................... 37
1.5.2. Protectionism impacts on Businesses ........................................................................ 38
1.5.3. Protectionism impacts on Investors ........................................................................... 39
1.6. Research Methodology ................................................................................................... 39
1.6.1. Research Philosophy ................................................................................................ 40
1.6.2. Research Approach................................................................................................... 41
1.7. Data Collection and Analysis Method ............................................................................. 41
1.8 Research Scope and Limitation ........................................................................................ 44
1.9 Research Organization ..................................................................................................... 44
CHAPTER 2: THE IMPACT OF TRADE PROTECTIONISM AND THE US-CHINA
TRADE WAR ON THE GULF COOPERATION COUNCIL (GCC) ................................. 45
2.1. Trade Protectionism: Meaning and Definition ................................................................. 45
2.2. Changes in International Trade policies........................................................................... 47
2.3. The Rise of Protectionism Policy .................................................................................... 50
2.4. Reasons for the Rise of Protectionism across the Globe .................................................. 52
2.5. Protectionism in the Context of the US and China ........................................................... 54
2.6. The Trade Tensions reported in US and China ................................................................ 57

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 2.6. Causes of the Trade Tensions and War ............................................................................ 59
2.6.1. Employment and the trade deficit that must be addressed to improve the economy ... 59
2.6.2. China’s Involvement in Unfair Trade Competition ................................................... 61
2.6.3. China and the US technology war ............................................................................. 62
2.7. Deterioration of the US-China Trade Relations ............................................................... 66
2.8. From Trade Tensions to Trade War ................................................................................. 68
2.8. The Effects of the US-China Trade War on the Global Economy .................................... 72
2.8.1. Effects on Commodity Prices ................................................................................... 72
2.8.2. Effects on Employment ............................................................................................ 73
CHAPTER 3: THE EFFECTS OF THE US-CHINA TRADE WAR ON GULF
COOPERATION COUNCIL (GCC) ..................................................................................... 74
3.1. The Effects of the Trade war on Gulf Cooperation Council (GCC) Economies ............... 74
3.1.1. Real GDP ................................................................................................................. 74
3.2. The Effects of the US-China trade war on Oil prices ....................................................... 77
3.3. Effects of the Trade war on the Gulf Cooperation Council (GCC) Stock Market ............. 79
3.4. Probable Scenarios and Further Effects of the Trade War ................................................ 80
3.4.1.Scenario 1: The US-China Trade war will remain a Cold War ................................... 80
3.4.2. Scenario 2. An Agreement to stop the trade war will be reached .............................. 81
3.5. Possible impacts of US-China trade War on Gulf Cooperation Council (GCC) members
based on the Scenarios ........................................................................................................... 82
3.5.1. The US-China trade War Persists in the short-term ................................................... 83
3.5.2. Cold War .................................................................................................................. 85
3.5.3. The War Escalate into a World War ......................................................................... 87
3.6. Implications of the Trade War for the Gulf Cooperation Council (GCC) Nations ............ 88
3.6.4. Continue with the Move towards Mercantilism ......................................................... 93
3.6.5. Create Special Economic Zones(SEZ) and Position the region as a Global Trade Hub
.......................................................................................................................................... 95
3.6.6. Form Preferential Trade Agreements ........................................................................ 96
3.6.7. Promote Better Engagement with The Community ................................................... 97
Chapter 4.0. Conclusion .......................................................................................................... 98
5.0. REFERENCES ............................................................................................................... 101

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 List of Figures
Figure 1: Principles underpinning the global trading.................................................................. 48

Figure 2 : The rise in the protectionism policies (source Alternberg, 2021) ................................ 53

Figure 3: Legal backing for tariffs in US ................................................................................... 56

Figure 4: political issues leading to the US-China trade war (Source: Authors illustration based

on Kapustina et al (2020) .......................................................................................................... 71

Figure 5 :The reduction in the Real GDP value (source: Huang, Lin, Liu, & Tang, 2018) .......... 75

Figure 6: Change in the export and import values (source: Ellyat, 2018).................................... 77

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 Abbreviations List

AIIB: Asian Infrastructure Investment Bank

ASEAN: Association of Southern East Nations
BRI: Belt and Road Initiative
CNOOC: China National Offshore Oil Corporation
CEO: Chief Executive Officer
EOCD: Organization for Economic Co-operation and Development
EU: The European Union
GATT: General Agreements on Tariffs and Trade
NDB: New Development Bank
TIFAs-Trade and Investment Framework Agreement
TPP: Trans-Pacific Partnership
UAE: United Arab Emirate
US: United States of America
USD: United States Dollars
WTO: World Trade Organization

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Glossary
Export: Goods and services produced in one country and sold to consumers in another nation
(Evenett, 2019)
Import: Goods or services brought to one country that was produced in a different country
(Evenett, 2019)
G20 Nations: The members of the G20 are Argentina, Australia, Brazil, Canada, China, France,
Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South
Africa, Turkey, the United Kingdom, the United States and the European Union.
Protectionism: Theory of trade practice that is focused on shielding the domestic firms from
foreign competition through taxing of imports (Barattieri & Cacciatore, 2020)
Protectionism Policy: A government policy that restricts international trade to help the domestic
firms survive the intense competition from foreign firms, improve the economic activity and
growth within the domestic firm, or to regulate an industry due to safety and quality issues
(Yılmaz, 2020).
Quota: A policy imposed by a government that restricts the limits of number or value of goods
that a nation can import or export in a given period (Sukar & Ahmed, 2019)
Stock Market: A market that deals with the exchange of shares of publicly listed companies,
government bonds, and other instruments of money (Aldayel et al., 2019)
Stock Prices: The current price that a given stock is trading at in the stock market (Aldayel et
al., 2019)
Trade tariff: A tax imposed by one country on the services and goods imported from another
country (Cambazoğlu, 2020)
Trade war: A situation where countries try to damage each other’s trade and economy through
imposition of tariffs or quota restrictions (Kukharyk, 2020)

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 CHAPTER 1. INTRODUCTION

This chapter introduces the subject matter and provides some context. Afterward, the

chapter provides an explanation of why the study is necessary. Also underlined are the study's

intended research questions. Accordingly, the study's background and the significant gaps in the

research are examined by critical literature evaluation. An extensive discussion of the research's

theoretical foundations provided as well. Throughout this chapter, the research approach and

methodologies of the study are discussed. After discussing all the possible techniques utilized in

the study, the specific methods in research used to evaluate and collect material required to

answer the specified research questions are justified. Toward the end of the chapter, a discussion

of the study's theoretical and practical importance is included.

1.1. Historical background

Throughout the 21st century especially the 1st half, the U.S and China have engaged in a

trade war. Washington's goal was to maintain a competitive advantage in the high-end

manufacturing and service industries while providing better safeguards for domestic businesses

and equal access to the Chinese market for those companies. Globalization and commerce can be

reformed by implementing a strong customs policy. Ultimately, this trade dispute will determine

America's position as a global powerhouse and the United States' endorsement of the

international system. Domestic trade conflicts are being exacerbated due to growing public

dissatisfaction with political authority as a result of globalization. To maintain control and

influence public opinion, customs fees and penalties are also raised (York, 2019).

When China's purchases of industrial goods and services from the United States are

considered, it expects to increase them by $200 billion over the $186 billion it bought in 2017.

8
The pledges made comprised an additional manufacturing purchases $78 billion, in energy

purchases $54 billion, in new farm product purchases $32 billion, and in-service purchases $38

billion. Each of these transactions involves a significant sum of money. Despite the pandemic

and unduly high expectations, China's $173.1 billion goals were accomplished 58 percent of the

time (Dixon, 2020).

From $375.167 billion in 2017 to $310.8 billion in 2020, according to the International

Monetary Fund, China's trade imbalance with the United States has decreased. In the end, the

goods trade deficit decreased by 21% to $916 billion. The overall budget deficit shrank due to a

decrease in imports (from China) and an increase in exports (from $112.29 to $124.65 billion).

As a result, China's trade deficit was decreased, while the tariff war worsened the trade deficits

of other developed countries. Tariffs imposed by President Trump have pushed up the prices of

goods imported into the United States. Due to the introduction of fees in 2018, customs revenue

has increased by about $80 billion. There are no official estimates; however, based on publicly

accessible information, 2020 spending will account for 0.23 to 0.53 percent of overall

expenditures. This spans from 2% to 7% in terms of GDP growth. (Cerruti, 2019).

However, this does not solve the most pressing issue, namely China's massive meddling

in the country's local economy. It will be some time before a final deal is reached between

Beijing and Washington, as most tariffs remain in place. In the past, China and the US have

clashed on various issues, including the protection of intellectual property and government

subsidies, as well as access to numerous economic sectors. The US Commerce Department's

imposition of sanctions on Huawei between May and August 2020 will make international trade

in commodities and technical solutions more difficult. The Trump administration's approach to

9
advanced processing chips and software will likely limit China's global expansion in the long

term (Sheng, 2021).

For quite some time, the United States-China relationship has been deteriorating. The

escalating animosity between the two nations is ongoing trade disputes and technology disputes

(Stiglitz, 2017). Globalization and the merging of economies sparked a rise in hostility between

the two countries (Danso, 2020). Due to globalization, the Western countries and United States

included hoped to take advantage of China's low-skilled labor force and more permissive

environmental regulations. Many western nations moved lower and middle-level industrial

production into the Chinese market (Freund et al., 2020). For as much as western countries

claimed to have tight controls on exports to China, the transfer of diversified activities that are

technology related into the China’s market enabled China to gain entry into the technological

business at the time.

The financial crisis in the year 2008 accelerated China's technology operations even

further. This crisis resulted into the situation where, the economies of Europe and the U.S took a

significant hit from the crisis while also the China's economy was affected, not significantly

(Chong & Li, 2019). Because of this, China's technological and scientific capabilities expanded

while Western countries faced severe hurdles in the industries of high-tech. Consequently

(Riedel, 2020). Governments in the Europe and the United States saw China's rapid

technological advancement as a threat and took steps to limit it.

Specifically, the Obama administration made a concerted effort to keep away China from

making any investment in the semiconductor industry based in US and gaining access to any

technologies in American (Riedel, 2020). After Trump took office, there were reports of a

dramatic surge in the digital battle with China. China was considered the most formidable

10
technical rival to the United States (Noland, 2018). As a result, tactics were tried to restrain

China's technological development activities. Indeed, the heavy US pressure on Huawei, a

Chinese telecommunications company, was designed to stifle China's technological advancement

(Friedberg, 2020).

China-US ties have been complex for some years, but in 2018 there was a significant

crisis. As a result of Trump's 25 percent hike in tariffs on 818 Chinese items, the trade war

between US and China escalated (Steinbock, 2018). Increasing import duties on these categories

of Chinese goods resulted in significant losses for the government of China.

Retaliation: The government of China levied a tariff of 25% on the 545 US items that

were worth USD 33.9 billion in response. When the US government retaliated, the value of the

279 Chinese products, worth USD 16.2 billion at the time, was hiked by an additional 25 percent

(Steinbock, 2018). Duties on the 333 US products whose worth was USD 16.2 billion were

increased by 25 percent in response to the Chinese government's decision to raise tariffs on those

products (Riedel, Jin & Gao, 2020). They didn't stop there. The US administration slapped the

third round of tariffs that are worth USD 200B on other Chinese related goods that are rated at

10%. (Pawar, 2017). Import duties on United States goods worth USD 60B were raised by up to

5 to 10 percent as part of China's third round of levies.

A conflict between two of the world's most powerful economies was underway, as

evidenced by the actions of both countries. It was clear that the United States and China were on

a mission to undermine the world economy based on the facts disclosed about their conduct.

Most of the articles written on the subject were critical of both countries and blamed them for

causing the world economy to suffer. President Xi Jinping of China and Donald Trump of the

United States agreed to temporarily pause the increase of tariff rates that were imposed by the

11
two countries for about 90 days from 1st of December, 2018 (Plummer, 2019). The policy pause

was put in place to give both sides some breathing room to work out their differences on trade.

To avoid a full-blown war on trade between the G2 countries, the intellectual property rights and

currency rates policies ought to be examined to come up with resolution before the war escalates

further (Plummer, 2019). Therefore, its observable that, the trade war between China and the

United States continued to grow intensely.

Kapustina, (2020) have looked into the global economic consequences of the trade war

between the US and China. The great majority of studies have focused on the impact of the trade

war on the economies of the United States and China. The GDP losses in both countries have

been investigated and reported (Li, 2018). The influence of conflicts on commerce on

productivity, import tariffs, and investment has also been investigated (Kwan, 2020). Many

researches have been published on the trade war between the United States and China (Demir et

al. 2017). China and the United States are fighting a trade war, with little information on the

impact on other countries' economic development and performance. Trade wars between the US

and China, have implications that go beyond bilateral ties (Iqbal, 2019). The trade war-related

issues weighing on the global landscape will influence nearly every market in the international

sector.

Few details have been released on how the US-China trade war will affect Gulf

economies, particularly GCC (GCC). Both the United States and China rely heavily on oil

imports from Gulf countries. The global trade war has harmed both countries’ economies. Other

economies around the world could be severely harmed as a result. As a result, the current

research examines the potential effects of the US-China trade war on the global economy, with a

particular focus on the GCC economies.

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1.2. Research Problem and Justification

There have been several heated discussions between proponents of protectionism and

mercantilism. Disadvantaged populations have been cited as primary evidence for and against

trade restrictions and discrimination (Cambazolu, 2020). As a result of current events in

international business, there have been several disputes about the US-China trade war

(Fratzscher, 2020). Most of the conflicts regarding protectionism have been sparked by public

skepticism about the issue's significance in industrialized economies. Prosperity and economic

growth have been observed in countries like the United States under President Trump's

administration. According to his campaign promises, the president of the United States has a plan

in place to reverse globalization and ensure that American businesses are the primary

beneficiaries of trade.

Different sectors of the economy have reacted differently to such protectionist views. The

trade war between the United States and China was sparked by the two countries' strict

protectionism policies (Wandel, 2019). Both the United States and China have implemented

protectionist policies to erect new trade barriers and raise the tariffs on those already in place.

After the other party established trade obstacles, both countries placed tariffs of their own.

Devlin and Barry (2019) argue that trade wars are started because people are misinformed about

the advantages and disadvantages of mercantilism. Typically, these wars result from countries

taking a defensive position. One government perceives the other as engaged in unfair trading

practices, and as a result, it adopts a policy of protectionism to counter this threat. Local

businesses, jobs, and the country's firms are all intended to be protected against international

competition due to protectionism tactics in place.

13
 The trade policies of the United States and China following recent trade disagreements

are still up in the air. While it is possible that the status quo may stay, recent reports indicate that

this is not the case (Williams, 2019). Analysts predict that the United States will shift from a

strong anti-protectionist stance to one that supports bilateral trade. Numerous persons, according

to the optimist, may favor bilateral trade to plurilateral commerce or any other coercive abuses of

international trade laws and regulations (Wakuma, 2019). Others, on the other hand, are

concerned that trade barriers that were removed more than half a century ago may be re-

instituted in the future (Williams, 2019). People who believe that previously repealed trade

barriers should be reinstated do so because of the increasing use of trade tariffs in many

economies, as well as the potential for such hazards to increase.

Regardless of how the United States and China feel about international trade, there is a

severe danger of additional limits on global investment and trade regulations. In the

contemporary day, the adoption of such restrictive regulations by many economies is profound

(Sukar, 2019). G20 countries have enacted four times as many trade restrictions since the

financial crisis as before. More than ten percent of the world's imports have been affected by

these trade restrictions (Subacchi, 2020). At first, worldwide corporations did not tolerate trade

restrictions and strongly opposed their implementation (Irwin, 2017). The G20 nations, on the

other hand, have reneged on their pledge to resist any protectionism adopted globally (Linn,

2017). Thus, global trade levels have remained stagnant, with exports and imports falling

significantly.

There has been an increase in the use and support of protectionism measures worldwide.

Many people believe that trade is good for the economy; however, some activities might be

beneficial or harmful (Banks, 2020). The international business provides additional export

14
options and increases competition from exports, which forces local companies to become more

efficient (Vijayasri, 2013). New employment is created, and others are lost due to foreign

commerce. An organization's ability to benefit from international trade depends on how they

adapt to the new environment. For a good trading process, government policies play an essential

part. Promoting mercantilism by the government opens up numerous opportunities for countries

doing business with that government to benefit greatly (Panagariya, 2019). However, the process

may result in significant losses for the countries involved if there are limits on international

trade.

The global economic climate and international trade policy have faced significant

challenges in the previous few years. As a result of the signing of several regional and bilateral

agreements, the scope of these agreements has been expanded (Ylmaz, 2020). In addition to

intellectual property protection, customs laws, competition policy, and product quality and

standards policies, these accords have now been included into the global economy (Wraight,

2019). Rather, international negotiations had made little headway, which was disappointing. The

international negotiations (the Doha Round) have ground to a halt despite significant progress

within the World Trade Organization structure.

After the establishment of the World Commerce Organization, the expansion of global

supply chains was the second most significant development in international trade history. As a

result of the fact that most commodities and services are traded through supply chains, supply

chains have become increasingly important (Haralambides, 2017). Because of these adjustments,

trade and investment barriers have been lowered, communication and transportation costs have

been cut, and logistical advances have increased the importance and relevance of the global

supply chain. Increasing globalization and specialization in manufacturing based on comparative

15
advantage have resulted in the growth of the global supply chain in recent years (Dutta et al.,

2020).

In many countries throughout the world, trade and the benefits of doing business with

other vital players in the global economy are facilitated via supply chains. Trade and foreign

direct investment have grown because of the expansion of the global supply chain, which has led

to more employment and a rise in GDP for all nations involved (Bonadio et al., 2020).

As the global supply chain increases, several countries are expected to investigate

producing and selling goods and services in which they have a comparative advantage. The

agreements reached at the World Trade Organization (WTO) are made official. When

protectionist trade policies take hold, international commerce actors are put in a difficult

position. This technique has the potential to have negative consequences for the global economy,

as several researchers have proved (Ylmaz, 2020). The author of this report was motivated to

perform this study by international commerce and protectionist trade policies. In order to provide

policymakers and the general public with a clearer picture of the worldwide economic

consequences of protectionism in trade policy, we undertook this investigation. Gulf Cooperation

Council economies may be affected by the trade policies of the United States and China. As a

case study, this paper investigates the trade war between the United States and China, which has

been sparked by the countries' respective protectionist policies. In addition, the study investigates

the impact of trade developments between the United States and China on the policies of the

Gulf Cooperation Council (GCC).

1.3. Research Questions

The research question of the study are as follows;

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1. Is there a significant relationship between the US-China tariffs and the economic

performance of the Gulf Cooperation Council (GCC) economy?

2. Does USA-China trade deficit affect the economic performance of the Gulf Cooperation

Council (GCC) economy?

1.3.1 Research Objectives

The main objective of the study is to establish the impact of U.S.-China trade war on the Gulf

Cooperation Council (GCC) economy. Other Objectives are:

1. To establish the impact if US-China tariffs on the economic performance of the Gulf

Cooperation Council (GCC) economy.

2. To determine the impact of US-China trade deficit on the economic performance of the

Gulf Cooperation Council (GCC) economy.

1.3.2 Research Hypothesis

H01: There is no impact of US-China tariffs on the economic performance of the Gulf

Cooperation Council (GCC) economy.

H02: US-China trade deficit has got no impact on the economic performance of the Gulf

Cooperation Council (GCC) economy.

1.3.3. Significance of the Study

The findings of this investigation have implications for both the real world and academia.

In theory, the results will add to the current research on the trade war between the United

States and China on the global economy. For the most part, researchers have examined the

effects of the trade war on America's and China's two largest economies. However, little

17
 research has been done on the impact of the two countries' protectionism policies on the

world economy. There is a lack of data on the effects of the US-China trade war on the Gulf

Cooperation Council economy (GCC). Observing recent developments, it appears that the

two countries are considering the region as a trade and investment hub. However, there is no

evidence that the present U.S.-China trade conflict will impact the Gulf Cooperation Council

(GCC). Consequently, the results of this study will go a long way toward filling a literature

gap.

It is hoped that the findings will help the countries included in the study develop trade

policies that are relevant, effective, and efficient. The two countries' current trade

protectionism trade policies will influence their future trade policies. Gulf Cooperation

Council (GCC) leaders will also profit from the findings of this research because it will help

them decide what measures to implement to take advantage of the present trade conflicts

between the two world's largest economies.

1.4. Literature Review and Gap Identification in the Literature

This research paper intends to respond to the existing gaps identified in the literature gap,

and a literature review helps identify them. The war on trade between the United States and

China has been the subject of numerous research (Kapustina, 2020). Various factors influenced

the study, resulting in multiple conclusions about the trade war's effects. An examination of the

notion of protectionism is conducted, with particular attention paid to the motivations behind the

implementation of protectionism theories and the consequences of such policies. When it comes

to protecting their interests, the United States and China have both taken a hard look at the

concept of protectionism. The present trade conflict between the United States and China is also

explored to uncover essential gaps in the research.

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1.4.1. Mercantilism versus Protectionism

To better understand the advantages of mercantilism and the consequences of

protectionist measures, Abboushi (2010) examined the experiences of numerous countries.

According to the author's literature analysis, international trade has expanded tremendously. The

GDP of countries that favor mercantilism appears to be higher than the GDP of countries that

favor protectionism. According to academics, countries use protectionism policies whenever they

are under pressure from specific industries and economies. However, the author found that

countries with more liberal trade policies are more likely to reap the benefits.

It has been suggested that the benefits of commerce are exaggerated; yet, the benefits of

trade increase with greater freedom. The professor argues that countries with more open trade are

better off than those with trade restrictions. The economic performance of countries with

mercantilism policies was compared to that of countries with trade restrictions in another World

Bank study. The trade policy of 41 countries was analyzed. Results show that countries with

mercantilism performed better than those with regional trade in their financial success.

Furthermore, mercantilism -friendly countries experienced a significant rise in real per capita

incomes.

As a result of trade policies such as protectionism, employment is affected significantly.

A study by Li and Whalley (2021) examined the effect of protectionism on an economy's

employment rates. A general equilibrium model was used by the authors to forecast how

protectionism policies in the United States will affect manufacturing employment rates

(Fratzscher, 2020). Protectionism policies have been shown to have a negative impact on

employment rates in an economy, according to the research.

19
 Many people believe that by restricting imports through protectionist tariffs, the domestic

market will be better able to support more jobs. However, this is not always the case. According

to Yilmaz (2020), the assumption that trade policies on protectionism increase employment are a

fantasy. In addition to resulting in major job losses, trade protectionism policies have

considerable negative effects, such as preventing a country from realizing the benefits of

specialization, generating significant disruptions in services and goods, and leading to the

misallocation of resources. According to the above researchers, trade protectionism policies and

tariffs have a negative impact on the economy.

Economic impacts of US protectionism were discussed by Fratzscher (2020). In the

1990s, the US economy lost $12.7 billion a year because of restrictions on steel, sugar, vehicles,

and textile imports. Furthermore, this protectionism had a considerable effect on the consumer.

Different consumer groups were affected differently by protectionism measures, according on

their various income levels. Academics say that protectionist policies have harmed the economic

well-being of those on the margins of society. High-earners felt the effects, but not nearly as

much as those at the lower end of the income spectrum. Researchers from the University of

Padua studied the economic impact of protectionist policies when the country's trade volume

exceeded $100 million in (Cappariello, 2020). Studies by academics also suggest that

protectionism in trade policy has caused major harm to the economy. More than $100 million

was spent by the US government on 25 of the 31 cases studied.

In contrast, the textile industry suffered a loss of $ 27 billion annually due to the trade

policy. Another $ 6.8 billion was spent on steel, $ 5.8 billion on automobiles, and $ 5.5 billion on

dairy products because of the strategy. The academics also found that after protectionist policies

were put in place, consumers were forced to pay a high price for every safeguard job. It was clear

20
that the burden of saving a single job would fall heavily on the consumers, who would be

required to pay more than $100,000 to do so.

In light of the evidence, it isn't easy to believe that protectionist trade policies are good

for an economy. Several studies have shown that protectionism reduces a country's efficiency by

increasing government bureaucracy and expenditures, leading to distortions in production, lower

consumption rates, and lower consumer purchasing power (Cambazolu, 2020). While it’s short-

term benefits to local businesses, protectionism can have long-term detrimental effects on

economic growth and development.

Economic growth and progress can only occur if protectionist trade theories are

implemented. Global crises and war necessitate trade tariffs, according to Ostry (2019), because

a country can't compete without them. Import-cutting and export-boosting policies are also

suggested to help a country cope with the hazards and obstacles imposed by the crisis

(Cambazolu, 2020). The 2008 financial crisis was when many countries did not favor

mercantilism but instead embraced protectionist policies to deal with the crisis's issues

(Williams, 2019). Even though the policy had some short-term successes, the authors

emphasized that protectionism leads to a deeper economic crisis than its supposed benefits to the

economy in question.

To help domestic businesses gain a competitive advantage and expand their market share,

protectionism policies are implemented. To assist an economy, recover from a downturn,

protectionism policies have also been used" (Williams, 2019). Although these policies are

intended to benefit other countries and their economies, they have the opposite effect in the

majority of cases. Depressions and recessions are common occurrences in many countries.

Prohibition's stated objective may be impossible to achieve in the short or long term.

21
1.4.2. Implementation reasons for the Protectionism Policies

Despite the dangers of protectionism policies, a number of countries continue to employ

them. Protectionist policies are justified for numerous reasons. Governments can impose special

trade tariffs, currency rate controls, subsidies, antidumping laws and local content criteria in

order to establish protectionism, he wrote in his book (Danso 2020). Tax cuts, financial

incentives, and low-interest loans are examples of subsidies used to help domestic businesses

compete in the local market by lowering the cost of doing business (Demir, 2017). In addition,

the government could mandate that some products be manufactured in the United States. A rule

like this safeguard’s domestic producers from the fierce rivalry predicted by international firms

(Danso, 2020). Additionally, tariffs and restrictions are a genuine possibility. According to

government policy, imports are taxed and/or restricted to safeguard local businesses and ensure

that their products can compete effectively against international rivals in the market.

It doesn't matter how the government achieves protectionism; the end goal is always to

shield the local business from the fierce competition it faces from across the border. According

to Evans (2019), protecting industries and jobs is the primary motivation for using protectionism

policies. They argue that a country's local markets would be depleted if trade protectionism were

not in place. To put it another way, the GDP will suffer due to job losses and rising

unemployment rates.

In another study, Williams (2019) has shown that natural security is another motivation for

pursuing protectionism laws aside from protecting industries. Most of the time, a country will

enact protectionist policies to shield its defense-related businesses. These high-tech companies,

especially those specializing in aircraft and semiconductors, are critical components of the

national defense strategy and should be manufactured locally. The country's ability to respond to

22
catastrophes and defend itself in the event of a war would be severely harmed if it relied solely

on foreign companies for these products. To protect the manufacturing and production of defense

products, protectionism policies are critical.

Other pro-protectionism reasons include the need to safeguard consumers and emerging

businesses. For policymakers, protecting customers against harmful goods and services is a

priority, according to Kapustina, (2020). According to these officials, foreign items offered by

multinational corporations may pose a risk to customers' health and well-being.

There are items on the market that do not satisfy the needed quality and safety standards,

making them dangerous to humans because they can lead to severe illnesses. In the past,

domestic companies have insisted that imported products must meet the government's

established safety criteria to meet the exact requirements. Due to the need to protect citizens

from potentially harmful items, governments have been forced into implementing protectionism

policies. Infant industries, which may not compete with more established businesses in the

economy, also need this kind of protection. Profitable multinational corporations are more likely

than smaller start-ups in developed economies to dominate the market competition. The financial

and economic resources of the region's most developed economies provide them an advantage

over smaller, less developed businesses.

Another factor for the survival of protectionism trade policies is maintaining a specific

status quo. In the absence of preparedness to handle the competitive challenges in diverse

markets, governments may contemplate a protectionist strategy, according to Barattieri &

Cacciatore (2020). Even if trade Protectionism results in more employment being created, only

the industry's top performers will fill these positions. In most cases, the global market fails the

23
losers. Most countries would do all in their power to avoid incurring losses on the world stage

because losers are more evident than winners.

They are likely to contemplate implementing protectionism measures if they cannot

compete fairly with other competitors because of the tough competition offered by other

countries. Instead of taking the risk on the foreign market and maybe losing their careers, they'd

rather keep their jobs than chance incurring enormous losses after just one try. Governments

implement trade protectionism policies to safeguard domestic products and limit potential

infringements by foreign enterprises.

Furthermore, Kukharyk (2020) argues that the persistence of protectionist trade policies in

diverse economies can be traced back to domestic partisan politics. Trade has been regulated by

tariffs since the United States achieved its independence in 1776, according to the experts. A

non-partisan trade policy was formed by the government by establishing the tariff commission to

gather economic and statistical data. A major point of contention between Republicans and

Democrats was how trade policy would be developed inside a bureaucracy. The two parties

could not agree on the implementation of protectionist trade regulations in order to safeguard

consumers from high prices and manufacturers from unfair competition. The question of whether

or not trade protectionist policies should be implemented has also provoked passionate debates

and controversies.

The Democrats and the Republicans are still at odds over what kind of trade policies to

implement. As a result, bureaucracy and trade policies were developed and replaced by other

procedures, depending on which party had the most influence in Congress. Due to the partisan

fight in the United States, it is not uncommon to see a rise in anti-globalization sentiment. As

Democrats and Republicans disagreed on the merits of protectionism at each given moment, it

24
explains the endurance of the policy. There has been a rise in partisan politics in the United

States, which has affected trade policies (Conconi, 2014).

1.4.3. Protectionism in the US and China Context

U.S and Chinese policies show that protectionism is still a problem in the world

economy. Both countries' trade policies offer a determination to shield their economy from the

effects of global commerce. As a worldwide emblem of liberty, the United States of America

was highly revered. Even so, the country has recently been branded as a "protectionist country"

(Beaudreau, 2017). In 1789, the president of the United States passed the first Tariff Act, kicking

off the country's protectionism policies. As a result of the global economy's fierce

competitiveness, a 5 percent levy was imposed on most imported items (Beaudreau, 2017). The

tariffs on manufactured goods in the United States were raised to roughly 50% in 1828, the

highest level ever recorded due to further measures.

40 percent tax hike was enacted in 1922 by the Fordney-McCumber Act. This law was

passed to keep American factories from being overrun by foreign competition (Lake, 2018). As a

result of the Great Depression, new policies were enacted to protect the economy. Protecting

American farmers and manufacturers from unfair competition was one of the main goals of the

Smoot-Hawley Tariff Act, which was passed during the Great Depression (Beaudreau, 2017).

In recent years, the US government has also used the principle of protectionism to

safeguard their industries and the economy from foreign competition. As the global financial

crisis unfolded from 2007 to 2008, the United States economy suffered a setback (Li, 2021). The

administration had to decide whether to do nothing or increase duties on Chinese imports. By not

acting, the economy and financial system as a whole were put at risk, resulting in a potential

25
collapse (Williams, 2019). Yet, pouring money into the economy through various financial

assistance would have helped it recover; however, significant advantages were not found.

However, a new wave of American protectionism was left as the only choice for the government.

Protectionism was a prominent topic of discussion at a G20 summit, and most attendees

argued that it should be rejected. As all those in attendance reached a consensus, states should

avoid erecting new trade barriers to investment in products and services (Evenett et al., 2018). In

addition, the vast majority of attendees supported the idea of avoiding import tariffs and export

restrictions. Following the financial crisis, there was a significant chance that governments

would implement protectionism policies and tariffs to counteract the decline in trade. At the G20

summit, it was proposed that countries refrain from implementing any protectionism policies.

This was the result.

As a result of the meeting, most countries, including the United States, did not impose

new duties on imports. Starting in 2008, tariff rates in the United States dropped steadily until

reaching a record low of 1.67 percent in 2016. US non-tariff barriers reached a peak of close to

800 between 2009 and 2017, according to Popa (2019). Non-tariff barriers impede the entry of

nearly 17% of all imports into the United States during this time period.

This region's trade deficit has widened despite US non-tariff measures implemented over

time. In 2018, the trade imbalance reached a record high of $ 627.7 billion (Hoekman, 2017).

Economic and employment losses have been documented in the early years of the nation's policy

of protectionism. When the United States imposed the most significant percentage of

protectionism levies on its commodities and investments, jobless rates rose the most.

26
 There has recently been an increase in the use of protectionist policies, despite the fact

that they are harmful to the economy. According to Popa (2019), the original agreements reduced

tariffs and non-tariff obstacles in the United States. There were approximately 18000 taxes and

trade restrictions removed as a result of the accord, which was acknowledged by Obama

(Hoekman, 2017). To avoid a surge in unemployment, Trump's government withdrew the United

States from the Trans-Pacific Partnership (TPP). After this, a number of firms were considering

shifting manufacturing and production to emerging and developing economies. The government

has imposed new limits on international trade (Hoekman, 2017). Many countries around the

world have experimented with the idea of opening their economies to international trade. Still,

tariffs are being imposed on an almost daily basis in the United States to keep the economy from

reopening.

The United States has retaliated against China's trade practices by enacting legislation

limiting China's access to critical technologies. According to the authorities, the Chinese

governments are promoting mergers to steal technology from US-based companies and gain

access to sensitive data about China (Hoekman, 2017). For the sake of national security, the

United States government has pushed for regulations that shield domestic enterprises from global

competition. This helps to explain why the US government has been enacting protectionism

policies at an alarming rate recently. Whether or not the policies' stated goal was achieved or will

be achieved is still up for debate.

As a result, China has seen an increase in implementing a protectionism policy. Until

1994, China imposed high taxes on imports and exports to regulate the flow of products and

capital. The nominal tariffs remained high, at an average of around 36%, notwithstanding

previous reports of tariff decreases (Hoekman, 2017). There was a 30% disparity in the value of

27
nominal tariffs levied by most developed economies. In addition, the price was 15% higher than

in developing countries at the time. In the early 1990s, China began imposing high tariffs.

Both durable and non-durable consumer items were subject to hefty tariffs. Tariff rates

were so high that they would easily reach 100% if wholly implemented. To entice more

businesses to enter the Chinese market, the government would sometimes implement only a

"provisional tariff rate" (Hoekman, 2017). A lower interim tariff might be applied to more than

282 product categories with high rates during the same year. On a wide scale, the government

also reduced and exempted tariffs. The exception only applied to a small number of products;

therefore, they were subject to lower duties (Hoekman, 2017). As a result, China was able to

draw in more market participants.

A direct result of China's involvement in processing commerce was that imported items

were significantly reduced. Processing and manufacturing were two of the country's main

industries. Processing items using raw materials supplied by the foreign company was one

option. On the other hand, the other method concentrated on the processing of commodities for

foreign enterprises, but with the raw materials provided by domestic industries (Hoekman,

2017). Taxes and customs are not imposed on goods brought into the nation for processing.

Because of this, most international businesses were able to enter the Chinese market.

China is currently administering a unique import approval process. An expedited

approval process is used for country imports. Any company that has a processing agreement with

a foreign corporation can import the items without the need for a trading agent, resulting in

higher expenses. A standard form of import permission is required for items brought into China

for purposes other than trade processing. The latter procedure necessitates the involvement of

designated trade agents and, as a result, incurs significant importing fees. Many international

28
 companies have set up shop in the region because of policies put in place by the Chinese

government, even though they retain importing rights.

A tremendous surplus of commodities in China has caused local prices to fall to their

lowest levels in decades for mining businesses to go into the red as a result of the economic crisis

and other nations' anti-China policies. Iron ore, coal, and cotton are building up in ports across

the country because of overflowing state granaries. Non-tariff barriers have been employed by

the Chinese government to restrict imports of corn, cotton, and distillers' dry grains. Beijing put a

3-6 percent tariff on coal imports last month, affecting an estimated $8 billion in exports from

Australian mines after months of pressure from the China National Coal Association. It's been a

while since we've seen this much protectionism in China's commodity imports, so it's shocking

(Schernikau, 2016).

Adding to the woes of commodities prices worldwide, China's surge in perceived anti-

competitive actions is another danger. According to World Trade Organization data, more than

90 food safety and animal and plant health safeguards were implemented in China in 2013, up

from just 25 in 2012. Technical trade obstacles increased from 27 in 2012 to 79 in 2013,

according to the International Trade Commission (ITC). Concerns have been raised that Beijing

is trying to help indigenous firms by ramping up its six-year-old anti-monopoly statute to initiate

a wave of investigations into multinational firms like Microsoft and Volkswagen (Wong, 2014).

1.4.4. Protectionism Policies Implications

A country's degree of development and size influence the impact of protectionism. A rise

in protectionist measures in one country may inspire other countries to follow suit. Since global

wealth is declining, the economic situation in these countries is likely to deteriorate (Baytar,

29
2011). Supply and demand in the global economy will be affected if a country's trade is restricted.

There will be a decrease in global demand and commodity prices when a developed country

imposes restrictive protectionist measures. Reduced prices will result in considerable losses for the

producers of such commodities. As a result, countries that significantly contribute to global supply

should proceed cautiously when implementing protectionist policies. Pro-business policies have

been implemented in developed countries, distinct from those in underdeveloped countries

(Baytar, 2011).

On the other hand, reducing imports by a developing country has no real impact on the

global supply when that country does so. As a result, a reduction in imports will stimulate

domestic producers to produce more, thus increasing domestic production. This is the exact

opposite of what you'd expect to happen in a developing country. Development countries

significantly impact the global market (Demir, 2017). Their decisions to establish policies to

support their exports or substitute imports will affect the world. When it comes to determining

how protectionism impacts global trade, it's best to look at the policies implemented by the

countries implementing them. China's and the United States' protectionism policies have had a

negative impact on global trade. These ideas' effects on China and the United States' economy

have been well-documented in most research.

Protectionist ideologies have had a considerable impact on China's ecology, even if only on

the surface. There are various WTO issues involving China as a result of China's trade

protectionist policies. One-third (35%) and seven-tenths (71%) of the total cases investigated

worldwide were brought against China by the World Trade Organization (WTO) in 2008 (Bown,

2019). Additional trade remedy cases totaling $8 billion were filed against China.

30
 Following joining the WTO in late 2001, China's trade has grown rapidly. However,

China's trade performance has dropped dramatically since the financial crisis. Annual growth rates

of more than 20% for both imports and exports were common before 2008. (Meltzer & Shenai,

2019). Between 2002 and 2008, China's imports totaled $4.8 trillion, growing at a compound

annual rate of 25.1%, accounting for 9 percent of the global increase in importance. The global

economic crisis has heavily damaged China's commerce sector since 2008. After growing at a

reasonably steady rate through the first ten months of 2008 (21.9% and 27.6%), China's exports

and imports contracted by 2.2% and 17.9% in November. Trade between China and the rest of the

world has been freefall ever since (Wei, 2009). Exports fell by 21.8%, while imports rose by

25.4% in the first six months of 2009. This led to a significant drop in trade with the country's top

ten suppliers and buyers, with several of the drops being in the double digits.

Exports and imports are closely linked in China. If exports decline, imports follow suit.

Even though Chinese imports fell in the first half of 2009, this was not due to Chinese

protectionism but rather because of China's unique trading qualities (Bown, 2019). Due to trade

limitations in other nations, China's exports would drop, and its imports from the rest of the world

will decline as well. In other words, China's imports will be badly impacted by trade

protectionism, but not necessarily from the countries or countries enforcing it (Wei, 2009).

Restrictions on Chinese imports will benefit nations that are trying to emerge from a recession,

significantly when exports have grown increasingly essential.

A move from export-driven to consumer-driven growth has been a goal for China in recent

years. There are too many people in the country to happen quickly or all at once. As a result, the

economy's expansion is dependent on the rise of external demand (Wei, 2009). Over 60 percent of

China's international trade workforce comprises migrant laborers from rural areas. Suppose

31
100,000 Chinese employees are directly impacted by the protectionist policies imposed by

countries like the United States. One million jobs could be affected if linked employment in

upstream and downstream businesses is considered (Meltzer, 2019). An economic model focused

on consumer spending would be significantly hampered by mass layoffs in China's labor-heavy

industries. Despite this, it would be bad news for countries trying to adjust their trade balances.

Furthermore, the impact of these measures on the US economy has been significant. Since

the beginning of the trade conflict, China and the United States have seen a substantial decrease in

commerce. When adjusted for seasonality, Chinese imports to the United States in 2019 were

around one-fifth of what they were before the first extra tariffs were imposed (Felbermayr, 2017).

Even while US exports to China are significantly lower, they too have declined. The trade gap

between the United States and China has narrowed somewhat. However, its overall current

account deficit relative to GDP in the third quarter of 2019 was the same as at the beginning of

2018.

Since the beginning of the trade dispute, US imports from China have been reduced

primarily due to higher tariffs. Between July 2018 and May 2019, imports subject to new tariffs

fell dramatically, while the value of other imports remained relatively stable (Felbermayr, 2017).

During this period, the annual rate of change for these two classes of products was on average 30

percentage points different. This suggests an elasticity of about 13 percent, given that the affected

imports were subject to additional levies. It's possible that the adjustment has not yet been

completed, given that long-term elasticities are much higher. Trade between the United States and

China could decline if new tariffs are imposed.

32
1.4.5. Gulf Cooperation Council (GCC) Trade and Investment at a Glance

The Gulf Cooperation Council (GCC) is an ideal place for international trade because of its

abundant hydrocarbon resources and key geopolitical location. The Suez Canal and the Bab al-

Mandab, two major international water lanes in the region, are natural targets for most modern

economies (Kamrava, 2018). The Post-Cold War order's disintegration makes it even more

appealing to countries that want to trade with it.

Even though tensions between Iran, Saudi Arabia, Israel, and Turkey have destabilized the

Gulf Cooperation Council (GCC), many industrialized countries still view the region as viable

for international trade and investment. Conflicts like those in Libya, Yemen, and Syria, together

with the ongoing rivalry between Saudi Arabia and Iran, have all played significant roles in

creating the present Gulf Cooperation Council (GCC) climate (Hoh, 2019). Also, the strained

relations between the United States and Iran have been a significant factor in the claimed

volatility. Such tense connections could lead to a violent incident that could further destabilize

the stability of the region's political system. In 2017, the intra-GCC dispute and developing

international agency between the smaller governments, such as UAE and Qatar, have erased

much of the instability issues stated about the area.

The Gulf Cooperation Council (GCC) and the rest of the world's economies have been

shaped by the earlier factors. In addition to other major economies like Russia and China, the

United States is particularly interested in doing business with the Gulf Cooperation Council

(GCC) countries. This year's national security strategy reveals a clear interest in the region and a

prospective way to integrate the countries into significant trading operations. With the Gulf

Cooperation Council (GCC) emerging as a potential economic partner and ally in the United

States' new foreign strategy, the US no longer considers Russia and China serious competitors.

33
The United States' foreign policy has likewise seen a significant shift throughout the past two

administrations. It was decided to intervene in Syria to stop the conflict rather than continue it.

US interest in Gulf Cooperation Council has progressively increased since the Trump

administration withdrew its troops from Syria (GCC). Protecting the Gulf Cooperation Council's

(GCC) natural resources and shipping lanes is a priority for the United States.

Despite its declining influence within the GCC, the United States remains the region's most

powerful external ally. The US has been able to preserve its position of leadership in the Gulf

Cooperation Council (GCC) because of the military and political clout it has provided in the area

and the diplomatic traditions it has established there. To further boost its position in the Gulf

Cooperation Council, Israel and the United Arab Emirates have received the support of the

United States (GCC). The United States has always held the top spot in the Gulf Cooperation

Council regarding security (GCC). The US's influential role in promoting peace and improving

the security and political stability of the Gulf Cooperation Council (GCC) region cannot be

questioned enough.

Trade between China and the Gulf Cooperation Council (GCC) region has been a top

priority for the Chinese government. There are numerous reports about China's growing

influence in the area. There has also been a discussion of China's involvement in undermining

US supremacy and stability in the region. The Chinese government's first step into the Gulf

Cooperation Council (GCC) was the 2013 announcement of the Belt and Road Initiative (Kamel,

2018). The Chinese government aimed to provide the Gulf Cooperation Council nations in

financial distress with an external source of funding (GCC). With the Gulf Cooperation Council,

the government was also involved in aiding and constructing infrastructure in several countries

34
(GCC). Beijing showed its commitment to helping the Gulf States prosper by making these

investments.

China is presently the world's leading oil buyer from the Gulf Cooperation Council (GCC).

The Gulf Cooperation Council (GCC) region is said to supply more than two-thirds of China's oil

needs (Fulton, 2019). Oil usage has decreased over the world. On the other hand, China has been

able to retain its oil reserves, which are mainly sourced from the GCC (GCC). As a result,

China's contribution to regional trade has remained crucial.

In addition, there have been numerous trade agreements between China and various GCC

countries. Egypt, Saudi Arabia, and the United Arab Emirates recently established a

comprehensive strategic alliance with China (Fulton, 2019). For 25 years, the goal was to boost

bilateral trade between the two countries. Furthermore, China has contemplated a commercial

mission into Iran (Kamel, 2018). Chinese trade relations with governments in the Gulf

Cooperation Council (GCC) have grown stronger since the Arab Spring slogan's inception, as

China has become the region's largest trading partner.

In recent years, China's ties with most of the Gulf Cooperation Council (GCC) countries

have grown significantly. Nearly all Gulf Cooperation Council countries now have the

government as their primary economic partner (GCC). In 2017, China was the UAE's most

important trading partner. Company commerce with the region was worth $ 53 billion, and it was

expected to rise to $ 80 billion by 2020 at the latest (Fulton, 2019). Trade between China and the

Arab world heavily depends on the Port of Dubai. As a result of the Port's expansion, China has

seen increased exports and FDI. Gulf Cooperation Council (GCC) technology projects are

dominated by Chinese technology-based enterprises (Kamel, 2018). China's trade participation in

the Middle East is demonstrated in projects like Smart Dubai 2012. Rather than risk alienating

35
China, the West is focusing on the Gulf Cooperation Council (GCC) region as a way to acquire

vast access and benefit from the GCC's activities in international trade.

Oil is at the heart of China's relationship with the Gulf Cooperation Council (GCC). China

is currently the largest importer in terms of oil imports from the Gulf Cooperation Council

(GCC) countries. The Gulf Cooperation Council (GCC) region supplies about half of China's oil

needs (Fulton, 2019). Thus, China needs the Gulf Cooperation Council (GCC). The Belt and

Road Initiative is clear how important it is (Kamel, 2018). Trade routes and sea lanes connecting

Asia to Europe and Africa can be found at the crossroads of the Gulf Cooperation Council

(GCC) countries. Thus, the Gulf Cooperation Council (GCC) is a key location for the Belt and

Road Initiative, which aims to place many countries along the route.

1.5. Theoretical Framework

It is probable that these actions will have worldwide economic consequences, as

explained by two basic theories of protectionism. The main theory that guided the research is

Mercantilism (Hines, 2020).

Mercantilism: Mercantilism, a well-known economic theory, comes to mind when

looking at the rationale for the tariffs. Mercantilism was the dominant economic philosophy at

the height of colonialism and imperialism, but capitalism eventually took its place. A country's

wealth can be increased through increasing exports and reducing imports. This is called "trade

deficit reduction." They argue that trade is a zero-sum game where only one-party win. It's

important to keep in mind that a bad trade deal might lead to instability and put the country at a

disadvantage in the event of a military conflict. In the view of mercantilists, the best way to

stimulate economic growth is to increase domestic production to the maximum extent possible

36
while maintaining a steady trade surplus (Magnusson, 2019). This matches Trump's policies,

including hefty tariffs, quitting the Trans-Pacific Partnership, threatening to abandon NAFTA

and a trade war against China (Bown, 2021). However, as Adam Smith and subsequently David

Ricardo demonstrated, the true source of national wealth isn't riches (gold) but rather an increase

in productivity due to technological advancement. Producing things (and services) that a country

excels at necessitates specialization. Then they can exchange it with other countries that excel at

something else, which results in a win-win situation (Yueh, 2018). To be sure, some of Trump's

acts contradict mercantilists' views from the 18th century. For the sake of protecting local

industry, tariffs should only be levied on finished items, but not on raw materials that domestic

firms need to produce high-value, finished goods for export. Tariffs on steel and aluminum, for

example, have harmed sectors like automobile manufacture. It is later in the paper that a more in-

depth investigation is offered (Hanau, 2018).

1.5.1. Protectionism impact on Consumers

As tariffs on commodities rise, so will the capital requirements for the companies that trade

in these goods. The taxes imposed on imports would certainly lead to an increase in the cost of

goods for consumers. Prescription medicines, food, clothing, entertainment, and vacation

packages are just a few of the items that will see an increase in price (Buongiorno, 2018). When

taxes are imposed on consumer goods, such as food, clothing, and other necessities, prices rise

over time rather than immediately. The short-term decline in stock prices will be offset by the

long-term impact of the trade war on consumer products. Manufacturing employment may not

return due to these new tariffs (Kutlina-Dimitrova, 2017). An industry that utilizes these products

and export sectors impacted by retaliatory tariffs would see their costs rise and jobs lost, so any

new jobs produced in industries protected by tariffs will be less than those lost elsewhere.

37
1.5.2. Protectionism impacts on Businesses

Firms' performance may be adversely affected by protectionist measures. Increasing

tariffs on a certain business' products is likely to inflict harm if this is the goal of protectionist.

Losses will increase as long as the trade war between the United States and China persists.

Product sales decline as a result of rising commodity prices, which in turn causes these losses

(Buongiorno, 2018). Trade tensions between the United States and China have forced American

companies to make unpleasant decisions, such as laying off employees or delaying expansion

plans. Many U.S. businesses are shifting production to lower-cost countries to dodge the taxes.

Because they don't want to pay for the increased shipping charges, this is the reason. Trade

deficits between the United States and China may be difficult to resolve. Protectionism will not

persuade many American companies to return to the United States from China, where they have

outsourced production (Buongiorno, 2018). Potentially new regions could be affected by the

trade war. Problems with bureaucracy and licensing may arise for overseas companies.

According to the Wall Street Journal, a rising number of Chinese enterprises are devising

creative ways to avoid the higher import taxes imposed by the United States. By relocating

production to Mexico, Serbia, and Vietnam, they could do away with the "Made in China"

designation. For example, Hl Corp, a Shenzhen-listed bicycle parts manufacturer, has relocated

its manufacturing to Vietnam (Winslett, 2018). The tariffs imposed by the US government may

be withstood if the country takes this course of action. The US may apply higher taxes on goods

coming from any place where China decides to move its manufacturing in the future if it learns

about China's actions, which is a crucial point to keep in mind (Kutlina-Dimitrova, 2017). The

intensification of the trade war between the United States and China is expected to have a

negative impact on a wide range of global firms.

38
1.5.3. Protectionism impacts on Investors

Protectionism policies also harm investors in many economies. As a result of trade

policies like protectionism, all economies involved in global commerce are negatively affected.

Investors largely despise protectionist measures taken by governments on the global market. For

example, after the Trump administration slapped tariffs on Chinese goods, the Dow fell more

than 200 points on the S&P index. As investors fretted about a possible global trade war, the

value of Wall Street's key indexes fell sharply. All of the main US stock indexes have suffered as

a result. Indeed, the trade war is making many investors concerned, and it might worsen if it

continues.

In a currency war, the existing trade disagreement might worsen. A weaker currency can

theoretically and practically oppose import duties (Vashneya, 2017). Recently, the yuan has been

losing ground against the dollar. The devaluation of the Chinese yuan has raised the possibility

that the current trade conflict could escalate into a currency war. However, the reason behind this

isn't entirely clear (China has a semi-managed currency). Tariffs will have less impact on the

economy if the national currency weakens, making exports cheaper and more competitive with

global producers. Import prices will rise, as a result, strengthening the tax burden.

1.6. Research Methodology

As a researcher, you have a lot of options when it comes to how you do your research. As

a result, the validity of the findings is determined by how carefully a study approach is selected

(Drugalis et al., 2008). Researchers Jones and Alony (2011) argue that the validity of their

conclusions is dependent on the quality of their research design, data collection, and data

analysis. According to Austrian (2000), an inquiry can be judged based on its research

philosophy, strategy, and instruments employed to attain its goals. This is because of Austrian
39
(2000). A research into how US-China trade disputes affect global economic growth was

undertaken in this paper, which focused on the GCC. Research methodology, philosophical

underpinnings, and empirical approaches are all discussed in this section.

1.6.1. Research Philosophy

Data collection and analysis are two aspects of research philosophy that are distinct.

There are two primary types of research philosophies, according to the researchers. According to

Jones and Alony (2011), diverse research philosophies are included in what is known to be true

but not believed to be true. When it comes to scientific research, the ultimate goal is to discover

new facts about the world. Positivism and interpretivism are the two primary schools of thought

in this discipline.

The interpretivist school of thought was used in this investigation. In this technique, the

researcher sees the environment as subjective, which allows them to openly explore and analyze

it from the inside rather than from the outside. According to this theory, the researcher must

collect facts and data that explain objective and publicly observable features of human behaviour

and the subjective interpretation of any actions made by individuals (Shenton, 2004). An

investigation into the economic impact of the US-China trade war on Gulf Cooperation Council

(GCC) economies will be the focus of this research. It is appropriate to use an interpretive

philosophical framework for the US-China trade war and its influence on the global economy.

As a result, the interpretivism philosophy has been selected since it is best suited to this research

project.

40
1.6.2. Research Approach

1.6.2.1. Qualitative and Quantitative approaches

A study's design might incorporate both qualitative and quantitative methods. Qualitative

research relies on participants' perspectives and ideas to answer the research questions, as stated

by Zikmund, Babin, Carr & Griffin (2012, p. A lack of data analysis could lead to a bias in this

strategy's results. On the other hand, the quantitative design relies on the information gathered

from the participants of the study to answer the research questions (Bryman, 2017). It is common

practice to show data numerically when undertaking a quantitative study.

A mixed-methods strategy was used to answer the study questions. This approach relies

on qualitative or quantitative citations from the literature to get answers to the research

questions. The mixed-methods literature review was used to acquire the data needed for research.

The current study's questions were answered using both qualitative and quantitative data.

1.7. Data Collection and Analysis Method

The study questions necessitated the use of a systematic review of the literature. Papers

and publications related to trade wars and protectionism will be identified as part of the research

process. Research also concentrated on finding significant materials about the latest US-China

trade war's likely implications. Several databases were used to locate the papers, including

Ebscohost, Google Scholar, and Proquest. As reported by newspapers and other media outlets,

the trade war between the United States and China was also a source of further information. An

extensive review of 30 publications was conducted to determine the potential impact of a trade

war on the Gulf Cooperation Council (GCC) economy. The study's findings were based on the

responses gathered from the publications.

41
 To demonstrate a link between the trade issues between the United States and China and

the economic performance of the Gulf Cooperation Council (GCC)ern countries, it will be

essential to collect quantitative data from different web sources. A quantitative data collection

from several web sources will be built and tested to test this correlation. Tugba Sabanoglu's

Statista data will be used to gather the information. Modelling will be assisted by constructing an

adequate dataset to establish the relationships and identify how strong the corrections are to get a

sound conclusion at the end of this study.

Raw data from articles and papers must be analyzed to ensure that high-quality findings

are reported. In order to study the content of various research papers and journal articles,

researchers employed content analysis techniques (Renz et al., 2018). Secondary data is a type of

data analysis that analyses concepts and words from previously published sources. In order to

address the study topic, it was necessary to examine and quantify concepts and terms in the

articles, reports, and government papers.

The systematic review of the literature relies heavily on secondary data content analysis

as a key source of information. Researchers may now offer high-quality conclusions rather than

merely reams of data pulled from numerous publications and papers (Erlingsson, 2017). Content

analysis can help researchers’ access essential information about the evolution of international

trade rules and how they have changed over time. Such changes in the trade policies of the U.S.

and China were also taken from the examination of relevant content found in the various

publications and papers.

Second, by doing content analysis, the researcher will be able to obtain high-quality

results on the underlying worries that ignited the United States-China trade war. An examination

of the economic effects of the trade war between the United States and China has also been

42
carried out in order to identify the most critical issues. Using content analysis, the researcher was

able to gather relevant information about the effects of the trade wars on other economies,

including identifying whether the hostilities will provide advantageous or detrimental

opportunities for other economies. According to the findings of the research, the trade war has

the potential to have an impact on the Gulf Cooperation Council (GCC), as well as the

implications of such ramifications.

The content analysis procedure was likewise broken down into three stages. Researchers

used checklists of words to identify similar concepts, phrases, and words found in secondary data

and give a broad knowledge base for conducting the comparative analysis of the two datasets.

The researcher could include phrases and words in the content analysis checklist that they had

not originally intended to include. This allowed for the addition of new interpretations and

knowledge about a wide range of events and actions. Finally, regression modelling will be

employed to determine the link between the variables (the trade disputes between the United

States and China) and (the economic performance of the Gulf Cooperation Council (GCC)).

Empirical regression model

Y= β0 + β1X1 + β2 X2

Y = Economic performance of the Gulf Cooperation Council (GCC)

β0 = Constant or the Lowest point at which the economy will operate at irrespective of the US-

China trade wars.

β1 and β2 = The independent variables coefficients

X1 = US-China tariffs

43
X2 = USA-China trade deficit

1.8 Research Scope and Limitation

As I mentioned earlier, the study's primary goal is to examine the GCC economy's response

to the ongoing trade war between the United States and China. The scope of the study will

include a review of the literature and data analysis on the US-China trade wars between 2018 and

2020, as well as economic performance data from Gulf Cooperation Council (GCC) nations in

the same years covered by the trade wars between the United States and China, to assess whether

or not the trade war has had an impact on the regional economic performance trend.

Considering that both countries implemented tariffs over a wide range of dates, it is probable

that the impacts observed in this study aren't 100% accurate. This raises the possibility that some

of the data is biased.

Data from Gulf Cooperation Council (GCC) countries was also included in this study, and

data from companies with websites that could be located online. Because not all affected

companies were available, this method can only represent a tiny percentage of them. Further

complicating issues is the use of HS codes to identify tariff-affected goods. This could lead to a

reclassification of all businesses in the Gulf Cooperation Council (GCC) region to comply with

these codes. The handwriting was used because there was no mechanism to convert the HS codes

into SIC codes automatically. To sum up, a difference-in-difference regression will be useful if

the countries in the treatment and control groups are matched individually.

1.9 Research Organization

The remaining part of this research paper flows as follows; The linked literature to the

US-China trade war will be explored in Chapter 2. It will also focus on the event dates used in

44
this research and investigate the possibilities that have been offered. The data and analysis

technique will be covered in detail in Chapter 3. The event date research and the regression

analysis will be divided into these sections since the analysis consists of two independent

elements and the empirical results will be presented as well. Finally, in Chapter 4, the study will

end with a conclusion in which the findings will be further researched and reviewed and some

final notes.

CHAPTER 2: THE IMPACT OF TRADE PROTECTIONISM AND THE

US-CHINA TRADE WAR ON THE GULF COOPERATION COUNCIL

(GCC)

2.1. Trade Protectionism: Meaning and Definition

Several experts in the literature have defined the term protectionist. The notion was

defined by Clausing (2019) as "purposeful efforts to limit imports and stimulate exporters by

creating trade obstacles." Winslett (2018) offers another definition of trade protectionism, stating

that it enacts a policy that shields domestic firms from foreign company demands. Protectionism

is a trade policy that aims to enhance domestic product and service production while reducing

market competition from imported goods by imposing tariffs.

A study conducted by Evenett (2019) examined the many strategies by which a

government may carry out a trade protectionism strategy. According to the researcher, there are

four different strategies to implement protectionism. One strategy for placing additional taxes on

imported goods is through trade tariffs; as a result, the costs of such imports in the domestic

45
market rise, so reducing their demand. It is negative to have tariffs placed on countries that

import goods (Yalcin, 2017). In light of a declining market for the commodities in question, the

company's sales volume and revenue from its importation activities may be restricted. In other

words, if imports become less tempting to domestic customers, they are more likely to purchase

things made in their own country.

Evenett (2019) went on to say that quotas could lead to protectionism. A country can

implement quotas to limit the number of commodities imported into its domestic market. Import

restrictions reduce the supply of commodities, which has a negative impact on demand for the

same commodity. As a result, customers in the domestic market will be compelled to compensate

for the demand shortfall by purchasing goods that are manufactured in the country (Yalcin,

2017). Non-trade taxes such as quotas can be used by the government to control the supply and

demand of imported commodities in the local market. Quotas are a sort of non-trade tax that can

be used to control the supply and demand of imported commodities in the local market.

Using subsidies to defend native goods from competition from imported goods is another

instrument at a country's disposal. By providing subsidies to local manufacturers, it is possible

for them to sell their items at a lower cost than they could if they had to compete with imported

goods (Evenett, 2019). A policy of this nature means that demand for foreign goods will decline,

ending in the cessation of international trade. Finally, standardization policies can be utilized by

a government to impose protectionism on a particular industry. The procedure entails

establishing a standard that all imports must follow. With such a policy in place, few foreign

items will likely be available on the domestic market. As a result, standardization is a policy to

protect local commodities from excessive market competition.

46
2.2. Changes in International Trade policies

Before the Great Depression, there was no evidence of trade protectionism. A literature

survey shows that countries operating in the global arena made significant steps to minimize

protectionism following the Great Depression. When trade losses in the 1930s were widely

known, many countries began pushing for trade Protectionism rather than protectionism. By

early 1930, as the Great Depression was deepening, many countries' trade tariffs had become

increasingly important (Kobrin, 2017). To combat the hardships and hazards of the Great

Depression, governments around the world imposed hefty tariffs on imports. Trade volumes and

economic activity in the region have declined due to the approach pursued.

After the Great Depression, many countries advocated for a mercantilism environment

because of the difficulties in trading. Trade Protectionism was supported by the majority of

countries in the literature. After the Great Depression, most countries accepted a new method of

dealing based on agreed principles, regulations, and policies for more than 70 years (Staff, 2012).

There was a need for trade agreements that would limit the conduct of governments to

comply with the choice taken on trade agreements. Following the Great Depression, studies on

international trade agreements began, according to a literature assessment (Kobrin, 2017).

According to most academics, the United Kingdom and the United States considered that

reducing trade barriers was critical to boosting economic growth and development in the post-

war period." The countries agreed that if trade barriers were not reported, it was doubtful that

they would be reduced. Because of this, the General Agreement on Tariffs and Trade (GATT)

was formed by numerous countries (Wolfe, 2013).

47
 The GATT agreement was developed as a set of principles and norms to regulate global

trade. Additionally, GATT played a vital role in ensuring that countries did not engage in anti-

competitive trade policies and that the global economic system was restored. Through the GATT

agreement, governments were urged to consider mercantilism while dealing with one another

and fought to eliminate trade discrimination. The GATT agreement's principles and rules for

international commerce are outlined in Box 2.1 below.

Figure 1: Principles underpinning the global trading

The member countries could avoid protectionism by following the aforementioned

guiding principle. There were few impediments to commerce in the global marketplace, and

most countries expanded their operations into the worldwide market. Negotiations and

agreements must be held before tariffs could be completely abolished to ensure a legally binding

contract. Trade restrictions were first widened, necessitating talks between the parties involved to

come to a strong understanding and consensus. For example, when it comes to intellectual

48
property rights and investment regulations, the Uruguay Round Table negotiations were one of

the processes that helped trading nations agree (Mesaerlin, 2019). Signatories and states

participating in trade agreements rose dramatically over the years, and the WTO superseded the

GATT in 1994.

As a result of the WTO's efforts, member states no longer practice protectionism. The

World Trade Organization (WTO) was created to carry on the legacy of GATT and promote

mercantilism around the world. According to the critical literature evaluation, trade agreements

have been shown to play a key influence in creating more accessible business environments

(VanGrasstek, 2013). According to the research, GATT and WTO rules have been essential in

preventing countries from reversing their trade policies (Rongjiu, 2019). Because of this, trade

barriers in the region were reduced.

The World Trade Organization (WTO) pushed for lower trade tariffs and lower trade

obstacles. Trade disputes between member nations were also handled by the organization

(Jordan, 2018). The organizations resolved disputes in a timely and efficient manner, preventing

them from spiraling out of control. There were many instances of unmanageable confrontations

(Rongjiu, 2019). Because of this, the establishment of the global market's fair-trade policies was

a major factor (Evenett, 2020). A considerable benefit for countries has come from efforts to

limit the use of protectionism measures by such governments.

Since both the United States and China are WTO members, trade protectionism in the

form of hefty tariffs has been avoided. Keeping to the agreement after the Great Depression

helped the two countries avoid imposing significant trade barriers (Rongjiu, 2019). Many Gulf

49
Cooperation Council (GCC) countries also belong to the World Trade Organization (WTO) and

thus participate in mercantilism while avoiding any protectionism.

2.3. The Rise of Protectionism Policy

Since mercantilism agreements are being developed, there are signs that the G20 may be

reversing its vow to eliminate all forms of protectionism. Once a year, the heads of state and

government promise to refrain from measures that they believe substantially impact economic

concerns and challenges (Evenett, 2020). However, once the economic challenges are overcome,

such commitments are no longer in place. According to the literature, there was a noticeable rise

in protectionism policies after 2008's financial crisis.

Protectionist policies have been introduced in several countries across the world.

Following the financial crisis, there has been an increase in support for trade-protection policies

in some European countries (Ashton, 2020). Support for politicians and nationalists who

advocated for protectionist policies grew in various parts of Europe. In addition, the nationalists

who supported these schemes earned a significant deal of support (Evenett, 2020). Most

countries have supported protectionism measures because they oppose foreign ownership of

property and assets.

It's easy to get the conclusion that countries are retreating from their pledge to end trade

protectionism based on European activities. To open the way for other countries to follow suit,

there has been an increase in reports of protectionism (Sukar, 2019). Several countries around the

world have engaged in protectionism. According to the research, numerous countries-imposed

import and export restrictions due to the financial crisis that occurred in 2008. A high openness

on export limits is based on minimal economic evidence. There is currently no standard method

50
of communicating international export restrictions (Noland, 2020). The study drew significantly

on the Trade Policy Review reports and surveys done by OECD members as well as certain non-

members to compile its findings. They were able to provide a great deal of important

information.

WTO Members and Observers have been subjected to a new trade monitoring exercise

encompassing all trade and trade-related measures imposed since October 2008, including export

measures. The trade monitoring reports revealed that after the financial crisis in October 2008, a

reasonably substantial number of export restrictions had been implemented (Kukharyk, 2020).

Export tariffs and levies and quantitative limits, such as export bans, were the most common

types of restrictions. Export license requirements and minimum or reference export prices are

two further examples of trade protectionism measures brought to public attention.

Politicians used protectionism to target agricultural and mineral products as their major

objectives. From October 2008 to September 2009, restrictive export restrictions and

protectionist policies were the most frequently used to limit exports and safeguard agricultural

and mineral products, with agricultural and mineral products being the most vulnerable. Further

restrictive trade measures were imposed on agricultural commodities (mainly cereals, some

minerals, and cotton and yarn), as well as cotton and yarn, over the period from November 2009

to October 2010. A number of countries implemented additional steps to facilitate and aid

exports during this time period, including more easily accessible export financing systems and

streamlined customs procedures, which were highlighted in WTO monitoring reports during that

time (Diakantoni, 2018). In recent years, export subsidies have increased dramatically around the

world, with the EU restoring export refunds for butter, cheese, and whole and skim milk powder,

the United States extending dairy subsidies, and Switzerland providing export refunds for cream

51
and live animals, according to a World Trade Organization (WTO) study. Even if these policies

result in increased exports for the countries that implement them, they have the unintended

consequence of significantly distorting global markets.

The number of countries imposing new export restrictions has also dramatically

increased. In 2009, the World Trade Organization (WTO) reported that 15 countries-imposed

export restrictions. According to a 2010 report, the number has climbed to 35. Imports were

restricted to 30 tons in the next year, a decrease of 10. Despite this, it is expected that export

restrictions will be dramatically increased in the near future.

2.4. Reasons for the Rise of Protectionism across the Globe

According to the G20 agreement, the rollback of protectionism was halted. Trade

Protectionism was the only goal of the pact, which protected the global market. However, there

has been a resurgence of protectionism. The World Trade Organization (WTO) has kept track of

new protectionist measures adopted by its members since 2008. In 2019, the World Trade

Organization said that various countries worldwide had enacted 1652 trade-restrictive measures,

and that figure is expected to rise daily (Diakantoni, 2018). The G20 countries adopted trade

restrictions in 2019 that reduced global commerce by an estimated $ 500 billion in value. As a

52
result, it is expected that other countries will impose more tariffs to limit global trade. As shown

in the graph below, there has been an increase in protectionism measures since 2008

Figure 2 : The rise in the protectionism policies (source Alternberg, 2021)

The recent rise in protectionism has spawned a slew of hypotheses. According to

Alternberg (2021), rising unemployment rates have been the most important element in

increasing governments' readiness to pursue protectionism policies. Many nations are exploring

some protectionism due to high sectoral unemployment rates and the threat of higher

unemployment rates. It is conceivable that the government will implement some measures to

safeguard local businesses from being overtaken by foreign competitors in times of high

unemployment, allowing them to hold onto their employees (Alternberg, 2021). If the

competition is left to the market forces, there is a good chance that domestic firms will suffer

losses, resulting in the layoff of some employees. The consequences will be an increase in

unemployment in an economy already struggling to find jobs. As a result, a government's

consideration of trade protectionism policies is likely prompted by the high unemployment rate.

53
 Another reason for a government to implement trade restrictions is the threat of

competition from foreign products. There may be rules to safeguard domestic businesses from

foreign competition when a particular industry is under a lot of scrutinies (Enderwick, 2011).

Domestic enterprises, particularly those that are labor-intensive and have difficulty boosting their

productivity to gain a competitive edge, are likely to be adversely affected by huge volumes of

imports. Due to the lower prices offered by imported items compared to domestically

manufactured ones, buyers will gravitate toward them (Milner, 2004). As a result, small

businesses in the area will see their revenues dwindle, making it more difficult to hire local

workers. The rise in imports in a particular sector can lead to the government enacting

protectionist measures.

2.5. Protectionism in the Context of the US and China

China and the United States have also implemented protectionist policies to concentrate

on these two countries. Even though both countries had adopted protectionist policies in the

wake of the financial crisis in 2008, substantial problems with protectionism emerged during the

Trump administration (Park, 2018). The US-China tensions reported during the Obama

administration were caused by the US's protectionism policies and China's countermeasures.

Former US President Donald Trump criticized China for the country's job problems and

other problems during his presidential campaign. Ex-President Obama blamed the emergence of

the developing economies for the decline in US employment. Because China charges so little for

its workers, the United States is losing the ability to employ many of its nationals because of the

brain drain. Most of the manufacturing techniques of US multinationals were outsourced to

China since it was cheaper and more efficient to process their products and goods there than to

produce at home (The Economist 2015). According to former US president Trump, cheap labor

54
in China has led to job losses in the US. To reduce the number of corporations that outsource

their manufacturing techniques to China, the former president threatened to put heavy tariffs on

imports. In a press conference, he said. According to the former President, such a protectionist

stance toward trade would be unique in American history. When he made his claims, the United

States had already imposed punitive and retaliatory tariffs on certain Chinese imports in response

to his actions. For example, the 26.6 percent anti-dumping duty levied against Chinese steel in

March 2016 has already had a negative impact on bilateral trade. It is because of the tariffs that

American steel imports from China have dropped to their lowest level since 2010 (UN 2017).

The Economist published an article in 2015 titled A 45 percent tax on more than one sector—and

potentially all imports—against another country that is a member of the World Trade

Organization has never been imposed in the organization's 70-year history against another

country that is a member of the WTO.

US import tariffs on China were previously believed to have a weighted average applied

tariff rate of 16 percent before the current protectionism levies by the US on China (The World

Bank 2016). As a result, all imports from China, whether they were produced by a US

multinational or a Chinese company, had equal access to the US market. Current economic

conditions need considerable trade restrictions, such as the imposition of a 45 percent tariff (The

World Bank 2016). If we put it in historical context, it was more than twice as high as the

average interest rate that was charged during the Great Depression in the late 1930s.

The president implemented severe trade tariffs because of restrictions on laws and

regulations in different countries. The former president could levy taxes legitimately (The

Economist, 2015). If Trump had used legal means to levy penalties on China, they would have

been perceived as retaliation for its economic decline and a way to stifle its progress. As much as

55
the World Trade Organization (WTO) was concerned with enforcing international trade rules,

the United States' policies and regulations allowed for such punitive conduct (Park, 2018). WTO

cannot control all market parties' conduct because of such loopholes. If trade protectionism is to

be completely managed, the gaps in US policy must be filled.

Figure 3: Legal backing for tariffs in US

China has also implemented protectionism trade policies. Even before the current US

tariffs offered Donald Trump the opportunity to enact protectionism measures, China had already

begun to do so (Evenett, 2019). As a result of the US tariffs on Chinese imports, China raised

duties on US goods. But there are other ways China may respond to the U.S.'s new tariffs on

Chinese imports. The country has the option of not responding to US disputes. These early

efforts may have little or no long-term impact on commerce. It is possible that the US Congress

would extend its protectionist measures and continue with the tariffs, causing a lasting shift in

global trade patterns.

56
2.6. The Trade Tensions reported in US and China

The globalization of economies has had varying consequences on different countries. The

developed economies have largely been headed by the United States, while the developing

economies, led by China, fuel globalization. It's no secret that the United States is now the

dominant developed economy, while China is widely acknowledged as the most important rising

economy (The Economist, 2015). Despite China's recent economic boom, the US administration

has long been reluctant to engage the region in fair trade fully. America's primary rival in the

global marketplace in China.

The United States has been reluctant to enter Asia, despite the rise in Washington's

policies and the area's threats following the Great Depression fully. AIIB and NDB's relevance

and attractiveness in developing economies have greatly increased US trade engagement in

China have been restricted by both the administrations of Obama and Trump, in contrast to their

major trading partners and other G7 members (Chong & Li, 2019). Even though the US

government is open to trade with other countries, it has not participated in the Chinese-led Belt

and Road Initiative (BRI).

Hardened views, regulations, and measures to pull China out of the global market show

that the United States tries to restrict China's economic rise or divide Asia. China has

contemplated several "divide and rule" strategies on investment, technology, and trade

regulations (Chong, 2019). However, the US administration has not been pleased with these

attempts. The United States has prioritized shielding its economy from what it sees as unfair

competition coming from the emerging markets. Secretary of State Mike Pompeo made a

statement to the media in which he alluded to the US's attempts to combat the fierce competition

from China and other growing economies.

57
 He asserted that

"Among the $113 million million in new US initiatives implemented in July 2018 as

part of America's Indo-Pacific Economic Vision is a $113 million investment in key

areas of future growth in the region's economy, infrastructure, and energy supply".

(Pompeo)

The "Indo-Pacific Economic Vision" pales in comparison to the BRI's planned

investments of $4 trillion to $8 trillion. Compared to the Marshall Plan, which was approved 70

years ago and might have provided $180 billion in today's currencies, it has a far smaller scope

and value.

The United States and China are the only two superpowers in the world. The United

States and China, both of which have massive economies, are the world's two largest consumers

of goods and services. Both countries hold a permanent seat on the United Nations Security

Council, which they joined in 2005. Earlier this year, the People's Republic of China and the

United States signed a bilateral trade agreement, bringing their respective economies closer

together. The significance of bilateral commerce between the two countries has long been

acknowledged throughout the world (Kutlina-Dimitrova, 2017). Both countries gained the

benefits of their commercial relationships with one another. The GDP data between China and

the United States suggest a potential connection between the two countries. Despite the fact that

the GDP of both countries expanded greatly, China received the most gain from bilateral trade.

According to reports, China has made significant advances toward becoming a major economic

player on the global stage. It has recently become a primary goal for Chinese authorities to slow

the country's rapid economic growth, as indicated by the recent measures that have been

instituted.

58
 China's GDP was only one-tenth that of the United States before 2000. Trade with the

United States and the World Trade Organization (WTO) led to increased exports in 2000. By

2010, its GDP share had climbed from 13% in 2000 to more than 40%. As previously stated,

bilateral trade and membership in the WTO have benefited China much. An increase in the

company's industrial sector has put major economies worldwide at risk (Diakantoni, 2018).

However, despite China's historical involvement in the enforcement of unfavorable trade

regulations, its procedures have been simplified to comply with international trade norms. To see

an improvement in its trading performance, it had to start following international business rules

(Chong, 2019). The question of whether or not China's economy grew because of illicit activity

or because of the hard work of its citizens has been the subject of debate. As a result, the solution

has remained a hot-button issue for various reasons. Trade disputes between the two countries

should be avoided, but a long-term plan for economic integration and development should be

pursued instead.

2.6. Causes of the Trade Tensions and War

The trade war has been blamed on a variety of elements and difficulties. The United

States uses factors such as these to justify imposing high tariffs on Chinese imports. A look at

what may have sparked the conflict between the two countries is provided below.

2.6.1. Employment and the trade deficit that must be addressed to improve the economy

In theory, the trade war between the United States and China will aid in the reduction of

the country's trade imbalance and the restoration of jobs in the United States. Following the

United States government's statement that China was responsible for an increase in the

movement of multinational corporations from the United States to the Chinese economy, an

59
altercation ensued, and tariffs were imposed. The administration claimed that China was stealing

American employment.

As a result of the relocation of many manufacturing activities to the region, the trade gap

between China and the United States has been expanding as well. Last year, the United States

announced a $796 billion trade deficit, with China accounting for $376 billion, or 47 percent of

the total. This sum represents about half of the region's total output (Kukharyk, 2020). Despite

the fact that the United States government recognizes that trading with other countries is fraught

with challenges, the trade balance deficit remains one of the most important issues to monitor.

Trade conflicts and trade imbalances have been on the rise for decades, and they will continue to

do so. It is critical for the country to reduce its ever-increasing trade deficit if it is to maintain its

global market leadership.

It has been discovered through research of Chinese export and import structures that the

majority of Chinese imports are interdependent with the United States. Contrary to this, the vast

majority of China's final commodities are imported into the United States of America. We all

know that the United States is the world's largest market for Chinese-made electronics, and this

is no secret. Despite the fact that the Chinese government purchases more than half of its

electronic devices from the United States, the country's strategic importance to the world is

underscored (Foot & King, 2019). According to statistics, only 8.3 percent of all commodities

imported into the United States come from China. Because to the introduction of protectionism

measures, the export and import quantities of both countries have fallen (Garrett, 2010).

Protectionist measures caused exports from the United States to China to decline by 21 percent

in 2018, although trade between China and the United States declined by just 11 percent. A trade

war erupted as a result of the harmful impact of tariffs on the economies of both countries.

60
 Government debt will be less likely to grow as a result of the trade war, which is what is

going on now. According to Dongsheng Di, (2019), the US government would look for new

ways to make money to balance its budget, like tariffs. Tariffs on Chinese goods are the main

source of these funds. The federal government's budget deficit hit $21 trillion, in part because of

December 2017 spending cuts. The deficit was mostly blamed on these cuts (Evans, 2019).

Because the Chinese government has more money than the rest of the world, it can pay back any

businesses that lost money because of the trade war. As a result, the US government has a huge

budget deficit that is about 4% of GDP right now. This deficit is expected to get even bigger in

the future.

2.6.2. China’s Involvement in Unfair Trade Competition

The US government first sparked the trade war to limit China's unfair advantage in the

global market. China's high-tech capability is expected to be reduced due to the trade war, as the

United States believes the country has gained this advantage unfairly. The US government is

dissatisfied with China's demands for joint ventures to transfer technology to contribute to the

approved capital sharing amongst local enterprises (King, 2019). As a result of Chinese

investment, there is a perception that the global economy is being unfairly impacted. Chinese

progress in modernizing its robot, lithium battery, and network equipment industries prompted

the United States to impose penalties (Garrett, 2010). Telecommunication and network

equipment from China are now subject to import duties of up to 25% in the United States.

The trade conflict between the United States and China is projected to hinder China's

military expansion and development. When it comes to gun manufacturing and sales, Markov

believes the US administration will never be able to admit that it can't just let China keep its lead

(Evans, 2019). According to the United States government, the rise of Chinese gun

61
manufacturing has been unfair and based on unlawful activities. The manufacturing of firearms

in China is widely regarded as the best option (Devlin, 2019). Additionally, the country has

gained a competitive advantage in transferring firearms to other regions, a competitive advantage

that the United States is trying to diminish.

The economies of the United States and China are widely regarded as the world's two

most powerful. As much as the United States and China have been referred to as the world's two

most powerful economies, the United States has maintained a long-term advantage in the global

economy. China's economy was only one-tenth the size of the United States in 2000. On the

other hand, China rose to prominence on the world stage after joining the World Trade

Organization (WTO) in 2001. In the 2000s, China's exports grew dramatically, resulting in a

large increase in the country's GDP (Diakantoni, 2018). According to many statistics, China's

economy has grown, and the country's influence over the United States has tripled. Recent

advances in China's relative economic growth in comparison to that of the United States have

fueled predictions that the country's economic development could one day surpass that of the

United States in the coming years (Danso, 2020). The original Goldman Sachs anticipated that

China would surpass the United States in the following years under Xi Jinping, and that remains

the case if current secular trends continue.

2.6.3. China and the US technology war

In 2017, the United States and other countries launched a technological war against one

another. President Trump directed Trade Representative Robert Lighthizer to investigate China's

intellectual property abuses in August. Because of his success in gaining control over the Trade

Act of 1974 in the 1980s, Robert earned the nickname "the seasoned trader who snatched it all."

China's intellectual property theft, which poses a significant danger to American innovation, was

62
recommended as a means of restoring "fair and free commerce" to the United States. In the

White House, globalists from Goldman Sachs and proponents of the steel industry were able to

reach an agreement on this point of view. In Congress, this is a subject that has been brought up

by both Republicans and Democrats. According to US allegations, however, there have been

inconsistent outcomes regarding whether or not Chinese intellectual property has been taken.

The general public in the United States has accepted this conventional story as accurate.

According to Woodward, a well-known journalist, and author, the Obama administration

believes China has stolen $600 billion in intellectual property since 2008. In his August 2017

Financial Times piece, "American genius is under attack from China," Wilbur Ross used data

from the IP Commission (Chen, 2020). The results of the US IP Commission, which are based

on classified information for "national security" reasons, are the common denominator in all of

these estimates and judgments. The Commission claimed that the theft of American intellectual

property was a systemic issue rather than a direct threat to hospitals when Chinese innovation

and FDI expanded in the early 2010s. The US declared its "pivot to Asia." According to the

Commission, intellectual property theft in the United States is "projected to reach between $225

billion and $600 billion yearly," according to the Commission. The theft of (US) intellectual

property is commonly attributed to China in foreign media, with a (rough) estimate of $600

billion (Chen, 2020). According to many US IP professionals working in China, the Chinese

government does not "compel" American corporations to hand over their intellectual property

(IP). The Chinese government treats regulated and strategic industries sternly, and this applies to

both Chinese and multinational enterprises working in these sectors. Chinese firms have

encountered numerous challenges in the United States, like Huawei's fruitless attempt to

capitalize in the United States, similar to CNOOC's failed bid to purchase US energy major

63
Unocal (which was later acquired by Chevron) (which led to congressional hearings and a

renewed political witch hunt in fall 2018).

Chinese authorities have asked multinational firms from all over the world to share their

expertise in exchange for a piece of the country's market (and several other large emerging

economies). Industry leaders in the semiconductor and Intel sectors wield disproportionate

amounts of power in the region (Evenett, 2020). With the nomination of former Intel CEO Craig

Barrett to the panel's commission, the United States Intellectual Property Panel has shown to be a

powerful advocate for American interests in international intellectual property. Among those

serving on the Commission are former Director of National Intelligence Dennis Blair, who

served as the Navy's top spy for more than a decade; Jon Huntman, who served as President

Donald Trump's ambassador to Russia and China; and Slade Gorton, a veteran senator and

longtime lobbyist for Raytheon, a major defense contracting company. Dennis Blair and Jon

Huntsman, respectively, are Trump's ambassadors to Russia and China, and they serve as co-

chairs of the Commission.

Please take it for granted that the Chinese media portrays the IP Commission as unbiased

in its reporting. Nonetheless, it is led by a former admiral and intelligence director, an ex-

Chinese ambassador to the United States, anti-US members of China's People's Congress, and

PLAN contractors, among other people (Devlin, 2019). This commission may be obliged to work

with top-secret information if China's national security necessitates it. Observers in the United

States may conclude that such a body lacks objectivity due to perceived conflicts of interest. The

United States Patent and Trademark Office (USPTO) shares this sentiment. As a result, many

people believe that the trade war is merely an excuse to stifle China's inventive capacity

development.

64
 China and the US are currently at odds over intellectual property is cause for alarm. The

United States accused China of stealing when it was on the rise as a global power. Chinese

companies were transitioning away from low-cost production methods and fresh ideas (Evans,

2019). Because of their new strategic efforts, they could compete with the world's most known

leaders, cutting-edge technology, and significant brands. According to conventional thinking,

China would continue to be the "world's factory" for many years to come. These convictions

were not founded on reality. Imitating processes and adhering to existing standards and laws had

become "unsatisfactory" for Chinese internationals. Instead, he claims, businesses turn their

decreased expenses into long-term gains through innovation. The forecast has shown to be

accurate over time, despite early skepticism. The Trump administration has resorted to politics in

order to maintain US primacy, which is no longer supported by the economic realities of

technological advancements.

Patent applications have increased significantly in China since the mid-2000s, and it

currently outpaces countries like the United States and South Korea while also outperforming

Japan and Germany in terms of international commerce (Evans, 2019). Three triadic innovation

patents have been filed in the United States and several EU member states; while they are not

worth as much as single invention patents, they are still extremely lucrative. Despite the fact that

China's economy has grown sixfold in the last decade, the majority of observers still believe that

the United States, Germany, and Japan are far more powerful than China. Several factors,

including China's long history of information transfer and government investment in science and

technology, can be credited with the country's intellectual property advancements (Devlin,

2019). In August 2017, Trump directed the USTR to investigate whether China's practices "may

be harming American intellectual property rights, innovation, and technology development." He

65
had directed the USTR to investigate whether China's practices "may be harming American

intellectual property rights, innovation, and technology development" in March 2017. Acting in

response to the USTR's findings, President Donald Trump issued an executive order, accusing

China of unfair licensing practices and other types of unfair competition with the United States

in order to increase China's industrial power.

Since 2017, the Trump administration has used the concept of a "great power struggle" to

explain its China strategy. They appear to be making a deliberate effort in the new century to

restore US primacy after WWII when the old preconditions no longer apply. Although US-China

trade relations have improved, the struggle for technological supremacy and innovation will only

accelerate in the coming years. Aspects of the electronic supply chain that could be transferred to

Southeast Asia are under consideration. A shift in supply-chain ecosystems, which have taken

decades to develop and cannot be modified quickly, will be prohibitively expensive for the

Trump administration, according to the White House. Some of these improvements would have

occurred even if there had not been a trade war because of the competitiveness of offshoring

pricing. It is projected that the trade conflicts in the United States would get more intense.

Because these relocations are motivated by political motives rather than economic

considerations, consumers will bear a greater share of the financial burden.

2.7. Deterioration of the US-China Trade Relations

During the presentation of President Trump's 2017 National Security Strategy, China was

described as a "rival" and even as a "adversary" to the United States. Popular belief holds that

United States help for China's development and eventual integration into the post-war

international order will pave the way for China's further Protectionism in the future (Foot &

King, 2019). According to the United States, China's expansion may have come at the expense of

66
the sovereignty of other countries. As China modernizes its military and expands its economy,

access to the United States' innovation economy, notably its world-class institutions, becomes

increasingly important.

To put it another way, the new National Security Strategy represented a total 180-degree

shift from the prior national security strategy. Initial speculation about whether Trump would go

so far as to jettison the postwar liberal international system that the US and its allies built after

WWII sparked heated debate (Devlin, 2019). Because they were labeled "adversaries" by the

government, China and Russia may be accused of destabilizing the postwar system. It was

commonly assumed that China's peaceful ascension was merely an attempt to emulate America's

economic and geopolitical success. China's leadership has no idea whether the US is attempting

to limit it because of alleged human rights violations. Either this is a violation of international

law, or China is attempting to maintain its position as the world's economic powerhouse.

The United States seeks to maintain its position as the world's dominant power. Because

of the hardening of the elite's feelings, the masses followed their example and were more focused

on defending their superiority. According to a recent poll conducted by the Pew Research Center,

Americans' perceptions about China have deteriorated in recent years. Specifically, the study

found that only 38 percent of Americans had a positive opinion of China, a decrease from 44

percent in 2017 (Foot, 2020). From Bill Clinton accusing George HW Bush of "coddling"

Beijing's leaders to Donald Trump's vulgar accusation that China is "raping" the United States,

the post-Cold War period has seen a wide range of reactions.

Trump's trade plans, on the other hand, lacked substance. Looking back, the trade

imbalance between the United States and China began three decades before it happened with the

other major trading partners. The US deficits have both long-term and international implications,

67
as previously stated. Due to multinational corporations ' global supplier chains, figures on

bilateral trade deficits may also be misleading. The importance of multilateral trade balances to

the economy cannot be overstated (not bilateral balances). Rather than trade barriers,

macroeconomic variables such as domestic savings and investment sustain the equilibrium.

Donald Trump stated throughout his 2016 campaign that the US-China mercantilism agreement

would be challenged.

2.8. From Trade Tensions to Trade War

As soon as he took office, President Trump got to work putting the plans into action.

When President Obama announced that he was abandoning the Trans-Pacific Partnership (TPP)

discussions in favor of a new North American Mercantilism Agreement (NAFTA), it was widely

seen as an Obama legacy (Foot, 2020). For the past 12 months, Trump has been issuing threats

against China, quickly developing into a significant trade spat. In executing numerous trade

policies and issues, the President's advisers helped. A majority of the advisors have ties to the US

steel sector and have advocated trade protectionism and even anti-Chinese sentiment in the past.

Trade disputes between China and the United States could be contained at first by the Trump

administration's more conventional leaders. It looked as if Treasury Secretary Steve Mnuchin

and NEC Chairman Gary Cohn were steering global economic policy away from protectionism

(Chong, 2019). After their meeting, Trump and Xi agreed to a 100-day plan to improve bilateral

trade relations and expand cooperation. Four high-level meetings held under the Obama

administration will be replaced as part of their agreement.

When the Chinese started looking for areas of compromise in trade, the White House's

stated goal was scuttled. Conversations at the highest levels that followed were a complete

failure. Following the summit, Trump immediately implemented trade measures that raised the

68
specter of a trade war in the spring of 2018. As Secretary of Commerce, Goldman Sachs partner

Mnuchin, Cohn's successor, proved ineffective and replaced CIA Director Mike Pompeo, a

staunch advocate of trade protection. Winners were Wilbur Ross' go-to strategy, no matter the

cause (Demir, 2017). A hole opened up as mercantilism rs withdrew, and protectionists moved in

to take their place. Several heated debates and contradicting messages following Gary Cohn's

departure from the White House in early March 2018. (Foot, 2020). Trump's warnings were then

threatening a full-blown trade war. The Trump administration issued its first trade threats in

April of this year. Those 25 percent duties went into effect on Chinese goods worth $34 billion

and $16 billion respectively in the middle of June and the end of August. A deterioration in the

US-China trade war followed China's retaliatory measures, which included a 25% tax on $34

billion in US exports on July 6 and an additional $16 billion on August 23.

The World Trade Organization aided international trade discussions. G20 states reneged

on their promises during the Osaka meeting due to this debacle Tariff threats quickly escalated

into a full-blown trade war. According to reports from US multinational corporations, they were

no longer supplying agricultural goods to Chinese enterprises (Foot, 2020). On the other hand,

China has been accused by the United States of manipulating the currency to obtain a

competitive edge and mitigate the effects of tariffs. In WTO action No. 3, China brought it

against the United States based on the information exchanged between the two nations.

Instead of following through on suggestions made at the G20 conference, the United States has

implemented fresh economic sanctions. More than $125 billion in Chinese goods were taxed. To

counter this, China has raised duties on $75 billion worth of American commodities, including

crude oil and petroleum products (Demi, 2017). It was eventually discovered that the firms of

both countries were being overcharged for a few things.

69
 ZTE and Huawei, two Chinese technology companies, have seen their market share fall,

and their expansion slowed significantly because of unjust trade restrictions. China is unlikely to

make significant concessions or forsake its expansion of the digital economy. On the contrary,

lagging in terms of technology is more than doable. Many of the country's services and products

are also at risk of the boycott. It is illegal for most American agricultural products to enter the

country. July 2018 saw a temporary halt in US soybean imports, but they were reinstated in

December 2018. Later on, the topic of American agricultural exports rose to prominence. In

September, China temporarily halted tariff increases on agricultural products. More jobs will be

created for Americans if their capital is returned to the country and reindustrialized.

Additionally, governments worldwide are considering ways to cut costs associated with

becoming leaders. Many of America's ills are attributed to China. China's Belt and Road

Initiative building harmed the US's global trade dominance. As for the future of high tariffs

imposed by one country and retaliation by the other, we don't yet know.

In Box 2.4, you can see a timeline of events that led to the current trade conflict between the

United States and China.

70
 Time period, general context
April – May 2017 Top-level
negotiations to resolve trade
imbalances; 100-day plan for
trade talks
February – April 2018
Investigation into China’s acts,
policies and practices relating to
technology transfer, intellectual
property and innovation. The US
initiates a WTO case against
China for discriminatory
licensing. The US releases the
official statement (May 2018)
July 2018 Ongoing negotiations;
internal discussion of the new
lists of restrictions
August 2018 The parties
exchange preliminary lists. China
files WTO claim and complain
against the US
September 2018 China cancels
the trade negotiations and releases
the White Paper stating the
official position
December 2018 G20 summit in
Buenos Aires. The US and China
agree not to increase tariffs for 90
day
May – June 2019 Ongoing trade
negotiations before the G20
summit
June 2019 G20 summit in Osaka.
The parties agree to avoid
increasing tariffs
Figure 4: political issues leading to the US-China trade war (Source: Authors illustration based
on Kapustina et al. (2020)
US actions
Investigation on steel and
aluminium imports is initiated. The
US allows China to sell cooked
poultry to the US
Global safeguard tariffs: 30% on
solar panels; 20% on washing
machines; 25% on steel imports;
10% on aluminium imports.
Measures targeting China:
restricting investment in key
technology sectors; imposing
import tariffs on aerospace, IT,
communication and machinery;
including ZTE in the Entity List
25% tariff on 818 products (imports
worth $34 billion)
25% tariff on 279 goods (imports
worth $16 billion) including:
semiconductors, chemicals,
plastics, motorbikes and electric
scooters
10% tariff (announced subject to
further increase up to 25% in 2019)
on $200 billion worth imports from
China
The US made an announcement
that the new list of tariffs will be
delayed
25% tariff (increase from 10%) on
$200 billion worth imports. Huawei
and five other companies of China
are added to the Entity List
The ban on deals with Huawei is
reconsidered. 110 products are
excluded from the 25%-tariff
71
China’s actions
US companies get greater
access to China’s agriculture,
energy, and financial markets
15-25% tariffs on 128 product
categories including fruit, wine,
seamless steel pipes, pork and
recycled aluminium. 178.6%
antidumping duties on sorghum
imports from the US
25% tariff on 545 products
(imports worth $34 billion),
including agricultural products,
autos and aquatic products
25% tariffs on 333 goods
(imports worth $16 billion)
including: coal, copper scrap,
fuel, buses and medical
equipment
5% and 10% tariffs on $60
billion worth imports
China increases import of
agricultural and energy
products, and lowers tariffs on
cars and auto products from
25% to standard 15%
25%-20%-10% tariffs
introduced for $60 billion worth
of imports (increased from
10%-10%-5% correspondingly)
China announces its plans to
increase import of agricultural
products
2.8. The Effects of the US-China Trade War on the Global Economy

2.8.1. Effects on Commodity Prices

Many studies have been conducted to determine the impact of the trade war between the

United States and China on commodity prices. It was found in a study by Amiti et al. (2019) that

tariffs levied by the United States had a considerable impact on importer pricing in the United

States. Increases in import costs have been caused by tariffs levied by the United States

government on Chinese imports. To compensate for the increased duties US importers face, the

importer items have been tacked on (Foot, 2020). When additional taxes were expected, global

companies operating in China did not raise their pricing before 2019. As a result, the prices of

items imported from China are expected to rise.

US and Chinese imports and exports are at historic lows. There was a $ 44.3 billion

decrease in US product imports in 2019. Imports from China also saw a significant decline. The

two countries' export losses were likewise substantial (Devlin, 2019). China's exports to the

United States have been significantly reduced due to the levy. China's imports from the United

States also fell significantly. As a result of the trade war between the countries, both the US and

Chinese economies saw a considerable trade diversion.

Exports from China were diverted to other countries to the tune of 63%, with the

remainder either going to waste or being grabbed by US manufacturers. Taiwan's exports to the

United States increased by $ 4.2 billion due to China's tariffs (Devlin, 2019). The United States

was trading with other countries, particularly Mexico, which saw a $3.5 billion rise in exports to

the United States. The European Union's exports to the United States have also grown

dramatically. Another option China investigated was importing goods from nations other than

72
the United States. The countries of Asia and the Gulf Cooperation Council (GCC) were

highlighted. There was also evidence of a considerable drop in the volume of US exports. Due to

the trade war, both the US and China recorded significant economic losses.

2.8.2. Effects on Employment

The trade war had a negative impact on employment rates as well. During the period that

the United States was embroiled in a trade dispute with China, it is estimated that 250,000 jobs

were lost. The tariffs imposed on various imports were anticipated to protect domestic

businesses, ensuring that employment rates would rise. Some manufacturers had to lay off staff

as a result of these taxes. They imposed tariffs, which raised operating costs for most

manufacturers and consequently hindered job growth in the United States. The unemployment

rate currently stands at 3.7%. There is a lot of uncertainty about the impact of the trade war on

the productivity and profitability of US corporations. Companies are unlikely to generate new

positions due to the cited uncertainties.

The trade war between China and the United States has had a negative impact on the

Chinese labor market. The country's unemployment rate was high, even though the number of

job losses was less than those in the United States. On the other hand, China is expected to have

more job openings in the near future, thanks to the country's low-cost and readily available

services. There is a good chance that many investors will relocate to China, so resolving the

problem of employment losses and limiting job creation.

73
 CHAPTER 3: THE EFFECTS OF THE US-CHINA TRADE WAR ON

GULF COOPERATION COUNCIL (GCC)

3.1. The Effects of the Trade war on Gulf Cooperation Council (GCC)

Economies

3.1.1. Real GDP

The trade war had a considerable impact on the real GDP of Gulf Cooperation Council

countries, according to a critical examination of research (GCC). Researchers found that the Gulf

Cooperation Council countries (GCC) had a minor impact on the global economy because they

are separated from global value chains. As a result of their separation from globalization, the

economies of the Gulf Cooperation Council (GCC) are mostly immune to global shocks (United

Nations, 2020).

Real GDP was affected by trade conflicts despite their seeming isolation, which disrupted

the global supply chain. It has been claimed that oil-exporting nations have seen a GDP fall of

0.096 percent, 0.091% 0.071% 0,044% 0.01% accordingly in Oman, Kuwait, Qatar, United Arab

Emirates, and Saudi Arabia. In contrast, the GDP of Jordan, Bahrain, and Egypt increased by

0.08 percent, 0.019%, and 0.015%, respectively. A full-fledged trade war between the United

States and China occurred in 2019, causing these GDP changes. The following graph shows the

Real GDP value of the GCC countries during the trade war between China and the US.

74
 Real GDP Reduction rate
0.12

0.1

0.08

0.06

0.04

0.02

0
Oman Kuwait Qatar Saudi Arabia UAE

Real GDP(% reduction)

Figure 5:The reduction in the Real GDP value (source: Huang, Lin, Liu, & Tang, 2018)
If the dispute between the two countries escalates, it is projected that the oil-exporting

countries will suffer significant losses. Saudi Arabia is anticipated to lose $ 1.1 billion, Kuwait is

likely to lose $ 767 million, and Qatar is expected to lose $ 582 million. On the other hand,

Egypt and Tunisia stand to benefit a combined $ 165 million and $ 159.7 million.

3.1.2. Effects of the Trade War on Exports, Imports and Tariff Revenue

The literature shows that the impact of trade on the Gulf Cooperation Council countries'

imports and exports is significant. It was found that once China-US trade tensions escalated, oil-

exporting GCC countries saw a considerable drop in overall shipments, according to Huang, Lin,

Liu, and Tang (2018). As a result, exports from other countries in the region have also increased.

Oman, Morocco, Egypt, and Bahrain reported an increase in export volume despite escalating

US-China tensions into a trade war. Aldayel et al. (2019) found that Saudi Arabia's and Qatar's

export volumes decreased by 0.06 and 0.09 percent, respectively. There was only a 0.02 percent

75
gain in exports for Oman; 0.68 percent for Egypt; 0.35 percent for Bahrain; and 4.4% for

Morocco (Huang, Lin, Liu & Tang, 2018). Even when the trade war escalated, the remaining

GCC members reported a 0.06 percent gain in overall exports. Particularly noteworthy is that

Jordan's export value increased by 1.3%, making it the most significant gain in terms of volume

(The World Bank, 2021).

The Gulf Cooperation Council countries (GCC) were vulnerable to the US-China trade

war, as seen by a decrease in export value. Compared to the pre-trade war adjustments that have

affected practically every economy on the planet, the positive change in some countries was

insignificant (Poveglian, 2021).

The trade war had both good and negative effects on the value of the countries' overall

imports. According to the government, the value of Jordan's imports increased by 0.3% (Huang,

Lin, Liu & Tang, 2018). Egypt, UAE, and Bahrain saw a positive change in import values, albeit

lower than Jordan. Trade wars have severely impacted Saudi Arabia, Qatar, Kuwait, and Oman.

According to the data, there was a 0.4 percent decrease, 0.57 percent decrease, 0.58 percent

decrease, and 0.04% decrease.

There was also a considerable shift in the Gulf Cooperation Council's (GCC) tariff

revenue. Using data from Aldayel et al. (2019), researchers found that tariff income changes

followed a similar import and export values trend. The most significant decreases in tariff

revenue were reported by countries that export oil. Tariff revenues in Morocco and Jordan grew

by roughly 1.5 percent and 1.4 percent, respectively, in the first quarter of the year. Following

the US-China trade war, an illustration of the Gulf Cooperation Council's (GCC) import and

export value has been provided below.

76
 The change in Import and Export Value
1.5

0.5

-0.5

-1

Exports Imports

Figure 6: Change in the export and import values (source: Ellyat, 2018).

3.2. The Effects of the US-China trade war on Oil prices

In the first year of the trade war between China and the United States, crude oil prices fell

somewhat worldwide. The drop in crude oil prices was less than 1%. The price of crude oil

continued to plummet while the tax was kept in place and further trade levies were enacted,

resulting in a global GDP loss (Ellyat, 2018). According to a projection that implies that trade

tariffs will continue, the oil price has entered the backwardation period and is likely to drop over

the next two years.

Crude oil production has also undergone significant adjustments, according to the reports.

In the first year of the trade war, Saudi Arabia maintained its status as a swing producer of crude

oil and registered a drop in production of 1.5% below the baseline. Crude oil production dropped

by 2% during the second year of the conflict. (Ellyat, 2018). US crude oil production, however,

remained unchanged. The region's oil production remained stable due to US government

77
monetary policies. If the trade war continues to escalate, crude oil output will be cut, which

would have a negative impact on both supply and demand for the commodity.

Oil from the Gulf Cooperation Council (GCC) may see a drop in demand. Oil demand in

China may drop if the trade war continues and the US-China conflicts are not resolved,

according to Oman's and Bahrain's ministers on CNBC. The United States has slapped a wide

range of tariffs on several Chinese goods and services, inflicting economic harm on China's

economy. As a result, less oil will be used. Oil from the Gulf Cooperation Council (GCC) region

forms a significant part of China's imports. The country now imports more crude oil than the

United States. A decrease in economic growth means that oil demand will decrease as well

(Ellyatt, 2018).

Even though Iran is prohibited from supplying oil, the United States has begun to

produce the commodity and has reached its maximum production volume. As a result, the

market's crude oil supply is unlikely to be constrained. Oil prices are projected to fall due to the

tariffs placed by the United States on Chinese goods and China's retaliatory measures. Changes

in the commodity's demand and the impact on price are indisputable. Because China is the

world's largest crude oil importer, a decline in Chinese demand will result in more considerable

losses for the oil-producing countries of the Gulf Cooperation Council (GCC). As a result of the

trade war between the United States and China heating up, China's economic growth and

regional consumption are expected to slow. Thus, crude oil demand is expected to decline. The

price of crude oil will fall dramatically if demand for the product declines when supply is

abundant (Meredith, 2019).

78
3.3. Effects of the Trade war on the Gulf Cooperation Council (GCC) Stock

Market

GCC financial markets have taken a beating due to the US-China trade spat. This year's

intensification of the US-China trade war led to a drop in stock values, raising the possibility of a

worldwide recession. The Israeli financial market's listed stocks fell 3% (Pollock, 2019). Closed

at 2525, the Dubai Financial Market lost approximately 4%. On Monday, 14th February 2019,

the Abu Dhabi Securities Exchange (ADSE) saw a 3.3 percent drop in the value of its listed

companies as a result of the battle. Kuwait's stock market dropped 1.37 percent, while Bahrain's

equities dipped 0.81 percent. Saudi Arabia's Tadawul stock market dropped by 3.5%. (Pollock,

2019). The drop-in stock value reported across the Gulf Cooperation Council (GCC) on Monday,

March 15th, was the region's most significant since 2016 (Atlantic Council, 2022).

There was a further drop in the stock market in the final quarter of 2019. Major Gulf

Cooperation Council stock markets plummeted following the US pronouncement that China was

a currency manipulator on August 6th. In a two-year low, Qatar's stock market index plummeted

4.2 percent, wiping out all of the gains it had made in 2013 (Pollock, 2019). The following day,

the index fell an additional 1.5 percent as more than 20 corporations sold their shares at a loss.

For the fifth week in a row, the Saudi Arabian stock market index ended with a loss of

0.8%, as most of the region's banks saw their share prices tumble. Saudi Arabia's National

Commercial Banks lost 3% of their value, while Saudi British Bank lost 3.4% (Braunstein,

2019). Following the decrease in the share prices of Emirates NBD and Emaar Development, the

Dubai index was also down by 0.1 percent. Prices of Dubai's most acceptable residential

property fell by 1.9 percent as well. The stock index prices in Abu Dhabi did not change

significantly. After posting losses in the telecoms and finance sectors, the index was unchanged.

79
3.4. Probable Scenarios and Further Effects of the Trade War

There are three possible scenarios for the US-China conflict. The impact of the trade war

on the Gulf Cooperation Council economies (GCC) depends on what direction the dispute goes

in. An analysis of the most likely outcomes follows.

3.4.1.Scenario 1: The US-China Trade war will remain a Cold War

Differences in cultural traditions and social ideals exist between the United States and

China. Even if the other side attempts to impose or recommend new policies on the countries,

they will not change their existing political and economic structures. China will undoubtedly

have to cut back on its export-oriented manufacturing. After decades of building a competitive

economy and creating multinational firms, China stands a better chance of winning Cold War II

than in Cold War I. With "strong American military capabilities, building NATO-type

antagonistic alliances, isolating it economically and imposing costs when it did things the US did

not like," America will surround China. On the other hand, China intends to force the United

States out of the business arena (Rush Doshi, 2021).

Suppose the United States wants to negotiate an "honest" agreement with China and

serve the interests of the US economy. In that case, it will interpret its unilateral penalties as a

willingness to seek better deals. If a trading partner's national interests or security are threatened,

the country will achieve its objectives. The tariffs set by the two countries will remain

unchanged, and neither country is eager to negotiate the issue.

Both China and the United States see GCC countries as strategic allies and business

partners. So yet, there have been no tangible effects to their commercial relations with either

China or the United States. There have also been no meaningful negotiations to reassess

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commercial relations between the countries involved. It's yet unclear what the long-term

economic consequences will be. GCC economies rely heavily on oil, regardless of sustainability

measures or economic diversification initiatives. As long as China and the United States continue

to trade threats, the oil demand will decline, resulting in lower prices for consumers globally.

The two economic powers that could thrive with a symbiotic approach to imports and

exports are not benefiting from this debate. Imposing tariffs may appear to be a more

straightforward answer than engaging in negotiations, but the globe may end up paying a high

price for this approach. Both sides must find a better solution. Examining it from a global

perspective only adds to the complication, as evidenced by the EU's economic issues, such as

Brexit, pose numerous uncertainties about the future (Gemma, 2018).

3.4.2. Scenario 2. An Agreement to stop the trade war will be reached

The trade spat between China and the United States is likely to compromise. One

country's complaints may be taken seriously by the other country. We may be able to work

something out. The Republic of China has proved that it is willing to open some of its markets to

competition through its anti-protectionism initiatives. The Chinese government contemplates

liberalizing its financial markets and the automobile industry to promote more open trade. The

government's primary priorities also include enforcing intellectual property rights and limiting

the transfer of American technology to Chinese firms. The Chinese government may agree to

buy higher agricultural products from American farmers to promote trade (Markaz, 2018).

In light of these steps, it is clear that China is willing to compromise to shift away from

protectionism and trade-restrictive tactics. They have also declared their willingness to accept

higher import prices from the United States, fewer government subsidies for Chinese businesses,

81
and more open technology transfer from the United States to China on their side. There is little

doubt that these measures will be crucial in ending the conflict.

If China's actions are anything to go by, the United States is sure to follow suit. Import

duties from China are unlikely to rise in the United States. As implausible as it may seem,

China's efforts to focus on mercantilism may effectively put an end to the dispute with the

United States. Trade tensions between the United States and China may be temporarily halted,

even if the worst-case scenario occurs.

In places where tensions run high, a sense of icy stability may be more prominent than in

those where peace and tranquility are more prevalent. In the future, the United States and China

may enter into a "cold peace" or "detente" with one another. Both countries are eager to engage

in bilateral trade as the global supply chain grows. A solution can be struck since both countries

do not want to lose money. Despite their bitter competition, the United States and China are

likely to remain strategic friends and trading partners (Dollar, 2021).

3.5. Possible impacts of US-China trade War on Gulf Cooperation Council (GCC)

members based on the Scenarios

The effects on the Gulf Cooperation Council (GCC) economies will differ depending on

the outcome of the US-China trade war scenario. International business is dominated by oil trade

in the Gulf Cooperation Council (GCC) region. An abundance of oil has made the area a tourist

destination. Sixty percent of global oil reserves are held by the Gulf Cooperation Council (GCC).

As a result, it has become a focus for countries worldwide. Though there has been occasional

political unrest in the region throughout its history, the steady supply of oil reserves has kept the

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market afloat. A trade war between China and the United States could affect the Gulf

Cooperation Council (GCC) in many ways (Manama, 2016).

3.5.1. The US-China trade War Persists in the short-term

The trade war risks may spread to other economies if the US-China trade war continues

and the two countries are left to deal with their tariff repercussions. For as long as the United

States has been absent from the Gulf Cooperation Council (GCC), it has maintained a solid

political and security presence. GCC peace efforts have relied heavily on the United States,

which has played a crucial role. Bringing stability to the region was the primary goal of the US

troops' presence in Iran. The country also stressed supporting the Israeli government's efforts to

restore peace in several Gulf Cooperation Council regions (GCC) (Huang, 2021).

Bilateral trade agreements with countries in the Gulf Cooperation Council are anticipated

due to US political and security engagement in this region (GCC). If China continues to impose

trade barriers, the United States may trade with other countries in the area. As a result of this,

certain countries in the Gulf Cooperation Council have developed tense relations with the

government to restore peace in the region (GCC). There are severe diplomatic and trade concerns

between the area and countries like Iran. As much as it has a substantial political and security

presence in the region, it is unlikely that it will initiate and promote beneficial trade relations.

As a result of recent events, the United States has taken a backseat to Gulf Cooperation

Council issues and public unrest (GCC). A current example of this is the ongoing conflict in

Afghanistan. As a result of the reported confrontations, questions have been raised about how the

United States should maintain its situation. It was predicted that the United States would

intervene in the region to restore peace based on its previous policies and actions in dealing with

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wars. However, Vice President Joe Biden's administration intends to limit military involvement

in the region. As far as we know, the United States is not directly involved in this conflict. When

working with the Gulf Cooperation Council, the present administration's approach is more

restrained and cautious than the previous administrations (GCC) (IMF, 2018).

The Biden administration has prioritized working with European countries to address

security concerns in the Gulf Cooperation Council through diplomacy (GCC). The United States

appointed special envoys to help resolve the Gulf Cooperation Council's (GCC) tensions and

address the GCC's many challenges. All governments in the area, including Egypt, the UAE,

Egypt, Saudi Arabia, and Qatar, were considered in these efforts. There is no doubt in my mind

that the United States has a legitimate interest in the Gulf Cooperation Council (GCC). Trade

links between the United States and the Gulf Cooperation Council (GCC) countries can be

established if China's high tariffs prevent entering the market. Since most nations in the Gulf

Cooperation Council (GCC) have diplomatic disagreements with the US, it will be difficult for

the US to gain access to their markets (Chatham House, 2021).

As a result, the Chinese have invested heavily in the Gulf Cooperation Council (GCC)

market and are likely to penetrate the area's economies. More than 15 agreements between China

and the GCC countries have been reached. Since the Gulf Cooperation Council (GCC) region

has been plagued by piracy, the country has participated in anti-piracy and marine security

operations. According to the Chinese ambassador, China would also participate in a maritime

security operation to help restore and maintain peace in the region. While China has been

interested in forging economic deals with Gulf Cooperation Council (GCC) states, the country is

also considering taking part in efforts to restore peace in the region. Moves like these helps

validate the region's interest in the Gulf countries (El-Kharouf et al, 2010).

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 An assessment of the current scenario reveals that tariffs imposed by both countries will

undoubtedly migrate into the Gulf Cooperation Council (GCC) region if they continue. The

countries' recent political maneuvers suggest that they have a great deal of interest in the area.

Consequently, they are likely to engage in international trade with countries in the Gulf

Cooperation Council (GCC).

The Gulf Cooperation Council will significantly benefit from these initiatives (GCC).

The economies are expected to rise at a substantial rate and expand significantly. The

involvement of significant economies in trade will increase the trade surplus between the Gulf

Cooperation Council (GCC) countries and the United States, thereby enhancing the economic

growth and development of the Gulf Cooperation Council countries (GCC).

One of the world's most important sources of crude oil comes from the Gulf Cooperation

Council (GCC). Even if they may deal in other commodities, the two countries are likely to look

into oil trading. Increasing oil exports from the Gulf Cooperation Council (GCC) region will

bring considerable revenues for the country, allowing it to continue expanding and developing.

3.5.2. Cold War

The Gulf Cooperation Council (GCC) area will reap some benefits if the trade war

between the United States and China continues for an extended period. Each country will have to

cope with the dispute in its manner if the two largest economies, China and the United States,

keep silent on the matter. Instead of focusing on the United States, China is more likely to focus

on other parts of the world. Involvement in ASEAN trade accords is a step toward focusing on

the Asian region rather than importing most of its commodities to the United States.

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 Besides ASEAN countries, China is also projected to expand its exports to Gulf

Cooperation Council countries (GCC). Recent events have seen China's government working to

enter the GCC markets. Since China introduced the Belt and Road Initiative (BRI) in 2013, many

countries in the Gulf Cooperation Council have turned to China as their primary commercial

partner (GCC). BRI-connected economies have been China's primary trading partners in

economic investments, infrastructure development, and connectivity initiatives (Brookings,

2019).

Oil imports from the Gulf Cooperation Council (GCC) region are also expected to grow

in importance for China. If the trade war continues, China's leadership will avoid all trade with

the United States. China imports both crude oil and liquefied gas to a great extent. In the

beginning, China bought a large amount of US crude oil and LNG from the United States. There

are no longer any Chinese imports from America because of the current tension between the two

countries. Oil exporting countries like Qatar, Kuwait, Oman, the United Arab Emirates, and

Saudi Arabia benefit greatly from such a decision. Their crude oil and LNG export volumes are

certain to rise. Oil consumption may fall, but the Gulf Cooperation Council (GCC) countries will

benefit more from China's presence than if it were absent. The Gulf Cooperation Council (GCC)

will be able to have greater influence over oil commerce between the oil-exporting countries and

China due to this agreement (Ellyatt, 2018).

There will be a lot of manufacturing activity in the Gulf Cooperation Council (GCC).

This means China may contemplate shifting its manufacturing base to other nations, where tariffs

on Chinese exports have reduced prices. This region's manufacturing hub is a natural target for

China, given its strategic placement within the Gulf Cooperation Council and its ongoing efforts

to strengthen economic connections with the region. The United States has had a significant

86
impact on the Gulf Cooperation Council (GCC) when it comes to security. The US government

has established a substantial presence in the region due to its leadership role in the Iraq and Iran

conflicts. However, it has little economic engagement with the Gulf Cooperation Council (GCC)

countries. A trade agreement with Gulf Cooperation Council (GCC) states is doubtful, but there

is a risk that the US will look for an alternate manufacturing location if their fight with China

continues for a longer length of time (Ellyatt, 2018). '

The Gulf Cooperation Council (GCC) has greater bargaining power over the two largest

economies due to this arrangement. To meet the countries' industrial demands, the area must

improve its position. A manufacturing hub for one of the two countries involved in the trade war

might be a boon for the Gulf Cooperation Council (GCC). This region can negotiate fair prices

and find the best bargain possible for more than trade surpluses.

3.5.3. The War Escalate into a World War

The current conflict between the United States and China has the potential to turn into a

world war, triggering a global economic downturn. If several nations throughout the world

retaliate by implementing heavy tariffs, the economy will slide into another downturn again. The

global economy will be adversely affected by such a recession. There will be a significant impact

on the economy's growth. It will have a significant impact on the spending power of consumers

and the standard of living around the world (Markaz, 2018).

Although a recession is unlikely, it cannot be completely ruled out. All economies around

the world will be negatively impacted by rising and persistent protectionism. The Gulf

Cooperation Council (GCC) will not be exempted from this requirement. The initial impact of

the recession on the global oil market will be a decrease in prices. The global economy has a

87
significant impact on the price of oil, which fluctuates frequently. As a result of the recession,

the price of oil will fall, but so will demand for the product. For a region that relies heavily on oil

export money, a full-blown conflict will have negative implications on the prosperity of the Gulf

Cooperation Council (GCC) nations (Manama, 2016).

Additionally, the global economy will be harmed by the uncertainty that a war like this

will engender. Export and import volumes are expected to decline significantly. Unemployment,

poor income, and a decrease in purchasing power for consumers are all consequences of a

slowdown in economic growth. People's quality of life and well-being will deteriorate

dramatically as a result of this policy. Even if the trade does not escalate into a world war, the

economies of the Gulf Cooperation Council (GCC) and other economies across the world would

be severely harmed. It may be impossible to recover from this level of turbulence (Markaz,

2018).

3.6. Implications of the Trade War for the Gulf Cooperation Council (GCC)

Nations

3.6.1 Regression analysis results

Economic
performance of
the Gulf
US-China USA-China Cooperation
tariffs trade deficit Change Council (GCC)
2013 1.67 318.68 0 5.1
2014 6.43 344.82 26.14 4.3
2015 6.21 367.33 22.51 5.1
2016 5.19 346.83 -20.5 3.1
2017 5.49 375.17 28.34 0.5
2018 4.98 418.23 43.06 1.7
2019 16.31 344.31 -73.92 2
2020 3.99 310.26 -34.05 -6.1

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Data Source: https://tradingeconomics.com/united-arab-emirates/gdp-growth
https://www.statista.com/statistics/939402/us-china-trade-deficit/
https://www.piie.com/research/piie-charts/us-china-trade-war-tariffs-date-chart

Regression Statistics
Multiple R 0.890203
R Square 0.792461
Adjusted R Square 0.709446
Standard Error 1.97169
Observations 8

The R square was used to construct the 'good for fit' test, with a result of 0.792461 (or

79.2461%). This means that the model can explain up to 79.24 percent of the relationship between

the dependent and independent variables, with the rest explained by factors not included in this

study. As a result, the model was good for fit since it met the criteria for being regarded significant

or good for fit, which is a fit rate of greater than 0.5 or 50%. Furthermore, the current study suggests

that more research be done to determine these elements that were not addressed in the current

study.

ANOVA
Significance
df SS MS F F
Regression 2 74.22095 37.11047 9.545953 0.019622
Residual 5 19.4378 3.887561
Total 7 93.65875

The regression model was significant to the study, with a p value of 0.019, which is less

than the alpha value of 0.05, meaning that the results obtained may be utilized to make good

conclusions about the influence of the US-China trade war on the economic performance of the

GCC.

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 Standard Lower Upper
Coefficients Error t Stat P-value 95% 95%
Intercept 6.486901 1.68742 3.844273 0.012071 2.149251 10.82455
US-China tariffs -0.75304 0.249972 -3.01251 0.02967 -1.39562 -0.11047
USA-China trade deficit 0.715632 0.163974 4.364313 0.007261 0.294124 1.137139

The regression model of the current study will be as follows:

Economic performance of
the Gulf Cooperation = 6.486901 – 0.75304 US-China + 0.715632 US-China
Council (GCC) tariffs trade deficit

It can be seen from the model above that the variables have varying effects on the GCC's

economic impact. The co-efficient for the US-China tariff variable is -0.75304, which means that

if the US-China tariffs increase by one unit of measure, the GCC's economic performance will

decline by 0.75304. This could be owing to the fact that traffic is not conducive to the GCC's

business performance. The coefficient for the US-China trade deficit variable is 0.715632,

implying that for every unit increase in the US-China trade deficit, the GCC's economic

performance rises by 0.715632 units. This suggests that the US-China trade imbalance is beneficial

to the GCC, and it is advised that the GCC take advantage of the trade deficit caused by the US-

China trade war to strengthen their economies and reap the benefits of the study's findings.

Hypothesis testing

Hypotheses Sig Hypothesis test Discussion on Results

results at 0.95 CI

H01: There is no 0.0296 Reject Null There is a significance unit change in

impact of US-China Hypothesis economic performance of the Gulf
tariffs on the because (0.0296< Cooperation Council (GCC) economy
economic 0.05) due to US-China tariffs. This is
performance of the explained form the fact that the Sig.
Gulf Cooperation Value is 2.96%, which is within the

90
 Council (GCC) acceptable limit of 5%. This agrees with
economy. the following studies in the study
literature: Popa (2019), (Hoekman &
Inama, 2017), (Schernikau, 2016).
H02: US-China trade 0.00726 Reject Null There is a significance unit change in
deficit has got no Hypothesis economic performance of the Gulf
impact on the because Cooperation Council (GCC) economy
economic (0.00726< 0.05) due to US-China trade deficit. This is
performance of the explained form the fact that the Sig.
Gulf Cooperation Value is 0.726%, which is within the
Council (GCC) acceptable limit of 5%. This agrees with
economy. the study by (Hoekman & Inama, 2017),
(Magnusson, 2019), and (Buongiorno &
Johnston, 2018) as discussed earlier in
the literature.

3.6.2. How Should the Gulf Cooperation Council (GCC) Respond?

In recent years, there has been a dramatic shift in the global environment and

international trade. Following the Great Depression, several countries elected to pursue liberal

trade policies due to the threats. However, in industrialized economies, that rhetoric altered and

led to the adoption of protectionism. Several persons in different countries and economies have

voiced skepticism regarding the value of international commerce. The majority of them have

maintained that supporting trade liberalism leads to an increase in the number of unemployed

people and should be avoided. As a result of this story, the United States has adopted

protectionism policies (United Nations, 2010).

Since introducing such trade restrictions, other countries have retaliated by raising their

tariffs. Retaliatory measures such as these have hurt both sides in the trade conflict. In the case of

China, the economic and political settings have been adversely affected by the protectionism

policies implemented by each country against the others. While their trade surpluses have

decreased significantly, the conflict has also had a negative impact on their relationship. A

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country's domestic market was shielded from fierce competition by enacting trade protectionism

policies. This has resulted in huge economic losses for both countries due to the policy (The

World Bank, 2021).

Following the US-China trade war, the Gulf Cooperation Council (GCC) members

should reconsider and refocus on their commitment to mercantilism. Imposing high trade tariffs

in response to China's and the US's moves will only negatively affect those countries' economies.

It would be disastrous for the economies of the region to transition to a more protectionist and

distorting trade policy in a region already suffering from security challenges (Li, 2018).

If tariffs are imposed, the Gulf Cooperation Council (GCC) countries' products will not

be in great demand. A combination of political tensions and high commodity prices will keep

potential traders away from the region. As a result, international trade in the region will be

limited. The region's economic growth and performance will suffer greatly due to this. Rather

than establishing high trade tariffs or a protectionism policy to draw more participants into the

market, the GCC countries should instead reap the rewards of mercantilism.

3.6.3. Possible Changes in their Trade Policy

It is widely accepted and regarded as beneficial for all parties involved in the trade that

concerns must be addressed for the perceived benefits of open trade. The agreements and

connections between its participants can have a big impact when it comes to trade. In the past,

research has shown that bilateral trade agreements include costs and have, in many cases, failed

to achieve the anticipated results. Reduced protectionism comes at a cost that may not be

recouped through mercantilism if the proper trade policies are not implemented.

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 It's a great time for the Gulf Cooperation Council countries (GCC) to reassess their

international trade strategy and position. The region is well-known for its considerable

engagement in crude oil exports to a wide range of countries worldwide. There is a strong case to

be made for the region as a trading destination for the world's two most powerful economies. The

Gulf Cooperation Council (GCC) countries might make use of the chance to reevaluate their

trade strategy, particularly in relation to crude oil, to ensure that they benefit from the precious

commodity (Alfayad, 2019).

3.6.4. Continue with the Move towards Mercantilism

GCC countries should first and foremost continue to pursue freer trade in all sectors of

the economy. The United States has limited involvement in the Gulf Cooperation Council

(GCC). In 2002, the value of US FDI in Gulf Cooperation Council (GCC) states was $ 17 billion,

accounting for 1.1 percent of all US FDI. Mining and manufacturing are two of the most heavily

invested industries. Trade between the United States and Gulf Cooperation Council (GCC)

nations has been attributed to specific regions enacting protectionism measures to safeguard their

most precious commodity, oil (IMF, 2018).

According to recent news reports, US-GCC trade has seen a recent increase in recent

months. Exports from the United States to the Gulf Cooperation Council (GCC) fell by 24%

between 2002 and 2003, while imports from the region rose by the same percentage. The amount

of petroleum imported rose by 38%. Natural gas is one of the other key sectors where imports

have increased. The volume of natural gas imported to the United States from the Gulf

Cooperation Council (GCC) territory increased by 118 percent. Other industries in the United

States that increased imports included apparel, which saw a 9% increase. Textile imports saw an

increase of 8% as well. In addition, there was a 32% increase in the number of medicinal and

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pharmaceutical items. The large increase in US imports from the Gulf Cooperation Council

(GCC) shows that trade between the two regions has grown significantly. Gulf Cooperation

Council (GCC) exploits the present economic conflict between China and the United States. And

make itself an attractive location for FDI from other countries. The Gulf Cooperation Council

(GCC) can boost its trade with the United States by creating a mercantilism environment (IMF,

2018).

The United States and Gulf Cooperation Council (GCC) countries have made significant

headway in creating a mercantilism environment. Through trade preferences and mercantile

agreements, the process has been completed. The Gulf Cooperation Council (GCC) countries

were able to join the US market duty-free thanks to a policy known as the Generalized System of

Preferences (GSP) implemented by the US government. The Bush administration established a

duty-free market in the Gulf Cooperation Council (GCC) nations for more than 3,500 products.

However, they were required to meet certain eligibility requirements. Because the United States

was focused on developing countries, they had to be prepared to participate in economic reforms

and not participate in any boycotts.

In some cases, countries that have met the conditions for duty-free access have gained

access to the market for the products in question. Several countries meet the criteria for

membership in the GCC. Others haven't met the requirements yet. As mentioned earlier, all

countries should strive to satisfy these eligibility requirements. There is a pressing need for

countries to stop boycotting each other and cooperate in economic reforms and Protectionism.

There are several actions that a nation must do to create a mercantilism environment with

other economies. The government must join the World Trade Organization (WTO). Being a

member of the World Trade Organization (WTO) results in the country's integration into the

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global commercial system. The World Trade Organization (WTO) does not recognize several

Gulf Cooperation Council (GCC) countries as members. Iran, Iraq, and other countries. Syria.

Neither the Gaza Strip nor the West Bank, nor Saudi Arabia is a member of the World Trade

Organization (WTO) (IMF, 2018).

The Gulf Cooperation Council (GCC) countries have contemplated the creation of Trade

Investment Framework Agreements (TIFAs) as a method of establishing mercantilism. To

promote commerce and resolve any trade disputes, the framework is formed. While Kuwait,

Saudi Arabia, Oman, Bahrain, UAE, and Qatar have formed the TIFAs, other countries like the

West Bank, Iran, Iraq, Syria, and Lebanon have not. They highlighted the importance of

negotiating a trade and investment framework with the United States. The Gulf Cooperation

Council (GCC) countries must reduce their trade agreements with the United States and China to

benefit from the present US-China trade war. In the Gulf Cooperation Council (GCC), many

countries have signed bilateral, regional, and international trade agreements (FTA, BIT, and

TIFA). There are many GCC member states in this group of countries. Still lagging in the race to

create a free market are countries like Iraq, Syria, Iran, Gaza, Lebanon, and West Bank. For the

sake of promoting international trade, governments should consider signing trade deals with both

China and the United States (IMF, 2018).

3.6.5. Create Special Economic Zones(SEZ) and Position the region as a Global Trade Hub

The trade conflict between the United States and China presents a chance for the Gulf

Cooperation Council (GCC) members to establish themselves as a global manufacturing hub.

The Gulf Cooperation Council (GCC) countries can build a manufacturing hub by developing

Special Economic Zones (SEZ). This will allow the two huge economies to achieve their

manufacturing aspirations. Because of the high demand for manufactured goods in China and

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around the world, it is expected that the country will consider diversifying its economic

activities. Due to the tariffs put on China's exports, making the goods in China will be more

expensive. However, enterprises in China can relocate their manufacturing operations to other

countries to lower their costs (Ellyatt, 2018).

The Gulf Cooperation Council (GCC) is an ideal site for Chinese businesses because of

its strategic position. SEZs and tax incentives will help attract more manufacturers from China,

the United States, and other parts of the world, allowing the Gulf Cooperation Council

economies to become a worldwide trading hub.

3.6.6. Form Preferential Trade Agreements

A long-term battle between the United States and China is possible. GCC nations should

consider adopting successful investment and development plans that will allow them to report

significant growth during the US-Chinese conflict. Examples include Kuwait, Oman, Qatar;

Bahrain; Saudi Arabia; and UAE. Preferential Trade Agreements could be used to export crude

oil from these countries.

Developing countries benefit from preferential trade agreements because they can access

a larger market. If the US-China trade war and tensions continue to rise, China may terminate

ties with the United States. As a result, China will want to trade with countries other than the

United States. China is the world's leading importer of crude oil. A large portion of the country's

crude oil imports came from the United States before the trade war. Oil exporting countries in

the Gulf Cooperation Council (GCC) stand to gain significantly if China decides to make the

area the primary supply of crude oil. A preferential trade agreement with China will lead to a

96
better outcome for a country. An arrangement like this might open up a huge market for crude oil

exports.

3.6.7. Promote Better Engagement with the Community

A country's protectionism strain can also be reduced by encouraging greater community

involvement. It is necessary to build community support for mercantilism. Free markets are

assumed to be widely accepted for trade Protectionism and investment policies. Still, it is almost

difficult for the government to continue implementing these policies without the public's support.

Many people have erroneous notions about how global commerce works. Disparities in

competitive advantage and attitudes toward fairness often shape public opinions of diverse

international trade practices.

Communities and governments are beginning to recognize the importance of having an open

dialogue about markets and trade.

“It's time for us to rethink our approach to assessing the impact of trade because of context and

geography matter. As a result, we must engage individuals in their communities. Before any

specific accords, we need to work much further upstream to gain a broader understanding that

goes beyond just the trade community. We must re-establish a connection between trade

discussions and everyday life by bringing them to common venues. To better understand the

impact of trade changes on communities, it may be helpful to engage more at the local level,

especially when considering issues like housing and credit markets, alternative work

opportunities, and access to social services at the same time” (EOCD 2017).

Few people in the Gulf Cooperation Council (GCC) region have taken an interest in political

and economic issues. In addition, the community has rarely discussed the pros or drawbacks of

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mercantilism. Oil exports are expected to be a major source of revenue for the Gulf Cooperation

Council (GCC) region because of the region's abundance of crude oil. When it comes to

economic growth, the region relies heavily on oil, but it's also important to consider how imports

and foreign direct investment might assist the community. The government should support

efforts to educate people on the benefits of mercantilism.

Chapter 4.0. Conclusion

Since the global financial crisis, many developed economies have seen a rise in

protectionism, resulting in a slowdown in international commerce. There are increasing concerns

and signals that the implementation of protectionism will increase shortly. ' Both China and the

United States have enacted protectionist policies. Protectionism policies imposed on each

country's exports led to a deterioration in relations between them. The current trade war between

the United States and China results from the US government's relentless hikes in trade tariffs on

Chinese imports and the Chinese government's quick reprisal.

The global economy is greatly influenced by international investment and trade.

Economic growth and the well-being of its citizens are in danger because of trade restrictions,

such as protectionism laws. This research looked at how protectionism affects the global

economy, particularly the US-China trade. For this study, researchers focused on how the US-

China trade war affected the economy of the Gulf Cooperation Council (GCC).

The US and China's economies will be harmed if they go into a trade war. In terms of

investment, there is a lot of cooperation between the two countries. As a result, trade tariffs

imposed by one country on the goods will be met with retaliatory measures of the same kind. As

a result, the two countries’ economies are expected to decline significantly shortly. Protectionism

98
is already threatening the economies of both countries, as can be seen in the current state of

affairs.

The trade war has affected global economies, including the Gulf Cooperation Council

(GCC). Real GDP values for the oil-exporting nations have been claimed to have decreased

significantly. In certain countries, the value of imports and exports has decreased, while it has

increased slightly in others. The trade-in the Gulf Cooperation Council may have additional

ramifications, depending on the course of the conflict shortly (GCC). After tariffs are enacted,

there are a variety of possible outcomes, including an all-out cold war between the two countries.

The present trade war could lead to a global recession if current tariffs continue to be imposed.

There will be huge gains for the Gulf Cooperation Council (GCC) if the war continues

and the current tariffs are maintained. As a result of the preceding, the two largest economies

globally, the United States and China, will seek out new trading partners. Both countries have

paid great attention to the Gulf Cooperation Council (GCC). If they do this through foreign direct

investment, import or export of various goods, they are likely to move to the area. As a result, the

Gulf Cooperation Council (GCC) is likely to see an increase in its trade surplus. Additionally,

the region is well-positioned to maximize the value of its crude oil sales through price control

and negotiating a favorable arrangement. A similar conclusion is predicted to be recorded if the

trade conflict escalates into a cold war with no countries addressing the concerns.

Even if the trade war doesn't turn into a global conflict, a new recession is inevitable. The

global economy will suffer significantly if the worst-case scenario comes to pass. The economy

will suffer greatly as a result of the notion that such dramatic repercussions of protectionism are

possible. There will be a significant decrease in the spending power of consumers and a decrease

in their level of living.

99
 The GCC and other international countries should reevaluate their commitment to

mercantilism in light of the escalating protectionism of the world's two biggest economies. As

protectionism rises, the world's economies must keep pushing for more mercantilism approach

kind of economies. To make the sale of its most precious commodity easier, the region can

consider signing preferential trade agreements with other countries. It is time for the

governments of the Gulf Cooperation Council (GCC) to take advantage of the opportunities

given by China and the United States by adopting plans that focus on positioning as a global

center.

Countries in the region's Gulf Cooperation Council (GCC) need to comprehend the

concerns of their citizens to better engage with the policy of mercantilism. Mercantilism require

constant communication if the general public accepts them. The Gulf Cooperation Council

(GCC) region's growth and economic development will promote mercantilism.

100
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