Done By : Stefano Farina

: Emran Agraw

Submitted to : Professor Zafer Akin

Date : April 5, 2024

 Progress Report

Abstract

This paper will discuss the macroeconomic effects of the USA-China trade war in light of

China's trade surplus and G.D.P. growth and how the policies affected the economic course of

both countries during the war. This paper will use an integrated set of quantitative and qualitative

data sources, including World Bank and I.M.F. statistics, policy documents, and trade

agreements, to draw comprehensive analyses of the two largest economies, their G.D.P., and

trade balances. In this regard, the research will apply Keynesian and neo-classical theories to

establish the extent to which fiscal and monetary policies influence the economic indicators,

given the context of the trade war. Therefore, this paper aims to separate the specific effects of

the trade war from other macroeconomic factors that affect the growth of the U.S.A. and China.

Thus, the paper will unearth the trade dynamics and policy responses to unravel the broader

implications for the economic strategies of both economic superpowers amidst rising economic

tension.

Research Objective

What are the macroeconomic effects of the USA-China Trade war on China's trade

surplus and G.D.P. growth, and how are the policies from the war affecting both countries'

development?

Historical Background
China

Discussing China's background is a critical element in understanding the trade war; pre-

1970, China was one of the poorest countries in the world, and what marked the change post-

1970 was a shift towards a mixed economy under a new leader and the beginning of its global

powerhouse. The country's greatest assets driving its G.D.P. include manufacturing and export-

oriented industries, making it the world's largest exporter of goods. Its massive labor force and

strategic investment in technology and infrastructure have also played crucial roles. Foreign

investment that tapped into China's labor source also boosted economic activities and increased

net exports. However, this rapid growth has not been without challenges, leading to trade

imbalances with major trading partners, particularly the United States. From China's perspective,

the root of the trade war can be attributed to these imbalances and accusations of unfair trade

practices, such as intellectual property theft and currency manipulation, which have strained its

trade relations, especially with the U.S.

United States of America

The United States has been an identified country whose economy is diversified to

advance in technology and has remained firm on the international platform due to innovation, a

strong consumer market, and financial leadership. The U.S. has some of the most prominent and

influential companies contributing to the American G.D.P. in these sectors. It used to be that the

U.S. only wanted to stand by the principles of free trade. Still, concerns over the trade deficit and

the loss of manufacturing jobs, added to the charges against China's unfair practices, ignited the

trade war with China. From the American perspective, this trade war sought to address these

issues and protect American intellectual property and jobs from manufacturing and other
industries. This reflected how President Trump's administration was moving to change economic

policies to more authoritarian ones.

Research Focus

1. G.D.P. analysis of the U.S.A. and China: how does the policy set by the U.S. affect the

components of A.D. in China's trade balance?

2. Trade Balance (Deficit or Surplus)- Analysis of the effects of the trade war on the countries'

trade balance.

3. Investigate the country's monetary and fiscal policy and its effect on influencing the policy set

by the U.S.A. in the trade war.

G.D.P. analysis of the U.S.A. and China: how does the policy set by the U.S. affect the

components of A.D. in China's trade balance? U.S.A. is ranked number 1 in its economic

performance in the past decade, averaging a G.D.P. of $ 20 trillion annually and an average

growth of 2.13% each year, the major G.D.P. component being Consumption. China has been

ranked number 2 in its economic performance over the past decade, averaging a G.D.P. of $13

trillion annually and an average growth of 6.14 yearly, the major G.D.P. component being

investment (MacroMico). "The United States and its allies contend China's quota violates

international trade norms, forcing multinational firms that use the metals to relocate to China.

China calls the move "rash and unfair" while vowing to defend its rights in trade disputes"

(CoFR). In retaliation to U.S. tariffs and trade policies, China undertook countermeasures,

including tariffs on U.S. goods. This resulted in a fall in U.S. exports to China. These put a lot of

pressure on some sectors that rely on the markets in China and affected the U.S. trade balance.
On the contrary, China had been facing challenges following restrictions from the U.S., such as

exporting its trade surplus to the U.S., therefore creating room for rethinking its strategies on

other aspects of the economy, majorly on sectors important for exportation into the United

States. Both countries observed changes in these aggregate demand components that influenced

each country's G.D.P. growth rate. Such firms, which are restricted in their operations, would

affect China's investment and employment levels, impacting portions of its G.D.P., such as

investment and net exports.

Research Focus (2&3)

Research Finding will available on the Final Report

 References (MLA or APA cited later)

https://datacommons.org/place/country/USA?utm_medium=explore&mprop=amount&popt=Eco

nomicActivity&cpv=activitySource,GrossDomesticProduction&hl=en

Macro micro

https://en.macromicro.me/collections/22/cn-gdp-relative/984/cn-gdp-percentage

Cofr

https://www.cfr.org/timeline/us-china-relations