US China Trade War

US – china conflict:
1. Economic:
Trade war:
- Since trump has resumed power, US – china have entered the largest trade war of the
world.
- In the first phase, $50bn worth of goods were subjected to higher taxes by USA
administration
- Then in second phase, $100bn worth of goods were heavily taxed.
- China retaliated by imposing tax on $30bn goods.
- US went ahead and imposed more taxes on another $100bn worth. Total $350bn now.
- China in response went ahead to impose more $50bn so did US, again.
- China imposed heavy taxes on all US products at once.
- US had taxed electrical equipment’s like solar panels, washing machines, ovens etc. Second
phase targeted steel and aluminum products, then came textile sector export of china.
- US badly hit Huawei by stopping their Tech giants to work with them.
- China answered by targeting soya beans mainly and luxury goods imposing high taxes, US
cellular giant Apple boycotted through out the nation.
Why US did it?
- To support the national industry because China was capturing US marketing and US products
couldn’t compete the price so imposed tariffs on Chinese products.
- To reduce its trade deficit. World’s largest in world. 2016-17 ($635bn). 50% of the deficit was
with china. The total US china trade was $530bn. US exports out of them were $132bn and
$400bn imports.
- The principle stance of trump is that china copies our products and is an intellectual thief.
- No more free and fair trade, rather free but fair trade. Meaning no open market competition,
free trade but there must be a balance in the import export.
Why china did it?
- China did all only in retaliation

- Protectionism doesn’t suit china; free trade is favorable to them. They can compete on price,
so open competition is better for them.
- China is the largest agriculture products and luxury goods from US, which they stopped in
retaliation to target US.
Implications of the trade war on US:
- Revival of local industry in US.

- Reduction of trade deficit.
- Job creation.
- Huge decline in the agricultural goods.
- Importers of US badly hit.
Implications of the trade war on China:
- US is the biggest market of export for china. About $200bn worth of export.
- Caused job market and production.
Effects on global economy:
- Protectionism has revived strongly.

- Increasing penetration of china into world market.
- China and Europe are coming closer in Italy, Spain, UK and German markets because free trade
suits china and EU.
- Increasing penetration of china in Turkey, ASEAN and Asia in general, also in BRICKS countries
vacuum created by US in being filled by china.
- There has been a strong realization between Beijing and Washington that this war will affect
global economy other than their own.
- So new understanding is that Huawei will not be targeted, and apple production restarted in
china.
- Free but fair trade has been agreed upon by china and will increase imports from US from
$130bn to $330bn.
Currency war:
- Printing of currency was based on Gold reserves.

- After WW-II, Brita hood system: Currency would be printed only if enough dollars are there to
backup.
- Middle eastern countries backed their currencies with oil.
- Pricing of currency is decided by demand/supply phenomenon, Degree of State intervention.
- Fixed currency is mostly in communist regime and floating in capitalist.
- China kept the price of their currency as fixed, it did not allow market forces to dictate through
an executive order, and indirectly by not letting the currency leave the country to save it from
external forces till 2016.
- Printing of yuan increased to keep to depreciated and low cost of production for exports.
- In 2016, china entered into an agreement with IMF and agreed to keep their currency floating,
not fixed in return for IMF to keep a portion of its reserves in China to increase their voting
powers.
- China still indirectly controls yuan. Kept yuan isolated and low demanded currency. China also
buys dollars to depreciate yuan.
- 2008-2012, Chinese people started disposing off their dollars and buying gold and real estate.
Decrease in Dollar in market hiked the dollar then started buying later from the world to further
decrease the supply of china in world market and further hiked.
- China is now doing currency swap agreements with 32 countries. According to this agreement,
those countries who have entered the agreement with china would conduct trade with china in
mutually interchangeable currency like Pakistan buys in yuan and pays in rupee.
- China is trying to enter in petro-yuan agreement with Middle east for hydrocarbons, but Russia
is hesitant along other. Iran might do it owing to already sanctions.
- KSA can’t do it because it depends on US for security on NATO and them.
- China is investing $1.3 trillion across three continents and 120 countries to link them to china
and alternative trade routes exclusively for the partner countries. All of this is to break the
monopoly and economic leadership of USA.
Economic standing of US:
- World largest economy $20tr in size.

- World largest software producer and exporter
- Largest defense products exporter
- Largest foreign investor in world
- Largest banking system
- More than 60% world wealth is in US, wall street.
- International political economy is in US control due to sea routes in US control.
- Dollarization of world trade
- Controls world economy by IMF and world bank
But US is under economic crisis since 21st century:
- US debt is $16tr, locally and externally.

- More than $3bn dollar debt acquired per day by fed
- More than $1tr debt annually after 2003, locally and externally.
- Owes $1.3tr to china in debts.
- US foreign military operations had to be downsized because of no longer affordability.
- S&P, moody have declined US ranking in economy from AAA+ to AAA.
- Financial shutdown in 2019 for 45 days. Various fed departments were closed and downsized.
On the other hand, china:
- Worlds 2nd largest economy which will be biggest by 2028 or 2030.

- Crossed US in 2016 in purchasing power parity.
- Largest foreign reserves.
- Largest trade partner for the globe.
- Largest importer of hydrocarbons in world.
- Largest exporter of consumer goods.
- Investments and loans worth $1.3 trillion through BRI.
US china geostrategic conflicts:
1. South china sea:

- It is a conflict between ASEAN with support of US and china on the islands in south china sea.
- There are more than 400 islands. Spratlays is the biggest chain.
- Conflict is on around 100 islands among ASEAN on various islands.
- China claims all the islands on basis of international maritime laws.
- Upto 200 nautical miles is still in the boundary of the coastal country.
- China claims these islands based on its history, nine dash lines
- China claims that maritime law was passed in 1982 while nine dash line exist way before than
this and these islands were part of Chinese regime.
- It has been taken up in UN since 1949.
Importance of south china sea:

- SCS has immense importance in sea trade, globally
- Biggest trade route system and busiest in the world.
- China’s all trade takes place on this route along with US, EU and Middle east.
- Strait of malaka is captured by US by a fleet which is a threat to china.
- 84% of china trade passes through this strait and US is a threat.
- Energy importance:
- world’s 4th largest energy reserves are in south china sea. More than 80bn barrels and gas
reserves are even bigger.
Military importance:
- Straight of malaka is 400km long is heavily guarded by US.
Chinese policies towards south china sea:
- China has announced all these islands to be sovereign territories of china and any intervention
would be strongly punished.
- Huge military deployment in these islands have been done by china. Most warships of china are
in south china. It has flooded south china seas with navy and is also going to drop two aircraft
carriers.
- Artificial islands were made and made runways.
- This was all done to increase maritime boundaries towards those natural islands with the help of
artificial ones.
- China is minimizing its conflicts with ASEAN through investment and loans to win them over.
East china sea:
- Conflict on islands between japan – china majorly “Sin ka ko” islands in east china sea. Japan
based on maritime law and china claims on nine dash line.
- US is siding with Japan here too.
- Military importance is the cause, not economic and trade.
- US wants encirclement of china by entering into strategic partnership with regional countries to
contain china like with japan, India and Australia.
- Increasing naval installations in Indian ocean of US for increase its presence.
- Series of naval bases in asia-pacific. Biggest is guam naval base, okinava base near japan. Third
biggest at strait of malaka. Diago garshia is the fourth biggest.
- Aircraft carriers are also part of the navy here. 3 in number. One each in east china sea, Persian
Gulf and Sea of Japan. Biggest one is in the East china sea.
- Nuclear submarines are also part of the fleets around Asia – pacific.
- Biggest installation of US for control rooms is in Australia for this area
China’s policy in answer:
- Policy of peaceful co-existence and peaceful rise by growing interdependence with US and
others in economics.
- China is biggest investor in US and have $500bn trade.
- Trying to win over US allies by economic diplomacy like ASEAN and middle east.
- Increasing military muscle by providing world’s second largest defense budget to its army.
- China is deploying military around ASEAN region.
Chances of war between US and china:
- Both entered trade war but now they are negotiating.

- Territorial conflict in east and south china sea are grave
- US is the biggest military power of the world, but china is emerging as the biggest.
- Both are economically inter-dependent, so both avoid direct war.
- If US has an edge on conventional war, then china has edge in cyber security.
- Both will always play proxies like in Middle east and Afghanistan.
- QC died’s trap: Greek philosopher gives a concept that Greece and Rome when world power,
Sparta started to rise against it so Greece attacked Sparta along with ROME. So, when an
emerging state becomes a threat for status quo then the status quo attacks the emergent.

US China Trade War

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US China Trade War

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US – china conflict:

Why US did it?

Why china did it?

- China did all only in retaliation

Implications of the trade war on US:

- Revival of local industry in US.

Effects on global economy:

- Protectionism has revived strongly.

- Printing of currency was based on Gold reserves.

Economic standing of US:

- World largest economy $20tr in size.

But US is under economic crisis since 21st century:

- US debt is $16tr, locally and externally.

On the other hand, china:

- Worlds 2nd largest economy which will be biggest by 2028 or 2030.

1. South china sea:

Importance of south china sea:

Chinese policies towards south china sea:

China’s policy in answer:

Chances of war between US and china:

- Both entered trade war but now they are negotiating.

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