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Potential US-China Trade War

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April 05, 2018

What is the issue?

  • The US and China are announcing tariff hikes on a range of each other's import products.
  • The retaliatory measures are potential of taking shape as US-China trade war.

What is the US decision?

  • The US announced a proposed list of products imported from China that could be subject to additional tariffs.
  • It announced a possible 25% tariff amounting to $50 billion on around 1300 Chinese imports.
  • The sectors include industries such as aerospace, information and communication technology, robotics, and machinery.
  • After completion of the review process, the final determination on the products subject to the additional duties will be issued.

What is the rationale?

  • China has its “Made in China 2025” industrial promotion policy in place.
  • The unfair intellectual property and technology transfer practices under it are said to cause harm to the US economy.
  • They allegedly coerce US companies into transferring technology and intellectual property to domestic Chinese enterprises.
  • The proposed list of products is thus based on an extensive inter-agency economic analysis of the harm.
  • The measure thus targets products that benefit from China’s industrial plans while minimizing the impact on the US economy.
  • Also, the issue of US's trade gap with China is highlighted as a reason.
  • U.S. is not ready to afford to have a $500 billion a year trade deficit with Beijing.

What will the implication be?

  • The US administration is right to take measures against China’s abuse of economic and trade policy.
  • But imposing tariffs on producer goods will inadvertently hurt Americans.
  • The tariffs could hurt companies by raising prices.
  • It could result in reduced capital investment and lower productivity growth.
  • It could also reduce consumption of the capital equipment they rely on to produce their goods and services.
  • Hitting Chinese manufactures in high-technology sectors could also hurt U.S. businesses that have plants in China.
  • Notably, China has low labour and manufacturing costs.

What is desired?

  • Attempts to roll back Chinese innovation mercantilism should be more carefully targeted than this.
  • The focus should be on things that will create the most leverage over China.
  • But it should be without raising prices and dampening investment in the kinds of machinery, equipment, and other technology.
  • This is because machinery and technology are the ones that drive innovation and productivity across the economy.

What is China's response?

  • Beijing earlier imposed tariffs on 128 US imports worth $3 billion.
  • This came as retaliation against US's taxes on imported steel and aluminium. (Click here to know more)
  • Recently, China announced plans to levy an additional 25% tariff on imports of 106 US products.
  • This is a clear response to U.S.'s recent announcement of 25% tariff on some Chinese imports.
  • China’s retaliatory tariffs include on products such as soybean, whisky, orange juice, chemicals, aircraft, cars, etc.
  • This would hit the U.S. as 60% of U.S. soybean exports go to China.
  • The tariffs imposed by China are expected to hit $50 billion of trade in all, similar in value to Chinese goods targeted by the US.

 

Source: The Hindu

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