How U.S.-China Trade War Is Shaping American Industries
The most powerful nations have shifted their strategies and tactics for world influence from traditional warfare to economic warfare. U.S. and China, the top two biggest economies of the world, having G.D.P.s of $23 trillion and $17.73 trillion, have been in a fierce trade war as both countries are competing to become the most dominant nations of the 21st century.
The trade war began under the Trump administration in 2018, and since then, the two superpowers have been trying to pressure each other economically by all means possible. Tariffs have been the most common weapon, resulting in $550 billion in tariffs on Chinese goods and $185 billion on reciprocal U.S. exports.
This article will review the key features and current incidents shaping this trade war and its implications for the U.S. economy.
China’s Spying and Intellectual Property Theft
China is infamous for intellectual property theft and bending the rules, sometimes outright breaking them, especially in regard to trade.
Today, you can find counterfeits and fakes of almost any material branded products produced by the Western world sold in China.
This intellectual property theft comes at a staggering cost for the U.S., costing between $225 billion and $600 billion annually. China has exercised these trade and production practices for years, and finally, the U.S. decided to impose tariffs against Chinese exports.
China has also been involved in a wide-scale scandal regarding its technology giant Huawei. Huawei was accused of stealing information and sabotaging technological intellectual property owned by the U.S. and the U.K. This resulted in being banned in the U.S. and labeled a security threat.
Unlike the U.S., the Chinese state has the authority to demand tech companies release sensitive information for money or through coercion, which is also why the TikTok ban in the U.S. became a contentious issue.
The U.S. claims this poses a severe threat to national security, as sensitive information can be used for espionage and cyberattacks.
Two Ends of a Spectrum; U.S. And China
While the U.S. economy relies primarily on the service industry, like hospitals, healthcare, banking, and insurance, China has taken a different route and has become a manufacturing powerhouse.
China dominates mass production, with industries like copper mining, construction, manufacturing, and e-commerce being the most significant revenue creators.
All these industries help China mass produce in huge quantities, threatening the U.S.’s top spot among the world’s biggest economies. Goldman Sachs economists suggest that China will overtake the U.S. economically by 2035 if all aspects stay constant.
The labor force and minimum wage also have stark differences when comparing the two countries.
China has a labor force of 819.5 million, which is almost five times more than the U.S., and China has a minimum wage of just $1.73/ hour compared to $7.25 of the U.S.
|Labor Force||154.9 million||819.5 million|
The availability of vast amounts of cheap labor has resulted in many businesses moving their production to China. This process is still ongoing, with the famous U.S.-based automobile manufacturer Tesla moving to China in 2018 and producing 52% of their products in China in the year 2022 despite expansion doubts.
Latest Escalations in the US-China Trade War
While the Trump administration started the trade war by implementing tariffs on China due to their unfair trade policies, Joe Biden’s administration has continued on this stance. It has taken this dispute to a whole new level.
Trump’s tariffs on China eventually resulted in the Phase One agreement between China and the U.S. This agreement requires structural reforms and changes in the trade policies of China. This, however, changed when Joe Biden was elected the president of the U.S. and as China fell short of their promise in Phase One to buy $200 billion of U.S. goods over two years and further creating more trade tensions.
How the Trade War Is Shaping American Industries
Recently, under Biden’s administration, the U.S. has implemented a ‘CHIPS for America‘ act, which places hurdles in China’s way to acquire advanced semiconductor chips and supercomputer components from the U.S. This act has put the U.S.- China relations into more turmoil than ever before.
Although the U.S. economy might suffer because of these tariffs and acts, China will also incur more losses with time. This trade war was a long time coming due to China’s trade practices and dominance in technology over the U.S.
The U.S. import volumes from China remain below 50% of their pre-trade war levels. The most affected import includes all the technological products that were previously imported from China. These include semiconductors, consumer electronics, I.T. hardware, and so on.
While the trade war still rages on, only time will tell who will be victorious. As of now, China is on the losing side in terms of total income; the trade war cost China $35.2 billion, or 0.29% of its G.D.P., and cost the U.S. $15.6 billion, or 0.08% of its G.D.P. according to Yang Zhou from Minnesota university.
This shows that the Chinese G.D.P. loss is almost three times higher than the U.S. G.D.P. loss. Potentially certain U.S. semiconductor companies have the most to gain in the short term as the U.S. look to move technology dependent away from this arch-rival, and other critical industries related to defense, military, or aerospace may be next to follow suit.This key rivalry will likely play a significant backdrop to certain key sectors and industries over the next decade and continue to be more volatile each time new politicians or elections present new opinions and strategies to this conflict.
Josh is a financial expert with 15+ years on Wall Street as a senior market strategist and trader. Josh graduated from Cornell University with a business degree in Applied Economics and has held numerous U.S. and European securities and brokerage licenses including FINRA Series 3, 7, 24, & 55. In addition to running an investment and trading firm, Josh is the founder and CEO of Top Dollar, where he teaches others how to build 6-figure passive income with smart money strategies that he uses himself.