UNIT 8 ESSAY

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1 Unit VIII Essay: Trade War, International Relationships, and the Future of Tech Nguyen Pham Columbia Southern University ECO 2302 - Principles of Macroeconomics Professor Sayim October 20, 2023

2 Unit VIII Essay: Trade War, International Relationships, and the Future of Tech Introduction The essay will first discuss the major issues of the trade war and the tactics and measures taken by U.S. and China. Next, the essay will move to providing insights into the impacts of the trade war on the economy, employment, inflation, fiscal policy decisions, and the foreign exchange rates. The essay will conclude with an analysis of the international relationships between the U.S. and other nations and the impacts on the technology industry. Issues of the Trade War – Tactics and Measures Since January 2018, former U.S. President, Donald Trump Jr., began setting tariffs and trade barriers on China (Jin et al, 2012). The President’s goal was to change the unfair trade practices between the U.S. and China. The U.S. announced in 2018 that it would impose tariffs on more than $500 billion of Chinese products. The U.S.’s current President, Joe Biden, has kept the measures the same. In 2019, $12.194 billion had been collected in tariff revenue by the United States (Williams et al., 2019). As a response, China also imposed its own trade policy in retaliation of Trump’s tariffs. Most of the tariffs imposed by China targeted American industries that relied heavily on the Chinese market. China retaliated by threatening tariffs on $50 billion of U.S. goods. China also accused the U.S. of starting the trade wars. The tension between the two nations has been consistently high since 2018. The Impacts of Trade Wars

3 Trades between nations allow goods to be sold at cheaper prices. While the U.S. consumers benefit from cheaper goods from China, many American workers lost their jobs because of the import competition. Since the trade wars, U.S. tariffs affected 18% of its import and China’s retaliation affected 11% of China’s imports (Fajgelbaum et al, 2023). China’s annual GDP slowed down significantly immediately after 2018 – the start of the trade war. The negative impact of the trade wars on central economic issues of allocating scare resources is shown when the two countries focus on promoting domestic productions. While domestic productions bring jobs to local communities, they also increase prices that the consumers must pay for produced goods. The consumers cannot afford expensive goods when their wages are not increased. The imbalance between inflation, wages and the cost of living, the financial difficulties, etc. has negatively affected the residents of both countries U.S. and China. In addition, the trade wars also contributed to the tension between the U.S. and China. China’s President, Xi Jinping, consistently blamed the U.S. for the nation’s economic slowdown. Former U.S. President, Donald Trump Jr., also “pointed fingers” at China for the unfair trade practices, its government corruptions, and China being the source of the COVID-19 virus, etc. causing the tension between two nations to become much higher. The Impacts on Employment In 2019, experts predicted that the trade wars could increase the U.S.’s unemployment rate from 0.2 to 0.7 percent (Guest, 2019). Tracking this data, Erica York, a Senior Economist and Research Manager with the Tax Foundation’s Center for Federal Tax Policy, laid out in her article that 29,000 full-time jobs are at risk of being eliminated as the result of the U.S.-China trade wars. Tariffs lead to net losses of goods productions and the losses of lower-level-income jobs (York, 2023). Other sources stated that the trade wars hurt American industries and workers

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4 in ways that the U.S. exports to China used to support 1.2 million American jobs. Those jobs are now at risk. The Impacts on Monetary Policy Tariffs and trade policy impact the U.S.’s monetary policy in ways that the rise in financial stress of the economy will negatively impact credit flows, investments, and goods productions. During trade wars, inflation rises as the price of goods increases. When this happens, social welfare cost will also increase causing the nation’s economic health to decline. Trade wars also cause the interest rates to move above the equilibrium interest rate. When this happens, monetary policy will shift to become tighter, having higher rates causing economic growth and spending to slow down (Summer, 2023). Experts shared that if the U.S. follows monetary policies of flexible inflation targeting, trade wars won’t hurt the economy as much (Auray et al, 2023). U.S.’s Relationships with other Nations The U.S. imports $4 trillion in goods and services in 2022 from countries such as Canada, Vietnam, Mexico, Japan, Germany, and China, etc. (USA Fact, 2023). In other nations, the U.S.- China trade wars helped increase these nations’ exports (NBER, 2022). Overall, research findings showed that the U.S.-China traded wars enhanced trade opportunities for other countries. Countries like Korea, Japan and Vietnam have benefited from the U.S.-China trade wars. The Impact of Trade Wars on Technology According to the World Bank, the trade war negatively impacted supply chains and reduce technology innovation (Rowsell, 2023). When China and the U.S. focus on promoting

5 domestic innovation, they reduce reliance on foreign technology. That led to the development of increased regulations. The trade wars also created unhealthy imbalances in supply and demand for tech supplies. In 2022, U.S. President, Joe Biden, signed the Creating Helpful Incentives to Produce Semiconductors (CHIP) act into law. The act aims to boost the U.S. competitiveness, innovation, and national security (McKinsey & Company, 2022). This law also aims to prohibit funding recipients from expanding semiconductor manufacturing in China. In the next decade, the act will direct $200 billion in spending toward research and development, over $50 billion in semiconductor manufacturing, $24 billion in chip production, and over $3 billion in technology and supply chains. Conclusion The rise of China threatened the U.S.’s economic power and eventually led to the trade war (Lee & Zulkefli, 2021). The trade wars have been going on for many years and have negatively impacted both nations but benefited other “bystander” countries such as Korea, Vietnam, Canada, Mexico, etc. If the U.S. wants to preserve technological and moral authority, it must work out the issues of economic and political weakness. The U.S. should also focus on strengthening its economy and workforce while improving relationships with other nations.

6 References Auray, S. & al (2023). Trade wars, nominal rigidities, and monetary policy https://www.nber.org/system/files/working_papers/w31302/w31302.pdf Guest, G. (2019). US-China trade war could raise unemployment rates https://bit.ly/48VINiX Jin, Y. & al (2022). Americans' Attitudes toward the US–China Trade War . Journal of Contemporary China, 31 (133),17-37 Lee, P. & Zulkefli, N. (2021). US-China Relations: Trade war and the quest for global hegemony. Journal of International Studies, 17 (0), 131-155 McEachern, W. A. (2018). Econ Macro (6th ed.). Cengage Learning US. https://online.vitalsource.com/books/9781337671804 McKinsey & Company (2022). The CHIPS and Science Act: Here’s what’s in it https://www.mckinsey.com/industries/public-sector/our-insights/the-chips-and-science- act-heres-whats-in-it National Bureau of Economic Research (2022). How the US-China Trade War Affected the Rest of the World

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7 https://www.nber.org/digest/202204/how-us-china-trade-war-affected-rest- world#:~:text=These%20nations%20did%20more%20than,global%20trade%20by %203%20percent . Fajgelbaum, P. & al (2023). The “bystander effect” of the US-China trade war https://bit.ly/3tAB2Po Rowsell J. (2023). US-China trade war harming tech innovation https://bit.ly/46TRQyX Summer, S. (2023). How trade wars, monetary policy and business cycle are connected. https://thehill.com/opinion/finance/459309-how-trade-wars-monetary-policy-and-the- business-cycle-are-connected/ York, E. (2023). Tracking the economic impact of U.S. tariffs and retaliatory actions https://taxfoundation.org/research/all/federal/tariffs-trump-trade-war/ USA Facts (2023). Which countries does the US trade with? https://usafacts.org/articles/which-countries-does-the-us-trade-with/ Williams, B. R., Cimino-Isaacs, C. D., Fefer, R. F., Hammond, K. E., Jones, V. C., Morrison, W. M., & Schwarzenberg, A. B. (2019, February 22). Trump administration tariff actions (Sections 201, 232, and 301): Frequently asked questions (CRS Report No. R45529). Congressional Research Service. https://crsreports.congress.gov/product/pdf/R/R45529

UNIT 8 ESSAY

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