With President Trump’s America First policy, he has been slapping tariffs on different countries, including the European Union and Canada, to try to reduce the American trade deficit. In this essay, we will analyse the current trade war between America and China, a result of Trump’s protectionist policies.
A trade war is a situation in which countries try to limit each other’s trade, typically by the imposition of tariffs or quota restrictions.
The US-China trade deficit was $375 billion in 2017. Though the deficit is large, it does not necessarily mean America was disadvantaged by the deal as numerous unrelated factors caused it. For example, China has a lower standard of living and pays workers less (Amadeo, 2018)1. Many Chinese companies also disregard environmental and safety regulations. Thus, the cheaper production in China would mean lower prices for consumers to save costs in safety functions. Hence, America imports more than it exports; With American consumers buying more Chinese goods than vice-versa, causing a major trade deficit. Often, this is not a problem in the day and age of globalised economies. A trade deficit also reflects a healthy economy as American consumers willingly spend more on goods. Meanwhile, much of the money “lost” in the trade deficit often returns to America as investments in real estate, US Treasury bonds and many other fields (Romans, 2018)2. Nevertheless, the Chinese government disrupts the playing field through encouraging unethical economic practices. For instance, China allegedly forces US companies to give corporate secrets before entry into the Chinese market. Such theft totaled up to $300 billion.
President Trump strongly believes that China is forcibly extorting corporate secrets and that the trade deficit is extremely detrimental to America. Hence, he wishes to force China to buy more US goods and stop their unethical business practices by placing tariffs on $34 billion of Chinese goods (Bryan, 2018)3.
Nonetheless, China has firmly denied all allegations of unethical business practices. Also, it is common to have trade deficits. Thus, China would naturally view the tariffs as a threat and implement retaliatory measures, such as imposing tariffs on $50 billion of American goods (Leng, 2018)4. Chinese President Xi Jinping has affirmed a desire to increase imports, lower foreign-ownership limits on manufacturing and expand protection to intellectual property, all central issues in Trump’s complaints about the trade imbalance.
Discussion
The principles of ethics are subjective. Hence, we will be categorising our discussion into 3 different perspectives.
Moral Subjectivism
Moral subjectivism is the idea that moral truths are determined on an individual level. Ethical theories are illogical as they express immutable truths.
Trump has every right to impose tariffs on China to protect America’s national interests. America’s trade deficit with China is currently higher than that of any other country at USD$347 billion.
Figure 1.0-Infographic of the extent of the trade deficit and foreign treasury bonds held by China (Hunnicutt, 2018)5
Figure 2.0-Ballooning trade deficit between United States of America and China (Hong, 2017)6
The American Perspective
From President Trump’s perspective, America’s inaction will give China a dangerous leverage over it. For now, large countries like China, with their purchase of foreign treasury bonds, have actually helped America to artificially inflate the value of their currency. With the ballooning trade deficit and the number of foreign treasury bonds held by China, China could manipulate American fiscal policy if they wish, causing extreme vulnerability in a financial crisis.
However, a continuous trade deficit may have associated negative consequences, possibly severing economic growth and stability. If imports exceed exports, outsourcing may occur and overseas jobs may overtake those domestic.
The Chinese Perspective
Again, from a moral subjectivism perspective, President Xi has equal right to retaliate with tariffs and fight a trade war against America. If China is innocent of stealing America’s intellectual property, it need not be subservient to America. Even if China is guilty of stealing America’s intellectual property, China resisting America’s reckless tariffs would only be for its interests. China also can rightfully purchase American foreign treasury bonds as China keeps a fixed exchange rate against the dollar; if American currency falls, the Yuan might be implicated too. Hence, China must invest huge sums of money in treasury bonds to artificially inflate the American dollar, thus helping their own currency.
Intellectual Property Theft
China has allegedly committed intellectual property theft in supposed acts of counterfeiting famed brands.
From China’s perspective, Intellectual Property Theft should be permitted for it out of self-interest and economic development. The American government has accused China of forcing foreign companies into partnerships with Chinese companies before being allowed entry into the Chinese market, thus risking their ideas being taken by these companies. Nonetheless, America feels coercing companies into giving their intellectual property is wrong; China is freeloading off the research and development needed for curating a product by easily obtain workable ideas to sell for maximum profit through Intellectual Property Theft. (Clark & Hagan, 2018)7.
Utilitarianism
Utilitarianism is a normative ethical theory in that right and wrong are based solely on the outcomes of choosing one action over other actions. It eclipses the scope of one’s own interests and accounts for the interests of others.
Impacts on other countries
From a utilitarianism perspective, a trade war seems terrible. By limiting trade with each other, America and China are limiting not only the growth of their economies but those of other countries tool. For example, tariffs targeted at China may implicate Singapore’s role in global supply chains spillover effect. Singapore companies producing immediate products as part of China’s exports to America may see a softer demand. (Shiao, 2018)8.
Impact on citizens
Regardless, a trade war could cause the suffering of American and Chinese companies as they struggle with the tariffs. People in both countries face hindrance when exporting or importing goods. In America, many farmers are suffering from the high tariffs imposed by China on soybeans (Daniels, 2018)9.
China would be forced to relocate their supply chains and consequently destroy millions of jobs, tens of thousands of shuttered factories, and a key driver of growth (Romans, 2018)2.
Meanwhile, dairy industries and apple farms fear losing access to the Chinese market as the Chinese would boycott American products due to the tariffs. Imported pork from America now costs significantly more, as restaurants and supermarkets in China worry about passing on the increased cost to consumers. Prices of luxury cars in China are also rising as Tesla increases the prices of its Model S and Model X from 150000 Yuan to 250000 Yuan (Bloomberg, 2018)10.
Overall long-term impact of the trade war
More specifically, in the best case, if both countries limit trade with each other, they both will reduce each other’s earnings and still only have the same amount of profit. In the worst case, both countries will spiral downwards, constantly avoiding reconciliation with each other and denying each other essential business opportunities until it ceases being economically viable to continue trade. This will also sever the trading relationship, with both parties seeking agreements with other countries rather than resolving their initial agreement. With both China and America defending their self-interests, it is unlikely for Trump to extract any concessions from China. As seen from the defensive behaviour taken by the Chinese, with its retaliatory tariffs, China refuses to back down. Hence, a trade war has no winner.
Conclusion
The trade war between America and China has its pros and cons. In some perspectives, it is ethical, in others it is not. Yet, one wonders, do ethics work in international business? Is there a necessary pragmatism? The ultimate purpose of trade is to benefit oneself so perhaps the only ethical theory that nation leaders obey is that of moral subjectivism. However, one must also consider valuing ethical trade relationships to maintain good connections with other countries and continue the exchange of resources needed between countries. China’s alleged property theft and the tariffs slapped on Chinese goods by America due to Trump’s America First policy reflect an unhealthy relationship. To maintain a healthy relationship, there must not only be a struggle for self-interest; America should give up some benefits to China and vice versa.
On the other hand, cooperation between 2 countries may only be a temporary convenience for similar goals, with no permanent friends or foes due to the ever-changing global landscape. The US may wish to collaborate with China over the issue of North Korea but take harsh measures over the issue of trade. It seems that global diplomacy will always be subjected to moral subjectivism rather than utilitarianism, as countries only safeguard their self-interests, while being apathetic to the concerns of other nations.