International political Economic - Impact on US-China trade war PDF

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FOREIGN TRADE UNIVERSITYFALCUTY OF INTERNATIONAL ECONOMICS-----------------o0o-----------------INTERNATIONAL POLITICAL ECONOMICS REPORTTopic:ANALYSIS OF THE GLOBAL POLITICALECONOMIC IMPACTS OF US-CHINA TRADE WARClass: KTEE303. Supervisor: M. Le Kieu PhuongMarch 2022,Student name Student ID Vu Thi Th...

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FOREIGN TRADE UNIVERSITY FALCUTY OF INTERNATIONAL ECONOMICS -----------------o0o-----------------

INTERNATIONAL POLITICAL ECONOMICS REPORT Topic:

ANALYSIS OF THE GLOBAL POLITICAL ECONOMIC IMPACTS OF US-CHINA TRADE WAR Class: KTEE303.1 Supervisor: M.S. Le Kieu Phuong

Student name

Student ID

Vu Thi Thu Lan

1914450031

Bui Thao Mai

1914450021

Than Ngoc Quyen

1914450044

Ngo Hai Yen

1914450065

Nguyen Viet Anh

1914450201

Le Phuong Anh

1914450712

March 2022,

TABLE OF CONTENT INTRODUCTION ........................................................................................................... 3 CHAPTER 1. LITERATURE REVIEW AND THEORETICAL FRAMEWORK ....... 4 1.1. Definition .............................................................................................................. 4 1.1.1. International political economy .................................................................... 4 1.1.2. Trade war ..................................................................................................... 5 1.2. Methodology ......................................................................................................... 6 1.2.1. Three main perspectives in IPE .....................................................................6 1.2.2. Four structures in IPE ...................................................................................9 1.2.3. Four levels of analysis in IPE .......................................................................9 CHAPTER 2. ANALYSIS OF THE GLOBAL POLITICAL ECONOMIC IMPACTS OF US-CHINA TRADE WAR ..................................................................................... 10 2.1. Overview of the US-China trade war .................................................................10 2.1.1. Causes of US-China trade war .................................................................... 10 2.1.2. US-China trade war timeline ......................................................................11 2.2. Economic and political impacts of the trade war on a global scale ...................13 2.2.1. Economic impacts ........................................................................................ 13 2.2.2. Political impacts ..........................................................................................17 2.2.3. Political economic impacts on a global scale .............................................18 2.3. Evaluation ........................................................................................................... 22 CHAPTER 3. RECOMMENDATIONS AND FORECAST ........................................ 23 3.1. Actions have been done in order to de-escalate the trade war ...........................23 3.1.1. “Phase One” trade agreement ...................................................................23

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3.1.2. Biden Administration’s strategic plan on reformulating U.S.-China trade policy 25 3.2. Forecast ............................................................................................................... 26 3.3. Recommendations for Vietnam ..........................................................................29 CONCLUSION .............................................................................................................30 REFERENCE ................................................................................................................ 31

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INTRODUCTION

In January 2018, U.S President Donald Trump began setting tariffs and trade barriers on Chinese goods in response to unfair trade practices by China. The U.S subsequently increased tariffs on thousands of products from China between 2018-2019, ultimately targeting roughly $350 billion of imports from that country. This prompted China to retaliate against the decision by imposing tariffs on more than 128 U.S products on April 2 of the same year.

This started a trade war between the world's two most powerful economies. In China, there is a sense that the US is attempting to stifle its rise. The negotiations are still going on, but they've been challenging. The two sides continue to disagree on matters such as how to scale back tariffs and enforce a deal. The uncertainty is affecting businesses and dragging on the global economy; fears of a worldwide economic crisis have also risen as a result of the trade war's influence on the world, as well as political instability, particularly the dispute between the United States and Iran.

According to an IMF report, an escalation in the US-China trade war will harm both countries' manufacturing industries and is likely to result in job losses, but it will have no effect on the two countries' overall trade balance, the IMF said in its April Global Economic Outlook report that the US and China would suffer "heavy" manufacturing losses, with production capacity shifting to Mexico, Canada, and East Asia if tariffs rise to 25 percent on all products flowing between the two countries.

In this paper, we aim to examine the trade war between the US and China and analyze its profound impacts on the international political economy, thereby providing forecasts and recommendations for Vietnam so that we can proactively avoid risks as well as take advantage of opportunities that this trade war brings.

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CHAPTER 1. LITERATURE REVIEW AND THEORETICAL FRAMEWORK 1.1. Definition 1.1.1. International political economy IPE is concerned with the way in which political and economic factors interact at the global level. More specifically, political economists usually undertake two related kinds of investigations. The first concerns how politics constrains economic choices, whether policy choices by governments or choices by actors or social groups. The second concerns how economic forces motivate and constrain political choices, such as individuals’ voting behavior, unions’ or firms’ political lobbying, or governments’ internal or external policies. (Krasner, 1999) An example of the first kind of investigation is provided by the European Union’s policies protecting domestic agriculture and restricting trade in agricultural products. The EU’s resistance to the liberalization of such trade, as demanded by agricultural exporting countries, may stem from the political organization of farm lobbies, the sympathy of urban consumers for the plight of national farmers (which may in turn stem from a concern to protect a national identity or way of life), a desire to promote “food security,” or perhaps other factors. The political economist’s task is to investigate which of these factors matter in explaining the EU’s stance in negotiations over trade in agriculture. An example of the second kind of investigation is provided by the claim that growing financial integration between countries has constrained the political choices of left-of-center governments more than those of right-of-center governments. Global financial integration makes possible the movement of capital to environments investors find most congenial. Has the threat of capital flight encouraged such left of-center politicians as Brazil’s President Lula (Luiz Ina´cio da Silva) and Britain’s Gordon Brown to adopt “conservative” economic policies to reassure panicky investors? Manifestations of this phenomenon might include political pledges to pursue fiscal balance, to limit or reduce taxes on capital, and to place responsibility for monetary policy in the hands of politically independent and conservative central bankers. Do 4

financial markets systematically punish left-wing financial policies? Is the asserted shift in policy by leftist political figures a myth? If it is real, is it due to some factor other than capital mobility? These have been popular questions for political economists in recent years. As we shall see, asking how politics and economics interact makes good sense. Economic outcomes have political implications because they affect opinions and power. For example, where individuals or groups fall in the hierarchy of wealth influences their political preferences. Similarly, decisions about economic policies are almost invariably politicized because different choices have different effects on the distribution of wealth. Political power is therefore a means by which individuals or groups can alter the production and distribution of wealth, and wealth is a means of achieving political influence. Although the pursuit of wealth is not the only motivating factor in human behavior, it is an important one, and often the means by which other goals can be achieved. In short, economic and political factors interact to determine who gets what in society. 1.1.2. Trade war A trade war is an economic policy that is instituted when one country responds to a trade imbalance by raising import tariffs on the goods and services from one or more countries. A tariff is essentially a two-way tax. If country A imposes a tariff on sugar from country B, then country B will have to pay country A more money to import its sugar. However, country B will attempt to offset the effect of this tariff by raising the price of sugar making it more expensive for the companies in country A to use country B’s sugar to make its products. In addition to tariffs, countries can take other measures to place restrictions on imports from foreign companies. Contrary to the conventional notion of a war with at least two opposing sides, a trade war can be unilateral. An example of this is an ongoing trade war between the United States and Japan. The United States placed a tariff on some items, including some vehicles, many years ago. However, to date, Japan has refused to retaliate.

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At their core, trade wars are born out of a protectionist government policy, which can be defined as a government taking actions and making policies that restrict free and fair international trade. The two most common reasons for a country to take protectionist policies are • To protect domestic businesses and jobs from foreign competition • To balance a trade deficit (for example when one country’s imports exceed the amount of its exports) 1.2. Methodology In this article, we will examine the trade war between the US and China and analyze its profound impacts on the international political economy according to 3 main perspectives, 4 levels of analysis based on 4 structures. 1.2.1. Three main perspectives in IPE The three dominant perspectives of IPE are economic liberalism, mercantilism, and structuralism. Each focuses on the relationships between a variety of actors and institutions. First, it is necessary to note that the three perspectives developed during different periods. Mercantilism existed between sixteens and the late eighteenth centuries (Balaam & Dillman 2012). Liberalism replaced this perspective in the 18th century and was primary during the 19th century. However, structuralism came into being in the 19th century and many people utilized this perspective. • Mercantilism Mercantilism, also termed economic nationalism, or statism, is the oldest approach of IPE. Mercantilism is the equivalent in the field of IPE of the realist approach of mainstream international relations. Mercantilism, like realism, shares an anarchical view of the world. In this context, mercantilism states that each state strives for survival, at minimum, and universal domination, at maximum (Donnelly, 2005). Moreover, mercantilism points to an intimate connection between power and wealth, as the marginal acquisition of wealth generates more power (O'Brien & Williams, 2004). It holds that the state is the central instrument through which individuals can fulfil their 6

goals of achieving security and prosperity. Thus, economic policy should be directed toward creating wealth and power to enhance the independence and national security of the state (Balaam & Veseth, 1996). Mercantilism sees the pursuit of power and wealth as a zero-sum game – one state's gain is another state's loss. Furthermore, for mercantilism, the market and market relations are shaped by political power. Hence, economic activity is subordinated to political goals and objectives (O'Brien & Williams, 2004; Gill & Law, 1988; Keohane & Nye, 1989). • Liberalism The liberal approach draws considerably from the field of economics, in particular from theories such as comparative advantage as well as supply and demand and the operation of markets (O'Brien &Williams, 2004; Burchill, 2005; Gill & Law, 1988). In contrast to mercantilism, liberalism has a more idealistic vision of the world. Liberals tend to minimize the role of force and coercion in human affairs and emphasize the ability of individuals to cooperate in order to achieve mutually beneficial gains. Liberals perceive interactions between individuals as a positive sum game – each party to the game wins (Burchill, 2005; Gill & Law, 1988). Therefore, liberalism places a greater premium on the freedom of the individual and the creation of wealth through the free operation of markets. Liberalism holds that individuals in pursuit of self-interests maximize the benefits of economic exchange for society (O'Brien & Williams, 2004). Moreover, Liberalism also holds that cooperation between individuals and nations reduces the potential for violent conflicts, as trade and foreign investments decrease the power of war-orientated elites and unite citizens of different nations in a common and peaceful enterprise (Burchill, 2005; Gill & Law, 1988). Finally, liberalism shows a distaste for the state, which is perceived as inhibiting the entrepreneurial spirit of individuals as well as the virtues of markets. For 18thcentury liberals such as Smith and Ricardo the state should be confined to providing minimalist functions such as security and order (Balaam & Veseth, 1996). However, the 19th- century liberal Mill advocates a more robust role of the state in markets in order to reduce inequalities by providing social services such as education to the poor. 7

In the domain of international political economy, liberalism promotes free trade between nations. Today, the global economy is largely governed by liberal principles. The international trade regime is based upon the principle of free trade; capital circulates around the globe without great difficulty and all forms of economic activity are increasingly liberalized (O'Brien & Williams, 2004). • Structuralism The third theoretical approach that has dominated the field of IPE is the structuralist approach. The structuralist approach is also referred as the critical approach, since it aims to question the way in which the world is organized and eventually change it (O'Brien & Williams, 2004; Gill & Law, 1988). The structuralist approach is rooted in Marxist theories and attempts to address structural problems that are overlooked by both mercantilism and liberalism (O'Brien & Williams, 2004; Balaam & Veseth, 1996; Gill & Law, 1988). Although rooted in Marxist theories, the structuralist approach is evident in several theories such as Marxist theories, neo-Gramscian theories, feminist and environmental theories. In the domain of international political economy, the structuralist approach perceives the structures of the global economy as conflictual and hierarchical, and hence favorable to the interests of global capital, the West and the leading capitalist power, the United States (O'Brien & Williams, 2004). In this context, economic relations are viewed as zero-sum game – since the structure of the global economy is fundamentally conflictual. The structuralist approach holds that conflict within the sphere of international political economy manifests itself within as well as between states, opposing dominant forces to subordinate classes (O'Brien & Williams, 2004). It is possible to note that the three perspectives have certain similarities and differences. As for similarities, they all focus on such concepts as power, wealth, production and distribution. It is also important to note that mercantilism stands out against the other two perspectives. It is based on the idea of wealth accumulation through export of resources. The other two perspectives focus on development of the market, technology, production. The three perspectives are also different in their attitudes towards the state control. Mercantilism and structuralism support the idea while 8

supporters of liberalism are ardent opponents of the control. It is also necessary to add that liberalism and structuralism are still found in the contemporary world and it still quite unclear which of these two perspectives is the most efficient. 1.2.2. Four structures in IPE • Production and Trade We will analyze the trade relationship between the US and China according to historical milestones and explain the causes, ways and consequences that this trade war has affected production and trade. The actions and policies had been put in place for production and trade in the face of the effects of this war. • Monetary and Finance We clarify the ways regulations, laws, financial barriers, globalization stemming from the US-China trade war affecting the movement of money. • Knowledge and Technology We discuss intellectual property, technology transfer between countries through international trade relations. Its effect on security, production and trade, finance and monetary. • Security We consider the economic contradictions between countries that are always accompanied by the risk of war, domestic and international security. 1.2.3. Four levels of analysis in IPE • Individual level This is the narrowest level of analysis, explaining why an individual (usually the head of a country) chooses a particular policy. This level emphasizes the psychology and choices of policy makers. • State-societal Level

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This level looks at how different governments/parties within a country affect how that country interacts with other countries. • International Level This level examines whether the relative balance of political, military, and economic power affects the likelihood of conflict, prospects for cooperation, etc. • Global level These are important global factors such as changes in technology, commodity prices, climate creating barriers and opportunities for all countries. In addition, we also have the interstate level, which is a narrower level of the international state, and it is limited to the relationship between a few countries instead of most of the world. CHAPTER 2. ANALYSIS OF THE GLOBAL POLITICAL ECONOMIC IMPACTS OF US-CHINA TRADE WAR 2.1. Overview of the US-China trade war 2.1.1. Causes of US-China trade war 2.1.1.1. Economic cause

The trade war is supposed to reduce the deficit of bilateral trade and bring American jobs back home. Out of the $796 billion worth US trade deficit in 2017, China accounted for $376 billion, or 47%, almost a half. The US acknowledges several problems in the trade with the PRC, the trade balance deficit being the most important one. The issue has been emerging for decades and still has an increasing trend (although the US trade deficit with China reached a historic low in May 2019). The US does not consider trading with China "fair". The trade war is supposed to reduce high-tech capacity of China. The US is not satisfied with China’s requirements on creating joint ventures for technology transfer as a contribution to be authorized share capital of local companies. Another sensitive topic is Chinese public investment creating unfair competition in global markets. The US has 10

been alerted by China's success in implementing a strategic plan for production modernization, increase in production of robots, lithium batteries, network equipment, etc. The US has increased import tariffs up to 25% on electronic products from China, including telecommunication and network equipment. 2.1.1.2. Political cause

The trade war is supposed to prevent the growth of China’s military strength. Markov believes that it is absolutely unacceptable for ...