MEMORANDUM
To: President Donald Trump
From:
Date:
Subject: Proposal for the United States to capitalize in US-China trade war
Action
Due to the increasing US-China trade battle, which significantly affected the American economy. America is faced with a high risk due to the trade tariffs imposed on the United States by China. Recently, on a tit-for-tat mission, China imposed a $110 billion tariff goods that belonged to the United States. Moreover, China has also threatened the qualitative measures that would significantly impact the United States businesses that operate in China. This course of action is risky to the economic growth of America, and this issue needs to be addressed immediately to protect the American economic growth and also save other parts of the world from being adversely affected by the consequences of this trade war[1]. Essentially, it is a bad idea for trade partners to conflict and fight against one another. China is the second-largest economy after the United States. Therefore, trade tariffs and sanctions imposed on American puts the country at risk of depreciating economically and could be overtaken by China. Consequently, it is essential to find alternatives to capitalize on the issue in order to promote the economy of the United States and its people.
Statement of the problem
The United States and China are the world’s top superpower countries that have seemed to have heated differences between them due to the competition for power. Consequentially, the differences between China and the United States have led to a severe trade war between the two countries. The United States-China provides more benefits in the United States, while in China, trade has led to increased job destruction to some United States businesses, especially the low wage manufacturing industries[2]. These two largest economies in the world have adopted a tit-for-tat tariff on goods worth hundreds of billions of dollars, which has significantly slowed the economic activities in the two countries and also slowing down the global economic growth. This trade war has interrupted the supply chains as well as discontinuing manufacturing in both countries. Some of the significant issues that triggered this trade war are structural issues such as forced technology transfer, currency, tariff barriers to trade, intellectual property rights, and agriculture, and cyber theft. These are the key structural issues that the United States should capitalize on it.
Background
From the past year, the two largest world economies have enforced tariffs worth billions of dollars in goods of each other. China has always been blamed for practicing unfair trading and theft of intellectual property by the United States President Donald Trump. An opinion that the United States is trying to prevent the rise of China is believed by the Chinese. There have negotiations taking place, although not come up with a solution. Both sides have not agreed on disputes such as put into effect an agreement and developing back tariffs[3]. Weighing on the world economy and business is affected due to both nations’ reluctance to solve the issue. Tariff’s policies for President Donald Trump’s goal is for encouraging buyers to acquire American products by ensuring imported products are more costly. Already United States government has enforced tariffs for not less than $360bn for Chinese products, and already, China has hit back with tariffs worth $110bn for the US goods[4]. About three tariffs in the past year and the fourth in September were delivered by Washington. Chinese Imports were targeted under a duty of 15% from instruments of music and meat. In retaliation, the Chinese hit back by imposing tariffs for US products from 5% to 25%. Other tariffs were 5% for US crude oil[5]. Each of these nations is threatening to come up with more hikes and taxes to some of the duties in a few months coming. The US is planning to increase by 25% to 30% for existing tariffs for some Chinese goods. In case this takes place, all imported products from China will be tariff subjects in the US. Hitting about 3000 US goods with tariffs is planned by the Chinese by the end of the year.
Proposal
United States China is evolving from 2008 to 2009 slumps of the great recession. Both have not achieved much in addressing the inequalities that assist in slowing the disaster. Already the Chinese government has thrived previously in the stimulus of their economies. The USA is still aiding for stimulus and interest rates that are too low. Success for china will create higher interest rates due to inflation has to be put on a watch list. If interest rates rise, Yuan will have to increase as well[6]. Latest connections in both the US. Dollar and Yuan will have to be broken down or attenuated. A larger Yuan will possess two advantages for the United States. This will assist in balancing some of the trade imbalances of the past while consumption will be stimulated in China; hence, imports will be required. This will force China to maintain its growth domestically through consumption internally after shifting from strategic export. Goods that could have been exported abroad will have to be consumed in china by increasing the middle class. Some of this process will enable both nations to come together economically and improve stability internationally.
At the end of the 19th century, Germany and Britain had failed in solving their difficulties. Besides that, Britain and America became even more challenging problems that might have caused conflict. Britain made every effort by admitting the United States to the excessive system of power and comply with the needs of the role. These similar changes were not made by Britain due rise of German and from this failure caused World War I[7]. The United States and China should come into table and come up with solutions in order to avoid error reputation of German and Britain. Is another historical relevant example is German and Britain under Otto von Bismarck, the chancellor of German in the 1800s. Both nations did not have the same policy purposes. Both had powers militarily. Changing of Germans policies enable it to challenge Britain in the sea and on land. This arms race brought a bad relationship that led Britain to oppose Germany in war.
Nowadays, the United States and China are increasing their spending on military armaments. China is trying to improve in space, air, naval force, and land. If this china military power became closer to USA military assets, the conflict would take place from both nations due to mistrust. The United States should put into consideration the pace of military rise of china to relax its military preparations[8]. The USA should avoid proceeding on some diverse tracks. It should prevent much in debt by exporting more and importing a few products. China has always been the primary beneficiary of the United States deficit. Its funds earned are under US government securities. They have requested for the need to derisively their holdings by taking part of their funds to exclusive drawing rights or foreign currency basket. Pressure on the US dollar will be added, and hence china’s currency holdings will depreciate.
China probably would want the United States to alleviate its interest rates. Still, it is not possible to do that at the moment, whereby the United States’ economy is getting out of the crisis. Therefore, it is recommendable to switch some debts instruments such as the United States government bonds for equities in the economy of the United States. Essentially, other wealth funds are doing it and making purchases of the United States equities or making an investment in the companies of Chinese investors at the same time limiting holdings of China’s debt. This could return value to the United States[9]. In this case, China has to be more sensitive in political leaders as well as the United States investors when it comes to limiting the percentage acquisition of firms owned by United States investors. Such changes would not reduce the United States dollar value. Moreover, suppose efforts are made to end China’s sterilization of foreign exchange entering China, it could increase the country’s domestic consumption as well as increasing the probability of achieving equilibrium in the trade balance between China and the United States. The renminbi will need to fluctuate freely, or it will be excluded as being a reserve currency by other states. Another restriction can be made limiting China from switching dollar holdings for Special Drawing Rights[10]. This will only cause another dollar increase for the International Monetary Fund, which is not acceptable by the management. The United States government will manage this proposal while the International Monetary Fund will authorize the switching of debts. This will take a time span of six months to be accomplished.
There needs to be an agreement in place concerning the size and usage of the United States and the Chinese military forces. On the United States’ side, they have already joined forces with the Russian, British, and French armed forces. Suppose Chinas strives to create six Submarine-Launched Ballistic Missiles (SLBM)s, there is no problem with that. The United States should allow China to suppose it constructs three to four battle troops[11]. But think China strives to establish twenty SLBMs or even more than ten battle troops; at this point, it will be starting an arms race against the United States, which can have serious consequences. The United States should ensure that this is avoided by signing an agreement on the size and use of military forces. The cost of implementing this proposal will be free. The proposal will be managed by the United States defense department. It should be expected to occur within two months, whereby both States will decide on a specific date to meet and sign the agreement. This agreement with being authorized by the United Nations.
Policy analysis
The advantage of the proposal made is that it creates a permanent solution to the issue of the US-China trade war. Balancing the inequalities is vital. Therefore by increasing the interest rates, Yuan will have to rise as well. Latest connections in both the US. Dollar and Yuan will have to be broken down or attenuated[12]. A larger Yuan will possess two advantages for the United States. This will assist in balancing some of the trade imbalances of the past while consumption will be stimulated in China; hence, imports will be required. Signing agreements will also help in coming to an understanding that will develop mutual respect between the United States and China. The disadvantage is that one party will benefit while the other is disadvantaged.
Political analysis
Political opposition will likely arise, especially from China. Suppose a bill will be passed by the United States House of Representatives that tend to impose restrictions on China, China’s political class will be quick to condemn and oppose the legislation. For example, on the acts by the United States Congress on Hong Kong, whereby the United States House of Representatives passed a bill that threated to consider the special trading status of Hong Kong supposes the mainland repression within the city progressed[13]. The bill was supported by the Hong Kong Human Rights and Democracy Act through the Senate but was subjected to the presidential veto. China will be quick in condemning such legislation by claiming to be arrogant and dangerous. Political peace is also likely to be experienced. This is because most of the proposals gift a win-win situation whereby both benefit out of it equally. Since both sides are benefiting equally, the political class will tend to support the recommendations by all means.
Recommendation
For the United States to effectively capitalize on US-China trade war, it would be appropriate to consider the following recommendations:
- The United States should eliminate investor uncertainty through support of passing the Corporate Income Tax and Incentives Rationalization Act
- It can also call for more market liberalization through amending the Foreign Investment Act, Trade liberalization act and also the Public Service Act.
- To ease business operations in the United States so that it can develop economically, the government needs to seek expedite web-based solutions by creating a Central Business Portal as well as allowing full operation of TradeNet including the online site for the government for offering trade permits.
- Incorporate the United States into the regional chain production networks in order to improve local value-added as well as to achieve better accessibility to key markets. To achieve this, the government has to deepen regional partnership in form of Regional Comprehensive Economic Partnership, at the same time making trade agreements Chinese investors in the country.
- Encourage collaboration between different departments of the government in order to enhance the business climate in the country.