Trump’s Position is on the Wrong Side in the Trade War with China; Here’s Why

02/24/2019 - 12:03 PM

Nehmelawfirm

 

By Fidel Azazi

The nation Make America Great Again was the major highlight in Trump’s presidential campaign in 2016. This was an attempt to bring back the good old days when the American Dream was vibrant, a time the U.S. economic growth was accelerating. Up until the 1970s, the middle-class made nearly 61% of the total population and in an era when there was not any serious economic adversary to the U.S., not even the Soviet Union.

However, the 1980s resembled a significant turning point in the world as the culture of consumerism invaded every household in the West and was the time where multinational companies began forming. By 1980, the GDP of the United States reached a total value of $2.4 trillion and an overall debt of $858 billion.

The economies around the world were booming after the middle class started spending instead of saving. Then newly established corporations began looking for cheap resources of labor and raw materials to fulfill the growing demand of the expanding middle class and its ever-growing needs. During the same period, the Communist Party of China started to what was known as the “Reform and Opening Up” economic transformation. This transformation started with the de-collectivization of agriculture, the opening of foreign investments and the permission of the entrepreneurs to start businesses. After this major reform, American companies took this excellent opportunity to start-up in the Chinese market. In the 1980s the average GDP per capita for a Chinese citizen was around 300 USD with an average GDP growth rate of 10 annually. This shift made China a dreamland for investors as everything was at a fraction of a cost for start-ups; the labour, raw materials, cost of living and the absence of a demanding middle class in a society has overwhelmingly vocational skills. All these factors made it easier for the multinational companies to make China the world’s biggest factory. The formula was simple, China viewed the entire world as its own market. So following the deregulation, the private sector grew remarkably making up 70% of the economy by 2005.

With an economy that grew at an average of 10% in the last 3 decades, China became the home for than 100 multinational corporations including Apple Inc. and Amazon. This interconnected global network that is combined with competitive productivity, the United States and China became two complimentary giants in world economics , particularity in trade. It is vital to mention that China uses the United States dollar as the foreign reserve currency in international transactions. Moreover, China holds a total value of $1,138 trillion in the United States Treasury securities as of 2018 and, it has succeeded in maintaining a surplus in its trade balance in the world unlike the United States were the deficit is expected to exceed 900 billion USD by the end of 2019.

The administration of the populist president Donald Trump, started an unprecedented trade war with the ‘Asian Titan’ in an attempt to consolidate the U.S. companies based in China to encourage their comeback to the American soil and invest locally. Trump imposed heavy tariffs on the Chinese products entering the U.S. market, a tactic immediately backfired. According to Business Insider, more than 84 farms in the Midwest declared bankruptcy in the last quarter of 2018 after the Soybeans lost fifth of its market value especially that the region depends primarily on the Soybean trade with China. As a consequence of this decision and by the end of 2018, China turned into Russia as an alternative source to import Soybeans. Both countries signed a unilateral agreement to increase the trade of agricultural productions including rice, pork, poultry, fish and to develop logistics.

China developed strong networks following its domination over the world market. This strategy made the country autonomous and less dependent on foreign powers. Since the 1980s, China invested billions in education to raise a generation highly productive and innovative in technology. The rising middle class and booming economy will inevitably make China is on its way to be 21st century version of the American Dream.

With crippling infrastructure and public services, Trump’s administration is expanding the libertarian ideology of limited government and is enforcing the intent to privatize every public service sector .Whereas China successfully demonstrated an economic module known as market socialism that balances the private, public and cooperative ownership of the means of production.

 

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