Introduction
Protectionism refers to a situation in which countries put rules and regulations to protect the domestic market and industries from foreign competition. This is done in various ways, such as imposing taxes on imports, tariffs, subsidies, and quotas (Carvalho et al.). The main objective of protectionism is to enhance the economic growth and well-being of a country. In addition, the protectionist proponents argue its benefits when a country is in the recovery process during the downturn.
Trade relations refer to a situation where countries buy and sell goods and services. In an economist’s view, trade relation among countries and nations is believed to make the world better since it improves the living standards of both nations. When a government buys goods and services cheaply produced abroad, it could be more profitable, improving their economic well-being (Carvalho et al.). In addition, the products may not be available in the domestic market or are a better fit for the consumer needs than the domestically produced goods and services. According to a report by the IMF on the international trade amongst the nations, trade relations occur because one nation may be producing goods and services all the goods actively and more than the other. Therefore, the country acquires a comparative advantage in exporting goods and services.
The research question aims to identify how US protectionism can be used as a sustainable option for the growth and economic well-being between the Chinese and the US foreign trade relations (Carvalho et al.). China and the United States entered into trade disputes in the recent past. These cold wars made the US impose policies and regulations between its trade and China. In 2018, under the Trump administration, the American government raised taxes on China’s exports to the US to protect its domestic industries (Carvalho et al.). The move has caused many questions about the significance of protectionism and the direct implications on the extent to which protection can enhance growth and the well-being of trade relations between the two nations. Protectionism can take a myriad of perspectives; however, the primary perspectives include; economic, global, and environmental.
Economic Perspective
The US government has used protectionism to remedy unfair trade distortions by foreign countries. US protectionist policies are rooted in the mercantilism concept based on the belief that the government should control the economic wellbeing of the country by regulating and maintaining a balance in international trade. China is one of the leading countries where the US imports its products and services. The American government has always regulated its trade with the Chinese through taxes on imports and subsidies. Since China and US are both developed countries, their trade regulations have economic significance for both countries and the general economic stability of the global economy. In the recent past Chinese and the Americans formed diplomatic ties, which have seen tremendous improvements in the economy and bilateral relations between the countries.
In the article “The Impact of Protectionism on China.” The Us government prohibited all its technologies and ordered all its technology companies not to sell their chips to the Chinese company Huawei as a way of protectionism. This trade war brought significant impacts on the economic relations of the Chinese and the US. Firstly, it created a sense of individual financial loyalty and nationalism. Individuals began to buy products produced in their countries to support their domestic companies, enhancing their economic growth and stability. Secondly, the restrictions increased employment opportunities for highly skilled individuals. Proponents also argue that the US protectionist policies have highly protected the local producers.
One of the primary objectives of the US protection measures is to stabilize the economy through protection and improvement of manufacturing employment within the country. This comes with the expectation that tariffs cause a decrease in taxes, protecting the local sectors by securing employment opportunities (Li et al., 6). However, according to a report analyzing the relationship between protectionism and manufacturing employment, it was found that for protectionism to secure manufacturing employment, several economic factors have to be considered (Li et al., 4). One of the factors is the substitution between domestic and foreign products. The substitution effect determines the amount of foreign consumption that should be ingested into domestic production after implementing tariffs (Li et al., 5). Another factor that should be considered is the retaliation effect from other countries. For instance, retaliatory effects from China would go against the optimistic plans for the creation of manufacturing employment. Protectionism denies a government the benefits of specialization; it also hinders a smooth supply of goods and services, resulting in a potential misallocation of resources and a decline in economic stability.
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According to the article, the American government blocked about 38 Chinese technology companies that were Huawei affiliates. A total of 152 close affiliates from 21 countries were blocked, which accounted for about 90% of the company’s overall revenue Dan, Yingjie, et al., 1805). This led to increased efforts by the company to venture into the local market by mainly investing in its research and development. The company invested about 120 billion yuan in domestic projects and needs (Dan, Yingjie, et al., 1805). Through the sudden shift of the protectionist policies, the company has seen tremendous growth and an increase in revenue after 2019.
In another analysis on “The economic impacts of the US-China trade war.” by Feigenbaum et al., the economists attempted to assess protectionism’s economic effects. From the analysis, the conventional trade models show that a main financial element of protectionism is the pass-through of tariffs to the prices of imports and exports. Several global economists presumed that the Chinese and American economies were strong and large enough to affect prices. Hence, they expected an incomplete pass-through. On the contrary, the trade models identified a complete pass-through of tariffs on the import prices. The consumer of the imported products is significantly affected by the imposed tariffs through high commodity prices. Additionally, protectionism has reduced the Gross Domestic Product (GDP) and the aggregate domestic income in both the US and China. Before the US increased tariffs on imports in 2016, the import share of GDP amounted to about 15%. However, when protectionary measures were implemented, tariffs on import transactions were increased to an equivalent of 2.6% of the overall GDP (Dan, Yingjie, et al., 1804). This creates a significant impact on the economies of both China and the US.
In an analysis by Alessandria et al., the announcements and the negotiations of the US protectionism against the Chinese exports affect the consumer and firm current behaviors. When there is the expectation of change or introduction of trade barriers between two countries, lengthy negotiations and agreements are held according to the General Agreements of Tariffs and Trade (GATT). The plans and the phaseouts of talks are always available in the public domain and affect the consumer and firm behavior in both countries (Alessandria et al.). Consumers tend to get enough time to adjust their consumption behavior due to the expectation of the unpredictable nature of changes in trade policies in the future. As the export barriers take effect slowly, the sunk cost assumption shows that a slight change in trade costs gradually affects trade as exports slow down. Therefore, the past and the future protectionist barriers result in an increase in the labor supply and significant growth in the consumption of domestic products in both China and the US.
Another economic impact of protectionism on the US and Chinese relations has been explained by (Feigenbaum et al., 5) through the elasticity of supply. The commodity supply at the variety level is highly elastic; therefore, the Chinese could reallocate the exports from America to different countries when there is a demand reduction. The phenomenon assumes that the need and value for Chinese exports taxed by the US will not have fallen much in the global market (Feigenbaum et al., 11). Therefore, protectionism will reduce Chinese exports to the US but increase exports to other countries globally, implying that the Chinese exports are likely to be constant. Moreover, the supply elasticity suggests that the restrictions imposed on the Chinese exports by the US do not affect the Chinese exports at the product level. This is because it can still reallocate the products seamlessly to other markets away from the US market.
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The protectionist measures between the US and China affected the two countries’ economies and other countries that were not directly involved in the trade war. In a study to determine the economic impacts of the US protectionism against Chinese exports, Carvalho et al. utilize the global trade analysis project (GTAP), an equilibrium model, to compute the expected effects on the economies of both countries. The article concludes from the model simulation that an increase in the US tariffs would increase the production of products facing export restrictions in China, such as iron and steel, electronic equipment, and aluminum, respectively, in the US. On the other hand, China will face a significant reduction in manufacturing the products facing the US restrictions. However, the production of other products will remain constant (Carvalho et al., 7). Other countries such as Brazil and Argentina, which are not affected by US protection, will experience a possible increase in production of the protected goods. Furthermore, they will gain from the restrictions and trade war.
Carvalho et al. further assert that with the Chinese retaliation against the US protectionism, the US market will experience a reduction in the sectors targeted by the Chinese tariffs except for the processed rice. This is primarily the agricultural sector, and the most affected product is soybean production, with an estimate of about a 13.92% drop in production (Carvalho et al.,9). Countries like Brazil and Argentina that benefit from the cold war will significantly increase soybean production as China diverts soybean importation away from the US.
The economic and trade balance between the two countries will be inevitable. As a result of the protectionism, the ad valorem tariff increased on aluminum, steel, and iron by about 10% and 25%, respectively, resulting in a price increase for the products imported from China. This implies that by the US increasing the tariffs on these products by 25%; the Chinese would increase their prices by about 23.3%, leading to a decline in the US imports by approximately 53.62% (Carvalho et al., 8). An increase in the local imports from China also causes an increase in the US aggregate import prices; hence domestic production will benefit from the protection imposed on these goods. Additionally, the sectors affected by higher tariffs suffer from protection consequences. Even with Chinese retaliation, the US protection strategy will effectively cause a decrease in trade deficits and position the American market to better access for a majority of the US companies.
Global Perspective
Advanced countries such as the United States and China are the leaders of globalization today. With an increased economic growth rate and excellent trade surplus from the US, China is the main target of US protectionism (Steinbock, 516). Implementing tariffs on exports was the first step in the bilateral tensions inflicting injuries to the global economy. Technological competition between the countries affects the global economy due to the trade war and evolving global scenarios between the US and China. Both the countries have been in constant conflict over economic competition. In the worst case, their disputes may result in decoupling or even a global recess and new geopolitical effects.
China and the United States are the most powerful in terms of their global greenhouse, economies, and defense financial budgets. They have been in bilateral relationships and are members of the United Nations Security Council (Steinbock, 518). Their trade relations are often determined by calculating the gross domestic product (GDP). The impacts on their trade relations can be illustrated in two ways; the first one involves an increase in the Chinese economy about the American GDP. The second one relates to the general shift in globalization between the two countries.
According to a World Bank report on the impacts of China-US trade agreements, protectionism is expected to reduce global welfare significantly. To economic theory, the expectation of the reduction is due to free trade and an open market. Hence import targets above the determined market levels result in a decrease in the welfare level of the country importing more than an increase in the exporting country (World Bank). When there is a limitation in trade, an increase in trade improves the economic welfare of the importing and exporting countries; however, the import targets are primarily weak to reduce the existing trade barriers, increasing global welfare. For this to be achieved, the economic theory relies on the principle that; increasing imports is achieved by reducing trade barriers in the sectors affected by protection instead of utilizing other targets such as import subsidies (World Bank). In addition, to achieve an increase in economic welfare, the theory assumes the use of non-discriminatory measures to increase imports.
The article further explains the global trade diversion resulting from the US protectionary measures on Chinese exports. If China reaches the given target imports through multilateral liberation, contrasting effects would be observed in the developing countries within East Asia. Moreover, discrimination affecting U.S domestic products and services will be reduced (Chowdhry et al., 8). The economic and trade agreements (ETA) between the US and China are also expected to propel substantial trade diversion globally. Although it does not suggest any tariff reduction in both countries, several non-tariff barriers, such as agricultural products, are expected to reduce. If China does not decrease its tariffs, it will be difficult to identify any increase in imports beyond the desired level due to a general rise in global economic activity. The European Union, one of the primary sources of the Chinese importer of manufactured goods, is likely to suffer substantial trade diversion (Chowdhry et al., 10). Overall, American exports will increase while the EU exports will decrease, resulting in reduced exports to the rest of the world (ROW).
The application of the protectionist policies on Chinese imports has caused a significant impact on global soybean production. According to an analysis by Hitchner et al. on the effects of the increased tariffs on soybean trade globally, the Chinese- American cold war resulted in applying duties on soybean imports by China (Hitchner et al., 6). The import duties imposed on the soybeans resulted in a significant decrease in the US exports of the commodity and a global fluctuation in soybean trade and patterns. A decline in the US exports to China in 2018 resulted in increased soybean stock in most states, predominantly the northern plains, where their leading export destination is China (Hitchner et al., 7). The Pacific Northwest also faced a decrease in export demand due to the absence of their primary market resulting in weakened prices compared to other corresponding states that export to other countries. The uncertainty caused by the trade soybean trade continues to affect the global market dynamics as long as the US trade regulations against the Chinese exist.
Trade wars and disputes between the Chinese and the US have created global trade tension. According to Freund et al., When the US announced implementing its first tariff phaseout, the Chinese government retaliated with an almost equivalent tariff increase. This trade war negatively affected bilateral trade between the countries and disrupted the global supply chain. In addition, a reduction in the imported goods and services in both countries resulted in an increased demand for alternative products and substitutes from other destinations (Freund et al., 4). Investments in developing countries are also expected to slow down because of the available trade uncertainties between the most significant global economies.
Freund et al. further assert that US protectionism could further decrease global exports by about $674 billion, equivalent to 3% of the global exports. This results in a decrease in global income by an estimated 1.7% (Freund et al.,2). Third-party countries benefit from the export and income margins created by the US and Chinese markets when they apply tariff surcharges. However, investor confidence is negatively affected; hence the sectors affected by the tariffs, such as agriculture, machinery, and chemical sectors, continue to face underinvestment globally.
The rising US protectionism has affected global economies in all dimensions. This has created a significant influence on the weakening of international trade. An increase in trade barriers also negatively affects global economic activity (Cappariello et al., 3). Although the quantification of trade effects on the policies and regulation on prices and the financial stability has always been prioritized in trade regulation and analysis, the complexity existing within the trade relations brings about challenges such as the rise in the global value chains (GVCs).
GVCs, in conjunction with the general equilibrium trade model, have been used to determine the effects resulting from the trade policy shock (Cappariello et al., 4). The analysis compares global welfare to a constant increase in the worldwide rise in trade costs. By identifying bilateral supply chain links and the value-added at the production level, the model provides a concept that portrays the heterogeneous nature of countries in terms of GVC involvement and the components of global trade (Cappariello et al., 3). From the analysis, proper utilization of the GVC shows a significant fall in the bilateral trade between China and the US, the largest global economies, translating to weaken trade globally.
According to Xing, a closely-knit global economy and its links with the local sector have important implications on the global market. Creating ways to measure the domestic composition of the exports is vital to identify how the global economy could be affected when the currency appreciates. It is believed that most local activities have indirect links with the GVCs through the manufacture of the intermediate goods, which are finally exported. Another argument indicates that domestic linkages play a role in reducing global trade due to protectionism. An increase in protectionism and trade wars characterize Slowbalization, a process where the economies try to restore activities located in different locations (Xing et al. 35). In a highly interconnected economy, several economies are rendered susceptible to the supply chain risks hence offsetting fragmentation benefits during the production process, creating incentives for countries once offshored back to their local government.
Xing’s analysis further asserts that US protectionism affected the commodities produced globally. The US data for the 2018 period shows a significant deficit of about $420 billion in measure of the commodity trade with the Chinese (Xing et al. 52). Although many macroeconomic factors highly contribute to the trade imbalance between the two countries, US protection policies remain the critical factor. The value added to the US trade figures on the Chinese exports highly exaggerates both the Chinese exports and the surplus within the American economy (Steinbock, 460). Although foreign value-added causes an expansion of the Chinese bilateral trade surplus, the emergence of non-factory goods and services has led to underestimating US exports in China. More exports than the imports received by the countries create a trade imbalance for them and the global arena.
Environmental Perspective
Environmental factors form the basis of human survival globally. Most countries focused on the existing trade and economic indicators in the recent past and ignored ecological sustainability. This leads to significant environmental problems for both the trading companies. China entered the world trade organization (WTO) and hence enjoyed the most favored nation (MFN), which is beneficial because it has allowed it to acquire higher trade development as well as the enjoyment of the optimal tariff treatment (Kapustina et al. 5). However, part of the US protection arose from the accusation that the Chinese government violated several trade rights and provisions. This included stealing scientific knowledge and patents from American companies; moreover, they neglected the US’s environmental conditions on the ecological requirements (Kapustina et al. 7). US protectionism policies highly pursued minerals, fuels, and fossils; the American government rolled out the environmental rules and regulations deemed obstacles to economic development and energy independence.
According to Kapustina et al., industries such as oil, gas, tobacco, and chemicals have pushed for the amendments of federal amendments for some time. Most of the revisions were those of the environment protection policies (EPA) (Kapustina et al., 29). In the 2018/2019 political environment, such as the impeachment and the victory of the democrats, the regulatory reforms became the priority for the top personnel of the US organizations, precisely because of the drop in energy prices and the failure in the stock markets.
Other than the EPA, the US protection policies targeted different regulatory standards such as the Clean Air Act, Clean Water Act, and the National Environmental Policy Act (NEPA) (Kapustina et al., 30). The regulatory provisions limited the application of the endangered species Act (ESA). They curbed the possibility of the public providing reviews and feedback on the suggested environmental Impact Statements (EIS). Energy independence is part of economic nationalism; the American government aimed to achieve this independence by decreasing reliance on other countries for oil and fossils. According to (Kapustina et al.,31), energy independence had been acquired by mid-2020, and US production of sustainable fossil fuels amounted to 95% transferred to its consumption (Kapustina et al., 30). This move created employment opportunities for thousands of individuals who would work in the oil/gas and coal fields. In addition, the employment opportunities ensured the sustainability of the American communities living within the mines.
In another analysis by (Zhang and Chuanfang), the global economy has undergone excellent dynamics and transitions regarding trade and non-trade regulations such as environmental protection and IP rights. Several countries are part of the Trans-Pacific Partnership (TPP), a free trade agreement incorporating the ‘golden standards. TPP holds on to the principle that tariffs should be reduced to zero in trade and nontrade such as intellectual property rights (IPRs), labor, and environmental protection (Zhang and Chuanfang, 23). US protectionism provides protection and provision of fair trade but also ensures labor rights and environmental protection is upheld. In addition, it ensures that high social standards are spread globally by way of WTO and GATT. Environmental organizations have also played a significant role in incorporating issues concerning environmental protection into WTO (Zhang and Chuanfang, 26). These organizations believe that environmental protection is an American mission. Through TPP, America can negotiate for a robust environmental policy from member countries and address emerging challenges that relate to the environment.
In analysis to determine the competition law as a tool for protectionism, it was found that there is a growing fear globally affecting protectionism. Some countries utilize competition to create trade barriers to improve their protectionism (Dan, Yingjie, et al.). Some regulations that have been used before include; national security and environmental policies. The American Chinese trade war arose from the trade restrictions imposed by the US, GATT, which the WTO exceeds, rendered other types of protectionism outdated. However, it did not go beyond protectionism (Dan, Yingjie, et al.). Protectionism has undergone significant evolution through its protean capacity for better adaptation into other new forms, labeled as the ‘murky’ protectionism. For instance, restrictions imposed by the US involve patents and agriculture, which could be part of its competition strategies to dismiss the Chinese market.
Further research by Kolcava et al. points out the adverse effects of free trade on the natural environment. According to WTO, the idea of the trade environment, which is the primary system governing the trading system, has been rendered weak in providing a ‘greener trade.’ Instead of bringing together academic and policy regulation debates on the desired trade environment, they have shifted their attention to bilateral and liberation of trade efforts, focusing on the preferred trade agreements. Apart from trade restrictions imposed by the US on the Chinese products for neglecting environmental rules and provisions, other discussions on the environmental implication have been initiated. The discussions have received significant stimulation over the concepts of the green economy, also referred to as the circular economy, within primary political levels such as the world economic forum and the growing knowledge platform. This shows that several countries are beginning to join hands over trade and environmental concerns. The primary objective is to address the widening gaps between production and distribution-related environmental effects.
Additionally, the correlation between economic growth and the environment does not happen away from the influence of the political institutions and the policymakers. Free trade and protectionism are likely to improve environmental performance since most industrialized countries, such as the Chinese and the US, with significant environmental policies, import a bulk of their products from the developing countries hence transferring their standards to these countries. (Kolcava et al.) further explains that the idea of trade liberation creates a way in which wealthy countries share their environmental effects down to the developing countries. This positively impacts the countries and develops both the import and export footprints.
An assessment of trade liberations and the environmental assessment by Regout et al. It was concluded that trade barriers and restrictions reduce with an increase in free trade and change in trade patterns, which may include the pollution haven hypothesis. The hypothesis holds on to the idea that polluting countries will shift to the jurisdiction with environmental policies that are less Strick (Regout et al., 5). This means that countries producing oil and other pollution-intensive products could specialize in creating the products since it has a comparative advantage in making them. On the other hand, the industries that produce clean products are likely to continue producing pure products (Regout et al., 6). However, the pollution haven holds on to some assumptions that the firms in question can deal with good or harmful products. In addition, the hypothesis incurs some costs on the firms.
Regout et al. conclude that while both governments, developed and developing, produce public goods, they tend to do so by weighing costs and benefits that are economically and environmentally significant to the average citizen. Many environmental challenges arise as a result of an increase in demand imposed on a natural environment by a gradually increasing population and affluence. Additionally, the regulation of economic resources is always concentrated on the autocracy; therefore, developed countries are more likely to incur a larger share of public goods in terms of costs than benefits. Thus, even if the environmental protection and policies are superior on the products, which shows that their demand increases with an increase in demand, the elite will ultimately enjoy a smaller fraction of the economic benefits given an increase in provision.
Conclusion
Protectionism is the adoption of restrictions such as tariffs and quotas to curb the home country from competition from foreign investors. It can be viewed from several economic, global, and environmental perspectives. Chinese and the Americans previously formed diplomatic ties, which have seen tremendous improvements in the economy and bilateral relations between the countries. Many economists believed that the Chinese and the United States were economically strong and would not affect global prices. Hence, they expected an incomplete pass-through. On the contrary, the trade models identified a complete pass-through of tariffs on the import prices. With an increased economic growth rate and excellent trade surplus from the US, China is the main target of US protectionism, trade, and technological competition between the countries dramatically affects the global economy. The Chinese government violated several trade rights and provisions. This included stealing scientific knowledge and patents from American companies; moreover, they neglected the stipulated environmental rules and regulations.
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