What is a Trade War?
Trade war is one of the issues that may affect the associated alliances and eventually lead to influence the other sectors as well. As noted above trade war can result from protectionist penchant. Protectionism represents actions of the Government and policies made by it to restrict international trade, generally having the intention of protecting local businesses and jobs from foreign competition. In 2017 and 2018, President Donald Trump had started a protectionist campaign, which an attempt to restore the manufacturing jobs back to the United States from other nations, such as China and India.1
History of Trade Wars
In past also there were many trade wars happened between many countries and in some trade wars both China and USA were party to it. These are some examples of past traded wars,
(1) Opium war: The First Opium War fought between the Qing dynasty and the British Empire in 1839 and 1842 over the ban on trafficking of Opium by the British East India Company into China. Due to this incident China lost Hong Kong to Britain during the second Opium war in 1856-1860. Britain with France coerced China to allow all of China to foreign merchants for the trade of Opium and exempt foreign import duties. These two wars weakened the Qing dynasty and led to modernization of China.
(2) The Smoot-Hawley Tariff Act, 1930: To protect the down-streaming of stock market and domestic industry, US president Herbert Hoover signed the Smoot-Hawley Tariff Act which was brought by Senators Reed Smoot and Willis C. Hawley. The objective of the Act was to protect the US farm sector. However, president Hoover expanded the scope of the Act to include about 20,000 products from various sectors. When the US became successful in reducing its import dependency in few years, the retaliatory measures from other countries led to 61% dip in US exports by 1933. This trade war brought the Great Depression. However, the act was repealed with an enactment of the Reciprocal Trade Agreements Act of 1934, the US Congress gave the authority to its President to negotiate bilateral trade deals without prior Congress approval.
(3) Chicken wars: In early 1960s, France and Germany imposed high tariffs on chickens imported from the USA as the demand for European chickens among people which was cheaper in price. The US retaliated with imposing higher tariffs on a bunch of commodities including French brandy and Volkswagen buses. US even threatened to bring back NATO troops to Europe. However, France and Germany didn't change the tariff price under the pressure of USA, but consumers from both sides of Atlantic Ocean were the real losers.
(4) The Pasta War: When the Regan administration was in power in US, it raised tariffs on Pasta from Europe in 1985 as it's complains of discrimination against its Citrus products. Europe retaliated in kind with higher tariffs on lemon and walnuts imported from America. In August 1986, both sides signed an agreement ending the citrus dispute and in October 1987 ended the pasta dispute.
The US-China Trade war
President Trump in his "America First" approach in way of protectionist thought decided that by imposing an extra tax or tariff on imported product mainly Chinese products and making the goods of the US companies he will make life easier for US companies.
On March 23, 2018 the US imposed new tariffs on steel and aluminium. Most of the largest steel exporters to the US were exempted at least until May 1, but Chinese companies were not being exempted in this relaxation period.
On April 2, 2018 China retaliated with new tariff rates on 128 categories of products, including pork, fruit and nuts, steel pipe for the oil industry, and ethanol. On April 3, 2018 the US administration announced a new list of 1,333 Chinese product categorised under that will come under 25 per cent tariffs. On April 4, 2018 China set out its list of products for possible retaliation, including soya beans and cars which are mainly exported from US. On April 5, 2018 President Donald Trump issued, a statement saying that, "In light of China's unfair retaliation, he has instructed the US trade representative to consider whether $100bn of additional tariffs would be appropriate, and to identify which products should be affected."
On June 15, 2018 President Donald Trump decided to impose $50bn worth tariff on the products imported from China. The White House claimed the new restrictions were justifiable by Beijing's old practice of stealing US companies' intellectual property. US tariffs on a $34bn tranche of 818 product lines, mainly consists of agricultural products was effected from July 6. On June 16, 2018 Beijing announced it would retaliate against new US tariffs, with the Commerce Ministry saying that it would "immediately introduce countermeasures of the same scale and strength". China's finance ministry said, "It would begin imposing its own 25 per cent tariffs on 545 categories of US products worth $34bn including soya beans, beef, whiskey and off-road vehicles from July 6". It also threatened to add a further $16bn later, targeting US energy exports such as coal and crude oil. On June 18, 2018 President Donald Trump ordered US trade officials to identify a further $200bn in goods from China which can be subjected to 10 per cent tariff, if Beijing follows through on the retaliation measures it announced on June 16. Mr Trump added that, "He was also prepared to impose tariffs on an additional $200bn beyond that".
Then, China and the US embarked upon a full-scale trade war as both sides threated each other over new trade tariffs. On Tuesday July 10,2018 President Donald Trump's administration released a list of proposed tariffs on $200bn worth of goods, ranging from auto parts to food ingredients to construction material. On August 1, he asked his trade tsar to consider increasing the tariff on these goods to 25 per cent.2
Impact of Trade War on Global Economy
The Trump's trade war is not only between China and US, but it also creating new impetus for the EU and Asia to speed up the opening of their markets to forge closer economic ties. This will lead to even faster growth in trade between the EU and Asia rise in trade and investment.3
The latest round of China-US trade talks made some important progress and China has agreed to make key concessions to expand American imports in agriculture, energy, manufacturing and services which was the main demand of President Donald Trump. The two sides had candid, specific and constructive discussions among themselves. In Argentina two countries discussed on the topics of trade balance, technology transfer, protection of intellectual property rights (IPR), non-tariff barriers, service sector, agriculture and enforcement mechanism, as well as certain issues of particular concern for the Chinese.4
Changes in the IP Laws of China
After the last talk between the two Government officials, they have tried to end the war of the Chinese theft of American intellectual property which was going on for decades. China previously used to force companies for a free technology transfer in order to carry out business inside China. Chinese officials passed an IP law that would ban companies that are caught stealing technology from issuing bonds or accessing other financing. The government also said that it will accelerate the passage of a new foreign-investment law which will include administrative measures to protect the IP of foreign companies and ease pressure on them to transfer technology to local partners. In addition to this, The Chinese government has emphasized on trademark enforcement cases and big foreign brands such as Lego, Alfred Dunhill and New Balance will be benefitted out of this new enforcement. Though many steps are being taken but the International business groups are still sceptical about the environment of IP protection in China. 5
The significant change can be seen in the case of Hubei Gezhouba Sanlian Indus. Co. v. Robinson Helicopter Co.6 ,where the Wuhan court of China recognised and enforced the U.S. Judgement. The Wuhan court in its judgement cited that the U.S. Judgement did not violate basic principles of PRC (People's Republic of China) laws, state sovereignty, security or the public interest. It also dismissed the appeal by the Defendant to trail the case again as the Court observed that the merits of the case have been adjudicated before the US Court. This judgement became a landmark judgement and open gates for new possibilities where parties can enforce their foreign Court judgements in PRC without re-litigating the merits of the dispute.7
From the above situation, it clear that China had very strict and biased IP laws, which was making foreign companies to do business in China market. However, due to the trade wars between US & China, there has been a relaxation in the laws of the country resulting in liberalization of its market and allowing foreign players to participate in its domestic market. Few of the significant steps were taken by the Chinse Government for the protection and enforcement of IP laws. Not only the Chinese Legislatures, but also the Chinese Judiciary is helping the country in this process by recognising and enforcing foreign judgements in its national territory. This is a gradual process and will take its own time for both China and US to settle down the matters and grow their business, as in the end should think about their country's economy and consumers.
If we analyse the situation, we observe that the basic principles of economics, i.e., demand and supply, has once again come into play. The shortage of supply of a good, either finished material or raw material, will increase the final consumption price for the consumer. Moreover, the burden of increased tariff will also be borne by the final user.
6 425 Fed. Appx. 580 (9th Cir. 2011)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.