U.S. and Globalisation

What is the issue?

With U.S.-China trade war taking place here is an overview of the U.S.’s stance on globalisation and its effects over the global economy.

How has the U.S.’s stance on globalisation transformed?

The United States government had pressured many a country to liberalise trade and globalise.
But now, by launching a trade war against China, the U.S. seems to have turned against its own agenda.
In a series of aggressive moves, the U.S. has put in place and widened the coverage of a protectionist shield.
This is primarily aimed at stimulating domestic production and reducing the country’s trade deficit.
These moves initiated by the Trump administration were occasionally targeted at multiple countries.
It also involved rewriting the North American Free Trade Agreement with Canada and Mexico.
However, the focus of the trade and technology war of the U.S. has largely been China.

What were the key moves against China?

China-specific tariff aggression began with a 25% tariff on imports worth $50 billion out of the total of $540 billion imported by the U.S. from China in July 2018.
Soon, an additional $200 billion worth of imports from China were subjected to 10% tariffs, and these were also raised to 25% in May 2019.
Most recently, the balance of around $300 billion worth of imports from China were subjected to a phased 10% levy, with a clear threat of raising it to 25%.
China’s responses to U.S. actions, in all, have led to the $120 billion of goods it imports from the U.S. being subject to a 25% duty.
The U.S. has also imposed sanctions on and shut off business relations with individual Chinese firms, such as Huawei.
The grounds for this vary from national security concerns to the alleged theft of intellectual property from U.S. firms.
On the other hand, the U.S. has also designated China as a currency manipulator.
This was based on the allegation that the Chinese authorities have deliberately allowed the yuan to depreciate vis-à-vis the dollar to support its exporters.

What is the U.S.’s argument?

The U.S. cites as the reason the imbalance of its trade with China, with imports from China accounting for more than a fifth of aggregate U.S. imports.
Resultantly, the U.S. runs an annual trade deficit with China of around $420 billion, which ‘imbalance’ is attributed to Chinese policy.

Is this wholly justified?

There are two important facts that the above argument misses.
First, the gains to the U.S. from its economic relationship with China are inadequately captured by the trade figures.
A major gain for U.S. companies, even if not for the U.S. per se, is the local sales by subsidiaries of American multinationals located in China.
However, these sales do not get reflected in the trade calculations.
Second, these subsidiaries are responsible for a chunk of China’s exports to the U.S.
Estimatedly, more than half of Chinese exports to the U.S. originate in foreign invested enterprises which are either U.S. multinational arms or firms with parents in other advanced economies.
In other words, the U.S. trade deficit with China is the result of the off-shoring associated with globalisation.
So saying that the Chinese policy was favouring its own firms is not wholly justified.

What is the larger impact of the trade war scenario?

China has a key place in the global economy being a global manufacturing hub.
Given this, the U.S.’s measures have disrupted global value chains and production networks that are the hallmark of globalisation.
Deglobalisation may yet be a distant prospect.
However, the world’s leading superpower is willing to disrupt globalisation.
This provides both an example and the justification to other governments that find the need to move in the deglobalisation direction.

Source: The Hindu