US-China Trade Dispute

 
 
 

Vocabulary

recap	brew (2)	rapprochement
gauge	fast-track	belligerent (2)
deny	Cold War	arrangement
port	post (4)	ally/allies/alliance
deep	facilitate	reconstruction
bribe	normal	effectively
cajole	drift (2)	market economics
sustain	carrot (2)	institution (2)
WTO	track (3)	dominance
access	ascension	state-owned enterprise
sector	massive	inflection (2)
deficit	block (3)	bring online (2)
media	logistics	inequality
vast	compete	accumulate
sum	maintain	status quo
hence	bilateral	present (3)
resist	challenge	accommodation (2)
extent	available	rare earth
net (3)	potential	consumer
worth	boil down	replacement
default	blink (2)	roughly (2)
require	capacity	vulnerability
alert	ability (2)	extraction
bailout	strategic	conversely
rival	perceive	advantage
goods	element	absorb (2)
idle	monopoly	divestment
eager	treasuries	obligation
uptick	broad (2)	asymmetrical

 
 
 
 
 
 
 
 
 

Video

 

 
 
 
 

Transcript

William Huggins, Professor, McMaster University: “With talk of a brewing China-US trade war, it may be useful to quickly recap the past forty years of their economic relationship to help gauge the relative negotiating strength of the two belligerents.

In 1978, the US began rapprochement with China, which allowed them access to the American consumer market in exchange for denying the Soviets access to China’s deep water ports on the Pacific coast.

This offer, essentially the same trade arrangement offered to America’s post-World War Two allies to facilitate their reconstruction, was effectively a bribe to join the US-led anti-Soviet alliance.

After the Cold War ended, the Americans sustained the relationship in an effort to cajole China into drifting towards market economics and democratic institutions.

Another decade later, they offered larger carrots in the form of permanent normal trade relations starting in 1999, and helped to fast-track China’s WTO ascension in 2001, despite the dominance of state-owned enterprises in many important sectors.

While trade has been massive since that inflection point, it has been under deeply unbalanced conditions with China blocking US firms from competing in a number of “strategic” industries, including banking, telecomm, defense, food, logistics, education, healthcare, media, etc.

The inequality of market access has driven the vast trade deficit between the two countries, which reached an accumulated sum since 1978 of over $4.5 trillion since the end of last year.

Maintaining the status quo would see this sum double by 2030 — hence America’s focus on opening Chinese markets as a way to re-balance their bi-lateral trade.

For China, opening these domestic markets presents both economic and political challenges, and it will thus resist any kind of accommodation to the extent possible.

Last year, China sent $462 billion worth of goods and services, and the US sent a $115 billion, a net difference of roughly $350 billion. No country exports as much to another as China sends to the US, and unsurprisingly, a great number of Chinese jobs (roughly eleven million) are supported by access to America’s $12 trillion consumer market.

At the moment, approximately one in 150 American jobs are supported by exports to China. But that number is one in 70 on the other side of the ocean.

In the unlikely event of a “hard break” in trade, there simply aren’t any available replacement customers who could absorb China’s excess production on the same scale the US has for the past four decades.

China’s domestic consumer market is currently only one-third of the Americans — big, but not dominant, and certainly not on a per capita basis where the average American consumes $36,000 versus $3,200 a year in China.

The potential for a large uptick in unemployment and corporate defaults that could ultimately require bailouts is real and the Chinese government is alert to this vulnerability.

Now, conversely, the US has a lot of idle industrial capacity (and workers) it could bring back online in sectors currently buying Chinese exports, to say nothing of China’s numerous and eager rivals in low-skilled manufacturing.

Perceived advantages in sectors like the mining of rare earth elements boil down to extraction costs, not geographic monopolies. Any mass divestment of treasuries would harm China, to say nothing of the US’s ability to meet their obligations through the printing press.

Put simply, the relationship between the two economies is broadly asymmetrical economically, with China’s need for the status quo being far greater than that of the US.

Much like own trade war trade relations with the US, they need America more than America needs them; at least for now. And that means that China is most likely going to blink first.

 

 

Questions

1. The university professor only talked about the current economic and political situation between China and the US. True or false?

2. According to the professor, was there an altruistic or political motive behind favorable trade agreements between the US and China (and Western Europe and Japan)?

3. China was perfectly qualified to join the World Trade Organization. Is this correct or incorrect?

4. Have American goals regarding China changed over the years?

5. There has been completely fair and equal trade between China and the US. Is this correct or incorrect? What are some examples? What has been the net result?

6. What are some things that would happen in a US-China trade war?

7. Would both the US and Chinese economies suffer to the same extent? Who would most likely “win”?

 

A. What happened to your country after World War Two?

B. How long has your country been trading with China? What does China import and export from your country?

C. Is the trade “fair and equal”?

D. Is everyone satisfied with the status quo? What would people like to see?

E. What will happen in the future?