Article Review Sample Paper on Averting a Chinese-American Trade War
Trade between America and China can be a significant reference to aspects of the global economy. Currently, various factors have affected the global economy and nations’ trade operations are being predetermined by the economic conditions set in motion. The article “Averting a Chinese-American Trade War” provides a great reference to the economic conditions that currently exist within the international trade. Bilateral trade relationships are in trouble because of the strong urge by the governments to reduce trade deficits. The trade relationship between America and China is under tension following the Trumps promise to reduce the trade deficit. Whether strong trade tariffs are applied, or a bargain is undertaken, reduction of importation of Chinese goods by the US means a reduction of trade activities and consequently reduced revenues on both sides, and every other country dealing with US or China will be indirectly affected.
From the article, it is clear that international trade has greatly contributed to nations reduced GDP. This is because trade deficits tend to increase as foreign trade intensifies. American total deficit from its trade activities has increased from a quarter to two third over the past five years which is seen as a drag on American’s economy (Shanghai 1). This is because trade deficits imply increased current consumption and increased indebtedness which are linked by most people as a burden to economic growth (McGraw 15). Another economic condition is increased bills within the various sectors of the economy like healthcare, and high tariffs countries are putting on imported goods which is limiting their merchants from having the ability to sell more to foreign countries. Big deficit accompanies fast growth. For example, from 2002-2007, US economy grew rapidly as compared to its trading partners, and this enabled Americans to increase their demand for imports (McGraw 15). Trade deficit should therefore not be closed through limiting imports because that will be preventing the growth of international trade. The deficit should be closed by selling more goods abroad. Tariffs and bills make it expensive for American to buy goods abroad (McGraw 27). Most American industries depend on products from China and if they are restricted, they will fail to get enough revenues which enables them produce more goods for export
International trade is important because countries can get products from abroad at cheaper prices than producing them themselves. Americans buy many products from China together with setting their factories there to take advantage of low cost of production. This is same to any other country with similar activities in its foreign trade operation. According to McGraw (11), this is a comparative advantage which drives international trade whenever one country has a certain advantage over another regarding either endowment or production. McGraw further assets that China has abundant labor supply, one of the reasons contributing to low cost of production. If for example, America decided to bring the factories back home, prices would hike and consequently inflation and its adverse effects which are undesirable. Consumption would decline simultaneously as prices will be too high than the consumers are willing to pay.
McGraw (21) provides that countries somehow benefit from foreign trade and in order to promote efficiency and competition, nations should build relationships that prevent disagreements and trade wars. This should be applied to all nations facing difficulties with foreign trade. It will welcome competition as healthy rather than destructive. American and China should see this and agree on a long term bilateral investment treaty and avoid creating a disagreement that will certainly destroy their bilateral trade relationship and eventually negatively affect their economies.
Shanghai . “Averting a Chinese-American trade war” The Economist, 30th March 2017, www.economist.com/news/briefing/21719772-worlds-most-important-bilateral-economic-relationship-flourishingand-deep?zid=306&ah=1b164dbd43b0cb27ba0d4c3b12a5e227.
McGraw. Chapter 20 and 21. Power point Presentation. Hill Education