UPSC PRELIMS 2020: US-China trade talks explained

Topic: US-China trade talks explained

Topic in Syllabus: International Affairs

Context:

Senior US and Chinese officials are meeting in Washington on in an attempt to settle their ongoing trade war, but a lasting peace seems elusive.

Since trade negotiations between the world’s largest economies broke down in May, both countries have added tariffs on billions of dollars of the others’ goods, broken good faith promises, and traded public insults.

 

Background:

The trade war has hardened into a political and ideological battle that runs far deeper than tariffs and could take years to resolve. Washington accused Beijing of reneging on commitments to change its laws to enact economic reforms, while Beijing called US President Donald Trump’s tariff’s “barbaric.”

Here is what is at stake:

Tariffs:

  • The Trump administration has rolled out stiff tariffs on Chinese imports since 2018. Chinese officials want these wiped out before they agree to any broader deal.
  • The US has put 25% tariffs on some $250 billion of Chinese products, and China has retaliated with tariffs on $110 billion of US imports.
  • Both sides made some concessions ahead of this week’s talks by suspending some planned tariffs, in a sign of goodwill.

Blacklists :

  • Beijing is smarting from Trump’s decision to blacklist Huawei, the world’s largest telecommunications equipment maker, which effectively banned US firms from doing business with the company.
  • It has prompted many non US-based companies to cut their own ties to the firm.
  • China wants the United States to lift those restrictions, but Washington is lobbying other countries to reduce dealings with Huawei.
  • Legislation in the US Congress would prevent Chinese rail company CRRC and drone-maker DJI from bidding on US contracts that involve federal money.
  • China has indicated it may strike back through limiting rare earth supplies to the United States.
  • It could also revoke orders for airplanes built by Boeing Co, the No. 1 US exporter.
  • Trump has called on US companies like General Motors Co to pull manufacturing facilities out of China.

Intellectual Property:

  • US companies complain they are pressured to hand over their competitive secrets as a condition for doing business in China.
  • US officials also cited progress on cyber theft, services, currency, agriculture and non-tariff barriers to trade.
  • China’s Communist Party is not willing to negotiate on the fundamental way that it manages the country’s economy, including support for state-owned enterprises and subsidies.
  • One of the biggest US complaints is that China has used coercion and outright theft to systematically obtain American intellectual property and trade secrets and advance its standing in many high-technology industries.

 

Concerns

  • China is determined to upgrade its industrial base in 10 strategic sectors by 2025, including aerospace, robotics, semiconductors, artificial intelligence and new-energy vehicles.
  • China’s subsidies to state enterprises, including at the provincial and local government levels, have led to a build up in Chinese industries like steel that has depressed global prices.
  • Chinese officials generally view the US actions as a broad effort to thwart the Asian country’s rise in the global economy.
  • US lawmakers are writing bills that further limit visas, banning students with ties to the Chinese military.
  • Beijing warned students and academics about risks in the United States, pointing to limits on the duration of visas and visa refusals.
  • It also warned companies operating in the United States they could face harassment from US law enforcement, gun violence, robberies, and thefts.

 

Sample Question:

Which of the following theories holds that countries will produce and export products that use large amounts of production factors that they have in abundance?

a)      Mercantilism.

b)      The factor endowment theory.

c)       The theory of absolute advantage.

d)      None of the above.

Answer: b)