America’s and China’s top trade officials and representatives have recently held “candid, pragmatic” talks during their first meeting under the newly elected Biden Administration, the BBC reports.
US Trade Representative Katherine Tai and Chinese Vice Premier Liu He held a virtual meeting this Thursday to discuss potential cooperation between China and America.
This comes after the long period of aggressive trade wars between China and America which occurred during the Trump Administration.
These tariffs hurt trade between China and America as they increased the price of American and Chinese goods for both parties, China found it harder to consume goods produced in America, and America found it harder to consume Chinese goods due to the rise in price.
This trade war begun as the Trump administration had major concerns over the employment of American manufacturers as a large majority of American firms were importing manufactured goods from China rather than favouring American alternatives.
This means that the trade ware was introduced to protect the incomes and living standards of American manufacturers as an increase in the price of Chinese products, due to tariffs, makes the American alternatives much more attractive due to their potentially lower price.
However, although the tariffs led to an increase in employment in some U.S industries, they failed to achieve the ultimate goal of reviving the American manufacturing industry as its Chinese counterparts were simply much more efficient.
Overall, these tariffs actually led to a net loss in U.S manufacturing jobs and at the end of the trade war, the trade deficit between America and China came back to its pre-trade war levels, thus making the Trump Administration’s goals of American self-sufficiency unsuccessful, a report from the Wall Street Journal in October 2020 had stated.
This makes the Trump Administrations decision to prop up and to protect an inefficient manufacturing industry likely politically motivated rather than it being based on economics as within economics, the government should not “prop up” failing, inefficient industries which can be replaced by more innovative and efficient counterparts.
Consequently, the new trade talks between the Biden Administration and China may lead to further cooperation between the U.S and China as the nations may continue down a path of cooperation which could lead to a trade deal.
A trade deal between China and America would massively benefit both economies as both nations will be able to develop a comparative advantage in specific industries which will make both nations much more efficient as fewer resources will be wasted and more intertwined due to globalisation.
This will lead to rising economic prosperity for China and America, however, despite the economic benefits, there will likely be backlash with this decision due to political opinions surrounding China.
America may choose to prioritise itself due to political reasons and attempt to become more self-sufficient as some fear the idea of America and China becoming intertwined and independent of each other despite the clear economic benefits.
So, although the economic benefits of free trade outweigh the costs, the likelihood is that it will take a long time for the American government and public to listen to economists as political issues, as per usual, are complicating economics once again.
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Written by Hubert Kucharski