mid term report subject career orientation in international business topic the us china trade war

The direct cause of the U.S-China trade warIn launching its trade war with China in early 2018, Trump’s administrationpointed to two main reasons: the U.S trade balance deficit with Chin

TON DUC THANG UNIVERSITYFACULTY OF BUSINESS ADMINISTRATION

MID-TERM REPORTSUBJECT: CAREER ORIENTATION IN INTERNATIONAL BUSINESS

TOPIC: THE US – CHINA TRADE WAR

Advised by: Mas NGUYỄN THỊ HỒNG HẠNH

No FULL NAME STUDENT ID

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To complete this report, I would like to express my deep gratitude to Ms Nguyen ThiHong Hanh for her dedicated guidance throughout the process of writing the report.Hopefully, you will see our well-researched, informative approach as a sign of diligence.

In the process of making the report, it is difficult to avoid errors, I hope you ignore them.Besides, due to the limited level of reasoning as well as practical experience, the reportcannot get out of shortcomings, I hope to receive comments from you so that I can learnmore experience and will make better in the following reports.

Thank you,Best regard.

Ho Chi Minh City, 16 December 2022th

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TABLE OF CONTENTS

Currently, most countries in the world develop their economies towards a free trade andmarket economy Countries strengthen trade and diplomatic exchanges, build bilateraland multilateral relations Marking the development of world trade is the birth of theWTO (World Trade Organization) with 164 members up to now For all countries, trade isrelatively important On December 11, 2001, China officially joined the WTO, markingan important milestone in economic cooperation between the United States and China In2015 China became America's largest trading partner with total bilateral trade of $659.4billion China is now America's largest foreign creditor The growing U.S trade deficitwith China makes it difficult for the U.S to retain its Top 1 position The 45th presidentof the United States, Donald Trump, since taking office, has been making all hiscampaign promises to "Make America great again." Despite the controversy, the biggestis probably the imposition of tariffs on its big brother, China The response to tariffsbetween the two countries has created a major storm in global economic marketsaffecting many countries.

The situation between the US and China is more tense than ever, these are the two largesteconomies in the world Many economists see the US-China trade war as a long-term warbetween the two countries Hence that every action of They not only impact theireconomy but also the worldwide economy Therefore, this war will have a certain effecton the world situation.

Vietnam is in the process of promoting industrialization and modernization of thecountry This is a relatively difficult and complex process Vietnam is simultaneouslyindustrializing and modernizing, so it is even more difficult and challenging All aimed atsocio-economic development However, there are always unpredictable factors affectingVietnam's economy, the most significant of which is the US-China trade war Vietnam isa neighbor to China, so it will inevitably be affected by this war That is why our groupchose the topic: "US-China trade war and supply chain connection with Vietnam”.

CHAPTER 1: U.S-CHINA TRADE WAR CONTEXT

1.1 The direct cause of the U.S-China trade war

In launching its trade war with China in early 2018, Trump’s administrationpointed to two main reasons: the U.S trade balance deficit with China; China's currencymanipulation policy to remain competitive

Firstly, Trump’s administration argues that the trade deficit with China stems fromChina's trade fraud, which harms the United States GDP However, many studies haveshown that the U.S trade deficit with China originates within the U.S economy.According to the BOP balance of payments principle, the current account and the U.Strade balance are in deficit because the U.S has always maintained a surplus financialaccount That is a privilege for the U.S because most countries consider the dollar a safehaven That attracts a lot of financial flows to the U.S, making it possible for investmentin the U.S to remain high despite low U.S savings Low savings, increased spending,including on imports, left the U.S with a trade deficit;

Thus, in the context of the United States, the trade deficit does not necessarilyharm the economy In fact, the U.S has run a trade deficit since the mid-1990s, but theeconomy is still growing positively There were even two times when the U.S tradedeficit fell, tied to the economic crises of 2001 and 2009 Based on this observationalone, a large trade deficit indicates that the US economy is growing well However, therelationship between the trade deficit and GDP growth is much more complex and itdepends on the circumstances of each country, at each specific moment.

In addition, the view that reducing imports will cause the economy's GDP toincrease is also incorrect GDP is a measure of the total value of goods and servicesultimately produced on a national scale, goods and services produced in other countriesand imported into the U.S have no impact on U.S GDP If imported goods are items thatcompete with U.S domestically produced goods, reducing imports will have positiveeffects on GDP growth On the other hand, if imports are complementary goods or inputsto domestic production, reducing imports will dampen U.S growth.

Even if the U.S-China trade war reduces U.S imports from China, that's notguaranteed to reduce the U.S trade deficit In other words, tariff barriers to China wouldhave the effect of a trade diversion, not an expansion of U.S domestic production Insteadof importing items from China, U.S importers will turn to importing similar items fromother countries such as Vietnam, Thailand or Indonesia That only reduces the U.S tradedeficit with China, without changing the total U.S trade balance Only when the U.Sfiscal balance falls into surplus will the trade balance reduce the deficit That cannot beachieved by launching a trade war.

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Secondly, the U.S administration has repeatedly raised concerns about China'scurrency manipulation However, the validity of this allegation from the U.S is still amatter of debate American politicians have often criticized China for keeping the yuanabout 40 percent below real value, thus making Chinese exports relatively cheaper tomaintain trade competitiveness The Big Mac Index, which measures real exchange ratesand evaluates currencies at purchasing power parity, also shows that the yuan isundervalued by about 44% However, to date, no scientific studies have given a trulyconvinced figure on the yuan's undervaluation or China's currency manipulation.Moreover, the International Monetary Fund (IMF) also disagrees with the view thatChina manipulates its currency and thinks that the value of the yuan is in line withChina's economic conditions Research by Najma Moosa et al in 2020 also suggests thatthe yuan is not undervalued and that revaluation of the yuan does not help improve theUS trade deficit with China.

The U.S administration criticizes China's currency manipulation of the way theChinese government operates the foreign exchange market China's exchange rate systemsince 2005 has been a crawling peg The yuan's exchange rate is kept relatively stableagainst the dollar When necessary, the Chinese government can adjust the exchange rateby buying or selling dollars on the foreign exchange market Despite U.S condemnation,China's actions do not violate IMF rules, which have enabled countries to choose theexchange rate system that suits them since 1971 (when the Bretton Woods systemcollapsed) It is not illegal for governments to intervene in the foreign exchange market,and many countries use this tool to adjust their currency rates.

As such, the direct reasons given by the U.S government to launch a trade warwith China do not seem to be convincing or deliberately offer views contrary to basiceconomic principles Moreover, the issue of trade deficits and alleged currencymanipulation with China are not new problems at all If at the beginning of 2018, the U.Strade deficit with China stood at $419 billion, but from the beginning of the 2000s, thevalue of the deficit reached about $100 billion The administration has also repeatedlyaccused China of currency manipulation, first in 1994 and then with sanctions fromCongress in 2005 and 2010 The fact that these issues have existed for a long timewithout leading to any conflicts in the past suggests that the U.S-China trade war hasdeeper causes.

1.2 The root cause of the U.S-China trade war

From a geoeconomic strategic perspective, the three deep roots of the U.S-Chinatrade war are:

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Firstly, the war is a consequence of China's dramatic rise over the past nearly twodecades This rise is economically, militarily, and financially international and threatensU.S leadership on the world stage;

Economically, although China is the world's second-largest economy after the U.S,in terms of purchasing power parity, the IMF assesses that China surpassed the U.S in2014 China also overtook the U.S as the world's largest exporter in 2009 and the world'slargest total trade value in 2013 With such growth, China has a huge trade surplus withthe U.S and many other countries.

Between 2000 and 2015, China transformed from a manufacturing outsourcingcountry into a critical component supplier for the global supply chain In the first phase,China mainly imported components and exported finished products Then in the laterstage, China reduced component imports significantly thanks to the increase in domesticproduction capacity The study also points to China's efforts to diversify export markets,growing strongly in Africa and Latin America, but exports to Western countries stillaccount for a large proportion.

Militarily, the U.S and China are the biggest spenders in the world It is estimatedthat in 2020, the share of total global military budget by the U.S is 39% and China's is13% Over the past decade, China's military budget has increased by 76%, the fastestgrowth in the world during this period As of 2020, China's military budget has increasedcontinuously for 26 years Along with economic and military development, China'sforeign policy philosophy has also changed drastically From Deng Xiaoping'sphilosophy of "hiding your abilities and waiting for the times" in the 1990s, China turnedto Xi Jinping's ideology in 2017 about the "Chinese dream" of becoming the "world'sleading superpower by the middle of the twenty-first century" This philosophy isconcretized by challenging actions in the Asia-Pacific region, such as the East Sea issue,escalating tensions with Taiwan and Japan These are actions that the U.S sees as directlydamaging to U.S and its allies' interests Therefore, before the trade war broke out, theU.S had strategies such as the Obama administration's 2011 "Pivot to the Asia-Pacific"and the Trump administration's 2017 "Free and Open Indo-Pacific".

In terms of international finance, China has taken steps to enhance the yuan'sposition and increase foreign investment In recent years, China has always been theworld's second-largest recipient of FDI after the U.S and one of the fifth largest foreigndirect investment countries China is also very active in increasing its financial influencein countries in the Belt and Road initiative region and African countries China is playinga dominant role in infrastructure construction in Africa, accounting for more than 40% ofconstruction contractors on the continent since 2011 The total concessional loans Chinaprovided to Africa as of 2010 were more than $10 billion, with commitments to increase

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to $20 billion by 2015 Concessional loans from China usually disburse quickly and donot come with loan conditions that should receive the attention of African countries Forcountries that have difficulty paying their debts, China does not resort to multilateralintervention, but often adopts bilateral debt agreements For example, a 2011 debtforgiveness agreement for the United States in exchange for a disputed territory betweenthe two countries; exchanged Sri Lanka's $8 billion debt for a 99-year lease onHambantota port in 2017.

China is also working to make the yuan an international reserve vehicle Althoughthe yuan accounts for only about 2% of the world's foreign currency reserves, it is one ofthe fifth most popular foreign currency reserves Since 2015, the yuan has also beenincluded in the basket of funds by the IMF to determine the value of the Special DrawingRights (SDR) In addition, China has also actively launched initiatives to establishinternational financial institutions to compete with the role of the IMF, such as the AsianInfrastructure Investment Bank (AIIB) in 2015 or the New Development Bank (NDB) in2014 and the BRICS countries Clearly, China's dramatic transformations in internationaleconomic, military, and financial performance in recent years, particularly since the 2009world monetary and financial crisis, have led the United States to see its leading positionthreatened That became the most basic source for the U.S-China trade war, which wasused by the U.S as a tool to stifle China's development.

Secondly, behind the trade war between the U.S and China is the battle overtechnology, especially in digital technology In the context of the Fourth IndustrialRevolution, knowledge and technology are becoming direct productive forces Allcountries are trying to build technological infrastructure and production capacity for thefuture From a great imitator, China is gradually transforming itself into a country withthe world's leading technologies today Since 2011, China has been one of the countriesthat have registered the most patents in the world In 2016, more Chinese patents than theU.S, the European Union, Japan and South Korea combined China has the longest high-speed rail network in the world (35,388 km), ten times that of Spain (3,330 km) China isthe world leader in renewable energy technology Every year, China produces more thana quarter of the world's renewable energy production, and China's increase in productioncapacity accounts for 1/3 of the world's increase The 5G technology race between thetwo countries is also extremely tense It is estimated that in 2020, China had 5G coveragefor 341 cities with about 175 million users, while the U.S covered 279 cities with 14million users:

While the U.S still outperforms China in many other areas of technology, it is clearthat it does not want to fail in the race for new technologies, in areas where the scaleadvantage or advantage of its predecessor can determine the future lead The use of tradetariffs could help stifle China's technological development, or at least help protect U.S

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domestic tech businesses The U.S has presented trade barriers for technology productssuch as solar cells, smart devices and semiconductor materials to China That is theimposition of safeguard tariffs on 8.5 billion USD of imported solar cells in 2018;limiting access to U.S made goods for Huawei based on alleged money laundering andsanctions violations in 2019; limiting the export of U.S semiconductor designs, softwareand equipment to SMIC Group in December 2020.

This isn't the first time the U.S has used the tool of trade tariffs to dominate thetech race In the 1980s, when the trade deficit was large with Japan, the U.S imposed hightariffs on imports from Japan To avoid a trade war with the U.S, Japan acceptedvoluntary export restraints (VER) on cars exported to the U.S from 1981 to 1985 Japanalso pledged to devote 20% of its domestic semiconductor market share to U.S goodsbetween 1986 and 1996 The U.S adopted a similar strategy with China in 2018, exceptthat China did not accept concessions but chose to escalate trade tensions with the UnitedStates.

Thirdly, launching a trade war with China would help generate more revenue forthe U.S budget, which runs a deep deficit At the time of the launch of the trade war withChina in 2018, the U.S budget had a deficit of $779 billion, or 3.9% of GDP U.S publicdebt stands at 78% of GDP, the highest since World War II In fact, the U.S budget hasbeen in deficit since 2002 However, the Trump administration's corporate tax cuts havereduced revenues, causing the budget deficit to increase by 17% in 2018 It alsoprompted the U.S government to find new sources of revenue, leading to a trade conflictwith China Former President Trump has repeatedly claimed that the import tariffs havehelped the U.S obtain large financial resources from China.

According to economic theory, the burden of tariffs falls not only on sellers butdepends on the relative elasticity between supply and demand Not only Chinesemanufacturers, but U.S consumers themselves must also contribute a portion (more orless depending on the specific item) to the U.S government's import tax revenues.However, the result is still an increase in budget revenues In 2019, U.S import taxrevenue was $71 billion, up from $36 billion in 2016 Calculations from the integratedtariff model also forecast that the combined impact of the U.S import tariff policy onChina will increase budget revenues for the US by $79.96 billion That may be too smallfor the U.S budget, but it also contributes to U.S politicians' support for launching a tradewar with China As of 2020, due to the impact of the Covid-19 pandemic, the U.S budgetdeficit has increased to 3.1 trillion USD, equivalent to 14.9% of GDP It is forecast thatby 2051, the U.S public debt will exceed 200% of GDP and the budget deficit will be at11.5% of GDP That will make it harder for policies that reduce revenues to gain supportin U.S politics, including policies to cool trade tensions with China.

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CHAPTER 2: TRADE POLICY

2.1 What is trade policy

Trade protectionism is an economic term, referring to the application of measuresto protect the country's production of goods or services by raising standards such asquality, hygiene, safety, labor, environment and origin or imposing high import tariffson some items; used in trade relations between countries.

For tariffs or duties on imports from other countries, governments will imposehigh tariffs to restrict imports of goods and services from abroad to protect domesticindustries and companies Tariffs can be specific, which have a fixed tax rate or a fee ratefor each unit of product or goods introduced into a country There are also tariffs on theunit price of goods set in proportion to the value of the imported product.

Quotas are direct restrictions on the number of certain goods or products that canbe allowed to import into a country There are also Voluntary Export Restrictions (VER),which act as trade quotas imposed by an exporting country VER can be expressed in theform of political pressure from one country on another to prevent the export of goods.

In addition to tariffs and quotas, there are many other trade barriers that nationalgovernments can use to restrict imports or stimulate exports Despite the World TradeOrganization's relative success in encouraging multilateral negotiations to reduce tariffbarriers and arbitrate trade disputes, barriers remain.

The government supports domestic companies, which is a form that countries useto protect domestic industry Governments of these countries use a public procurementpolicy, which favors domestic companies For example, local or national governmentsmay purchase military or medical supplies from local companies While many WTOmembers have signed up for the Government Procurement Agreement (GPA), mostcountries have yet to sign up for initiatives to expand national procurement, creatingopportunities for other countries to compete.

The government can also subsidize domestic companies, which will offer manydiscount programs That financial support can also be in the form of export assistance,creating incentives for business Such subsidies could also take the form of aid for start-up projects, such as the EU supporting the development of Airbus, the U.S supportingBoeing.

An anti-dumping policy is enacted by a country to prevent the sale of goods inforeign markets at prices much lower than the cost of production to gain significantmarket share in that country.