Tutorial 7 Problem set Questions & Solutions
Topic 5: China-US relations
- Short-answer Question 1 (SAQ1)
- Short-answer Question 2 (SAQ2)
- Short-answer Question 3 (SAQ3)
- Short-answer Question 4 (SAQ4)
- Long-answer Question 1 (LAQ1)
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SAQ1
Discuss the US-China trade engagements during Clinton Administration (1993-2000)?
▻ Clinton's highest priority was to maintain trade with China, boost American exports,
expand investment in the huge Chinese market, and create more jobs at home. By
granting China temporary most favoured nation (MFN) status in 1993, his administration
minimized tariff levels in Chinese imports.
▻ In 1999 Clinton signed a landmark trade agreement with China. The agreement (after
more than a decade of negotiations) would lower many trade barriers between the two
countries, making it easier to export U.S. products such as automobiles, banking
services, and motion pictures. However, the agreement could only take effect if China
was accepted into the WTO and was granted permanent "normal trade relations" status
by the U.S. Congress. Under the pact, the United States would support China's
membership in the WTO-which led to China’s accession to WTO on 11 December 2001.
SAQ2
Discuss the causes of US-China trade war.
In an effort to manage the large U.S. trade deficit with China (approximately 345.6b USD in 2016),
President Donald Trump began imposing import tariffs on Chinese imports in 2018.
Some of the other main causes were:
▻ Low-priced consumer goods produced in China has been dominating American
importation over the years
▻ China can manufacture many goods at competitive prices because of two comparative
advantages: 1) lower wages and 2) a fixed/pegged exchange rate between RMB to USD.
▻ To keep export prices low, China buys a large volume of US treasuries. It has become
one of the largest lender nations to the United States, currently second only to Japan i.e.
China owns 16% of U.S public debt to foreign countries.
▻ Dispute over Intellectual Property Rights (IPR) and other unfair trade practise (e.g.
government-led industry policies).
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SAQ3
Discuss the impacts of US-China trade war on US economy, the Chinese economy, and the rest of
world.
The impacts on the U.S economy:
▻ Further escalation in trade tensions could dampen otherwise upbeat economic
sentiment in the U.S and disrupt business investment plans.
▻ U.S firms could lose out given their significant revenue exposure to China as well as
their deep integration into global supply chains - which often pass through China.
▻ A decrease in living standards.
The impacts on the Chinese economy:
▻ A full-blown trade war with U.S could severely harm China’s external sectors and
manufacturing industries.
▻ Economic instability could prompt the government to use its old recipes- cheap credit
and investments, to shore up growth, threatening the ongoing economic rebalancing.
▻ An increase in unemployment among low-skill workers.
What the statistics between US-China show:
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The impact on the rest of the world (i.e., such as Australia):
▻ Value of the Australian market has fallen again and again after the back and forth in
tariffs between US and China, falling $50bn in August 2019.
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SAQ4
Discuss the agreements made by US-China Phase 1 trade deal (15 Jan 2020).
▻ China agreed to increase purchases of American products and services by at least
$200 billion over the next two years.
▻ The United States will cut by half the tariff rate it imposed on Sept 1. on a $120 billion
list of Chinese goods, to 7.5%.
▻ The deal includes stronger Chinese legal protections for patents, trademarks,
copyrights, including improved criminal and civil procedures to combat online
infringement, pirated and counterfeit goods.
▻ China also agreed to refrain from directly supporting outbound investment aimed at
acquiring foreign technology to meet its industrial plans - transactions already
restricted by stronger U.S. security reviews.
▻ The currency agreement contains pledges by China to refrain from competitive
currency devaluations and to not target its exchange rate for a trade advantage.
▻ U.S. officials said the deal includes improved access to China’s financial services
market for U.S. companies, including in banking, insurance, securities and credit
rating services.
LAQ1
‘…there are no lasting friends, no lasting enemies, but only lasting interests…’
– Winston Churchill
Justify Churchill’s opinion by discussing US-China political and economic relations over the last century.
[Hint: discuss it by each U.S president over the years, i.e., Richard Nixon, Jimmy Carter, Ronald
Reagan, George Bush, Bill Clinton, George W. Bush, Bill Clinton, Barrack Obama, and Donald Trump].
While the relationship between the U.S-China relationship is complex, each U.S president has
influenced the relationship quite differently over the years.
Richard Nixon (1969-1974):
▻ From 21 to 28 February 1972, President Nixon travelled to Beijing, Hangzhou,
and Shanghai. At the conclusion of his trip, the US and the PRC issued the Shanghai
Communiqué, a statement of their respective foreign policy views.
▻ US acknowledged the PRC position that all Chinese on both sides of the Taiwan
Strait maintain that there is only one China and that Taiwan is part of China
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Jimmy Carter (1976-1980):
▻ In the Joint Communiqué on the Establishment of Diplomatic Relations, dated 1 January
1979, the United States transferred diplomatic recognition from Taipei to Beijing
▻ Vice Premier Deng Xiaoping's January 1979 visit to Washington initiated a series of
important, high-level exchanges which continued until the spring of 1989
Ronald Reagan (1981-1988):
▻ The Reagan administration (1981-1988) reinforced US commitment to strengthen
diplomatic relation with China by the passage of the Third Joint Communiqué in August
1982
o Allowed military purchases to be made by the PRC
o Cooperation I the field of nuclear energy
▻ After the 1989 Tiananmen Square conflicts, US government suspended military exports
and arms sales to China, imposed sanctions including cancellations of high-level visits by
US senior officials to the mainland
George Bush (1989-1992):
▻ However, the Bush administration (1989-1992) believed maintaining ties with China
remained important to US national interests
Bill Clinton (1993-2000):
▻ Under Clinton administration (1993-2000), Congress passed legislation to grant China
permanent trading privileges (MFN – Most favoured nation) - which led to China’s
accession to WTO on 11 December 2001
George W. Bush (2001-2008):
▻ During Bush administration (2001-2008), the war on terrorism and North Korea
reactivating one of its nuclear proliferation programs, made US to believe it needed
China, to support anti-terrorism and apply pressure on Pyongyang
Barrack Obama (2009-2016):
▻ During Obama administration (2009-2016), the relationship between two countries
witnessed mostly positive development in Obama's first term, but gradually became
characterized by more complex layers of dynamics and accompanied global-level threats
▻ During this period, Xi Jingping became the general secretary of CPC in 2012 and
President of PRC in 2013
▻ Two issues emerged: territorial disputes in the South China Sea and the high level of
tension caused by a huge trade deficit in their trade relationship.
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Donald Trump (2017-now):
▻ Trump administration (2017-2020): raised the allegations against the Chinese government
in the following areas:
o Unfair trade practices: theft of intellectual property and forced transfer of
American technology to China – which leads to growing trade deficit
o State-led industry policies which give SOEs unfair advantages in competing with
American companies
o Violation the freedom of navigation in the South China Sea;
▻ On 4 October 2018, Vice President Pence stated to the press that a new approach in
dealing with China's excesses would be taken, officially ending the era of strategic
engagement and transitioning into strategic competition.
▻ Under Xi Jingping administration, China abandoned the strategic principle of ’hide one‘s
light under a bushel, keep a low profile’ coined by Deng Xiaoping, and become more
aggressive and assertive:
o Made in China 2025: a state-led industrial policy that seeks to make China
dominant in global high-tech manufacturing. The program aims to use
government subsidies, mobilize state-owned enterprises, and pursue intellectual
property acquisition to catch up with—and then surpass—Western technological
prowess in advanced industries.
o Belt and Road Initiative (BRI)
o Huawei’s aggressive 5G world-wide deployment
o “Wolf-warrior” attitude in diplomatic relations
▻ Beijing consensus (state-led, government intervention) versus Washington consensus
(laissez faire, free-market).
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