INTERNATIONAL POLITICAL ECONOMICS REPORT topic ANALYSIS OF THE GLOBAL POLITICAL ECONOMIC IMPACTS OF US CHINA TRADE WAR

FOREIGN TRADE UNIVERSITY
FALCUTY OF INTERNATIONAL ECONOMICS
-----------------o0o-----------------

INTERNATIONAL POLITICAL ECONOMICS REPORT
Topic:

ANALYSIS OF THE GLOBAL POLITICAL
ECONOMIC IMPACTS OF US-CHINA
TRADE WAR
Class: KTEE303.1
Supervisor: M.S. Le Kieu Phuong

Student name
Vu Thi Thu Lan
Bui Thao Mai
Than Ngoc Quyen
Ngo Hai Yen
Nguyen Viet Anh
Le Phuong Anh

March 2022,


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TABLE OF CONTENT
INTRODUCTION.............................................................................................................................. 3
CHAPTER 1. LITERATURE REVIEW AND THEORETICAL FRAMEWORK.............4
1.1. Definition................................................................................................................................. 4

1.1.1. International political economy................................................................................. 4
1.1.2. Trade war......................................................................................................................... 5
1.2. Methodology........................................................................................................................... 6
1.2.1. Three main perspectives in IPE................................................................................. 6
1.2.2. Four structures in IPE.................................................................................................. 9
1.2.3. Four levels of analysis in IPE..................................................................................... 9
CHAPTER 2. ANALYSIS OF THE GLOBAL POLITICAL ECONOMIC IMPACTS
OF US-CHINA TRADE WAR...................................................................................................... 10
2.1. Overview of the US-China trade war.............................................................................. 10
2.1.1. Causes of US-China trade war................................................................................. 10
2.1.2. US-China trade war timeline................................................................................... 11
2.2. Economic and political impacts of the trade war on a global scale........................13
2.2.1. Economic impacts........................................................................................................ 13
2.2.2. Political impacts.......................................................................................................... 17
2.2.3. Political economic impacts on a global scale...................................................... 18
2.3. Evaluation.............................................................................................................................. 22
CHAPTER 3. RECOMMENDATIONS AND FORECAST.................................................. 23
3.1. Actions have been done in order to de-escalate the trade war.................................. 23
3.1.1. “Phase One” trade agreement........................................................................... 23

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3.1.2. Biden Administration’s strategic plan on reformulating U.S.-China trade
policy 25
3.2. Forecast.................................................................................................................................. 26
3.3. Recommendations for Vietnam........................................................................................ 29
CONCLUSION................................................................................................................................. 30

REFERENCE.................................................................................................................................... 31

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INTRODUCTION

In January 2018, U.S President Donald Trump began setting tariffs and trade
barriers on Chinese goods in response to unfair trade practices by China. The U.S
subsequently increased tariffs on thousands of products from China between 2018-2019,
ultimately targeting roughly $350 billion of imports from that country. This prompted
China to retaliate against the decision by imposing tariffs on more than 128 U.S
products on April 2 of the same year.

This started a trade war between the world's two most powerful economies. In
China, there is a sense that the US is attempting to stifle its rise. The negotiations are
still going on, but they've been challenging. The two sides continue to disagree on
matters such as how to scale back tariffs and enforce a deal. The uncertainty is affecting
businesses and dragging on the global economy; fears of a worldwide economic crisis
have also risen as a result of the trade war's influence on the world, as well as political
instability, particularly the dispute between the United States and Iran.

According to an IMF report, an escalation in the US-China trade war will harm
both countries' manufacturing industries and is likely to result in job losses, but it will
have no effect on the two countries' overall trade balance, the IMF said in its April
Global Economic Outlook report that the US and China would suffer "heavy"
manufacturing losses, with production capacity shifting to Mexico, Canada, and East
Asia if tariffs rise to 25 percent on all products flowing between the two countries.

In this paper, we aim to examine the trade war between the US and China and
analyze its profound impacts on the international political economy, thereby providing
forecasts and recommendations for Vietnam so that we can proactively avoid risks as
well as take advantage of opportunities that this trade war brings.

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CHAPTER 1. LITERATURE REVIEW AND THEORETICAL FRAMEWORK
1.1. Definition
1.1.1. International political economy
IPE is concerned with the way in which political and economic factors interact at
the global level. More specifically, political economists usually undertake two related
kinds of investigations. The first concerns how politics constrains economic choices,
whether policy choices by governments or choices by actors or social groups. The
second concerns how economic forces motivate and constrain political choices, such as
individuals’ voting behavior, unions’ or firms’ political lobbying, or governments’
internal or external policies. (Krasner, 1999)
An example of the first kind of investigation is provided by the European Union’s

policies protecting domestic agriculture and restricting trade in agricultural products.
The EU’s resistance to the liberalization of such trade, as demanded by agricultural
exporting countries, may stem from the political organization of farm lobbies, the sympathy
of urban consumers for the plight of national farmers (which may in turn stem

from a concern to protect a national identity or way of life), a desire to promote
“food security,” or perhaps other factors. The political economist’s task is to

investigate which of these factors matter in explaining the EU’s stance in
negotiations over trade in agriculture.
An example of the second kind of investigation is provided by the claim that
growing financial integration between countries has constrained the political choices of
left-of-center governments more than those of right-of-center governments. Global
financial integration makes possible the movement of capital to environments investors
find most congenial. Has the threat of capital flight encouraged such left of-center
politicians as Brazil’s President Lula (Luiz Ina´cio da Silva) and Britain’s Gordon
Brown to adopt “conservative” economic policies to reassure panicky investors?
Manifestations of this phenomenon might include political pledges to pursue fiscal
balance, to limit or reduce taxes on capital, and to place responsibility for monetary
policy in the hands of politically independent and conservative central bankers. Do
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financial markets systematically punish left-wing financial policies? Is the asserted shift
in policy by leftist political figures a myth? If it is real, is it due to some factor other
than capital mobility? These have been popular questions for political economists in
recent years.
As we shall see, asking how politics and economics interact makes good sense.
Economic outcomes have political implications because they affect opinions and power.
For example, where individuals or groups fall in the hierarchy of wealth influences their
political preferences. Similarly, decisions about economic policies are almost invariably
politicized because different choices have different effects on the distribution of wealth.
Political power is therefore a means by which individuals or groups can alter the
production and distribution of wealth, and wealth is a means of achieving political
influence. Although the pursuit of wealth is not the only motivating factor in human
behavior, it is an important one, and often the means by which other goals can be

achieved. In short, economic and political factors interact to determine who gets what in
society.
1.1.2. Trade war
A trade war is an economic policy that is instituted when one country responds to
a trade imbalance by raising import tariffs on the goods and services from one or more
countries. A tariff is essentially a two-way tax. If country A imposes a tariff on sugar
from country B, then country B will have to pay country A more money to import its
sugar. However, country B will attempt to offset the effect of this tariff by raising the
price of sugar making it more expensive for the companies in country A to use country
B’s sugar to make its products.
In addition to tariffs, countries can take other measures to place restrictions on
imports from foreign companies. Contrary to the conventional notion of a war with at
least two opposing sides, a trade war can be unilateral. An example of this is an ongoing
trade war between the United States and Japan. The United States placed a tariff on
some items, including some vehicles, many years ago. However, to date, Japan has
refused to retaliate.

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At their core, trade wars are born out of a protectionist government policy, which
can be defined as a government taking actions and making policies that restrict free and
fair international trade. The two most common reasons for a country to take
protectionist policies are
•

To protect domestic businesses and jobs from foreign competition

•

To balance a trade deficit (for example when one country’s imports exceed
the amount of its exports)

1.2. Methodology
In this article, we will examine the trade war between the US and China and
analyze its profound impacts on the international political economy according to 3 main
perspectives, 4 levels of analysis based on 4 structures.
1.2.1. Three main perspectives in IPE
The three dominant perspectives of IPE are economic liberalism, mercantilism,
and structuralism. Each focuses on the relationships between a variety of actors and
institutions. First, it is necessary to note that the three perspectives developed during
different periods. Mercantilism existed between sixteens and the late eighteenth
centuries (Balaam & Dillman 2012). Liberalism replaced this perspective in the 18th
century and was primary during the 19th century. However, structuralism came into
being in the 19th century and many people utilized this perspective.
•

Mercantilism
Mercantilism, also termed economic nationalism, or statism, is the oldest

approach of IPE. Mercantilism is the equivalent in the field of IPE of the realist
approach of mainstream international relations. Mercantilism, like realism, shares an
anarchical view of the world. In this context, mercantilism states that each state strives
for survival, at minimum, and universal domination, at maximum (Donnelly, 2005).
Moreover, mercantilism points to an intimate connection between power and wealth, as
the marginal acquisition of wealth generates more power (O'Brien & Williams, 2004). It
holds that the state is the central instrument through which individuals can fulfil their
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goals of achieving security and prosperity. Thus, economic policy should be directed
toward creating wealth and power to enhance the independence and national security of
the state (Balaam & Veseth, 1996).
Mercantilism sees the pursuit of power and wealth as a zero-sum game – one
state's gain is another state's loss. Furthermore, for mercantilism, the market and market
relations are shaped by political power. Hence, economic activity is subordinated to
political goals and objectives (O'Brien & Williams, 2004; Gill & Law, 1988; Keohane
& Nye, 1989).
•

Liberalism
The liberal approach draws considerably from the field of economics, in

particular from theories such as comparative advantage as well as supply and demand
and the operation of markets (O'Brien &Williams, 2004; Burchill, 2005; Gill & Law,
1988). In contrast to mercantilism, liberalism has a more idealistic vision of the world.
Liberals tend to minimize the role of force and coercion in human affairs and emphasize
the ability of individuals to cooperate in order to achieve mutually beneficial gains.
Liberals perceive interactions between individuals as a positive sum game – each party
to the game wins (Burchill, 2005; Gill & Law, 1988). Therefore, liberalism places a
greater premium on the freedom of the individual and the creation of wealth through the
free operation of markets. Liberalism holds that individuals in pursuit of self-interests
maximize the benefits of economic exchange for society (O'Brien & Williams, 2004).
Moreover, Liberalism also holds that cooperation between individuals and
nations reduces the potential for violent conflicts, as trade and foreign investments
decrease the power of war-orientated elites and unite citizens of different nations in a

common and peaceful enterprise (Burchill, 2005; Gill & Law, 1988).
Finally, liberalism shows a distaste for the state, which is perceived as inhibiting
the entrepreneurial spirit of individuals as well as the virtues of markets. For 18thcentury liberals such as Smith and Ricardo the state should be confined to providing
minimalist functions such as security and order (Balaam & Veseth, 1996). However, the
19th- century liberal Mill advocates a more robust role of the state in markets in order
to reduce inequalities by providing social services such as education to the poor.
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In the domain of international political economy, liberalism promotes free trade
between nations. Today, the global economy is largely governed by liberal principles.
The international trade regime is based upon the principle of free trade; capital
circulates around the globe without great difficulty and all forms of economic activity
are increasingly liberalized (O'Brien & Williams, 2004).
•

Structuralism
The third theoretical approach that has dominated the field of IPE is the

structuralist approach. The structuralist approach is also referred as the critical
approach, since it aims to question the way in which the world is organized and
eventually change it (O'Brien & Williams, 2004; Gill & Law, 1988). The structuralist
approach is rooted in Marxist theories and attempts to address structural problems that
are overlooked by both mercantilism and liberalism (O'Brien & Williams, 2004; Balaam
& Veseth, 1996; Gill & Law, 1988). Although rooted in Marxist theories, the
structuralist approach is evident in several theories such as Marxist theories, neoGramscian theories, feminist and environmental theories.
In the domain of international political economy, the structuralist approach
perceives the structures of the global economy as conflictual and hierarchical, and

hence favorable to the interests of global capital, the West and the leading capitalist
power, the United States (O'Brien & Williams, 2004). In this context, economic
relations are viewed as zero-sum game – since the structure of the global economy is
fundamentally conflictual. The structuralist approach holds that conflict within the
sphere of international political economy manifests itself within as well as between
states, opposing dominant forces to subordinate classes (O'Brien & Williams, 2004).
It is possible to note that the three perspectives have certain similarities and
differences. As for similarities, they all focus on such concepts as power, wealth, production
and distribution. It is also important to note that mercantilism stands out against the other
two perspectives. It is based on the idea of wealth accumulation through export of
resources. The other two perspectives focus on development of the market, technology,
production. The three perspectives are also different in their attitudes towards the state
control. Mercantilism and structuralism support the idea while

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supporters of liberalism are ardent opponents of the control. It is also necessary to add
that liberalism and structuralism are still found in the contemporary world and it still
quite unclear which of these two perspectives is the most efficient.
1.2.2. Four structures in IPE
•

Production and Trade
We will analyze the trade relationship between the US and China according to

historical milestones and explain the causes, ways and consequences that this trade war
has affected production and trade. The actions and policies had been put in place for

production and trade in the face of the effects of this war.
•

Monetary and Finance

We clarify the ways regulations, laws, financial barriers, globalization stemming
from the US-China trade war affecting the movement of money.
•

Knowledge and Technology
We discuss intellectual property, technology transfer between countries through

international trade relations. Its effect on security, production and trade, finance and
monetary.
•

Security

We consider the economic contradictions between countries that are always
accompanied by the risk of war, domestic and international security.
1.2.3. Four levels of analysis in IPE
•

Individual level
This is the narrowest level of analysis, explaining why an individual (usually the

head of a country) chooses a particular policy. This level emphasizes the psychology
and choices of policy makers.
•

State-societal Level

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This level looks at how different governments/parties within a country affect
how that country interacts with other countries.
•

International Level

This level examines whether the relative balance of political, military, and
economic power affects the likelihood of conflict, prospects for cooperation, etc.
•

Global level
These are important global factors such as changes in technology, commodity

prices, climate creating barriers and opportunities for all countries.
In addition, we also have the interstate level, which is a narrower level of the
international state, and it is limited to the relationship between a few countries instead
of most of the world.
CHAPTER 2. ANALYSIS OF THE GLOBAL POLITICAL ECONOMIC
IMPACTS OF US-CHINA TRADE WAR
2.1. Overview of the US-China trade war
2.1.1. Causes of US-China trade war
2.1.1.1. Economic cause

The trade war is supposed to reduce the deficit of bilateral trade and bring
American jobs back home. Out of the $796 billion worth US trade deficit in 2017,
China accounted for $376 billion, or 47%, almost a half. The US acknowledges several
problems in the trade with the PRC, the trade balance deficit being the most important
one. The issue has been emerging for decades and still has an increasing trend (although
the US trade deficit with China reached a historic low in May 2019). The US does not
consider trading with China "fair".
The trade war is supposed to reduce high-tech capacity of China. The US is not
satisfied with China’s requirements on creating joint ventures for technology transfer as

a contribution to be authorized share capital of local companies. Another sensitive topic
is Chinese public investment creating unfair competition in global markets. The US has
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been alerted by China's success in implementing a strategic plan for production
modernization, increase in production of robots, lithium batteries, network equipment,
etc. The US has increased import tariffs up to 25% on electronic products from China,
including telecommunication and network equipment.
2.1.1.2. Political cause
The trade war is supposed to prevent the growth of China’s military strength.

Markov believes that it is absolutely unacceptable for the US to let China achieve
superiority in the military sector, even in the long run. Consequently, the US is taking
measures to ensure its competitive advantage in the national security sector and to
prevent China from using American dual-use technologies. Above all, trade war is not a
result of political containment, but a consequence of economic issues.
2.1.2. US-China trade war timeline

Date
July 06, 2018

August, 2018

September,
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October,
November,
December,
2018

June, 2019

September,
2019

October, 2019

January 15,
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technology transfer, food and agricultural products, financial
services, exchange rate matters and transparency, and expanding
trade, with reference also being made to bilateral evaluation and
dispute resolution procedures.
May 12, 2020

China announced a second round of tariff exclusions for 79
American imports, including ores, chemicals, and certain medical
supplies.

September 1,

Several dozens of Chinese imports into the United States, including

2020

disposable facemasks, respirators, Bluetooth tracking devices, and
musical instruments, have been granted temporary extensions to
existing tax exemptions until the end of 2020.

February 18, USTR According to Katherine Tai, the Biden administration will 2021
– October 'leave the possibility of new exclusion processes open, as some
4, 2021
November 15,
2021
December,

tariffs are inflicting significant commercial harm to US interests.
In a video conversation, Chinese President Xi Jinping meets the US
virtually counterpart Joe Biden amid deepening US-China divide.

Phase One trade deal expired.

2021
2.2. Economic and political impacts of the trade war on a global scale
2.2.1. Economic impacts
When the trade war occurs, it’s not the problem of just two countries but the

whole world because it weakens the entire global economy and undermines the lives of
its people. At the point when one country retaliates against other countries through
imposing restrictions and tariffs on trade, as a result, the price of goods will increase,
then some countries get great losses, while others benefit from it. Therefore, trade
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disputes are always a controversial topic that many countries as well as economists
interested in.
The trade dispute between China and the United States dates back to 2018 when
President Donald Trump raised tariffs on a few large import items–washing machines,
solar panels, steel, and aluminum. While these tariffs did not discriminate by origin, it
soon became apparent that US trade policies were targeting China. In September 2018,
the United States imposed duties on $200 worth of Chinese imports, from 10% to 20%.
Hence, China retaliated over several tariff waves, targeting about $100 billion of US
agriculture exports. Therefore, it seemed that the two parties signed an agreement to halt
further tariff escalations in January 2020, but the existing tariff was retained in place as
of 2021.
As the trade war broke out, the economy of the United States and China is
heavily affected as well as some large economies such as Mexico, the European Union
(EU) and Canada. The import and export trade values were reduced, which leads to the

decline in economic indicators (GDP, CPI) and some economic problems such as
unemployment. This research paper will contain some key effects on the economy
caused by the US-China trade war:
•

Reducing trade flow between China, the United States, and some countries:
After many trading decades, the US-China trade has taken a big step back. Due

to high tariffs imposed and other problems related to trading, the war between China
and the United States has significantly reduced the US market share in Chinese imports
as well as the consumption of China products in the US market. China's imports from
US manufacturers have also plummeted by more than 25% compared to the same period
last year. Meanwhile, the value of US exports to China has fallen by more than $100
billion. In November 2019, the trade deficit between the two countries remained at $360
billion, which is not a significant number but it partly reflects the trade tensions between
the two countries. This trading situation also affects manufacturing and service
companies involved in import and export. Small companies did not have enough budget
to get over the crisis and had to shut down while larger distributors need to find ways to
reduce costs or price levels. Furthermore, because of the rapid decentralization of
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production and high price result from the trade dispute, the demand for goods has
decreased. Consequently, there is no motivation for trading, which makes the situation
even worsen.
Not only affects the world's two leading economies, a large number of Asian and
European countries are also affected by trade disputes. For example, due to high trade
openness and close participation in supply chains between US and China, some

countries such as South Korea, Malaysia, Taiwan, and Singapore are believed to be at
high economic risk.
On the other hand, the value of imports from the European Union (EU) has
almost stagnated, with an average annual growth rate of more than 10%. In general, the
increase in tariffs by Chinese and American companies has had a negative impact on
their respective companies.
•

Increasing the price and decreasing the demand:
In the United States, tariff increases, similar to sales taxes on imported goods,

are imposed on American purchasers as cost increments. Customers and manufacturers
are responsible for paying for the increased price of goods. This will ultimately harm
competitiveness and reduce demand for goods. Therefore, the total import and export
volume of the US decreased.
Nonetheless, although the tariffs have increased the prices of Chinese goods, the
direct effect of the duties on manufacturers is relatively small. The reason for this is that
the Chinese government has exempted some intermediate inputs, which makes the price
of goods not rise so fast as well as put a little burden on the Chinese consumers and
manufacturers. Moreover, China has expanded its market share in other markets, so
China exported successfully.
•

Global GDP growth slows down:
As the United States continued to impose tariffs on Chinese imports, the trade

dispute escalated further. Merchandise exports from the US to China account for less
than 1% of GDP and 8% of total US exports. Meanwhile, China's exports to the US
account for nearly 4% of GDP and 20% of its exports. Value-added from exports to the
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US account for 3% of China's GDP. Therefore, it’s believed that China gets more
lost than the US after the trade war. However, both these countries are negatively
affected in GDP by the trade war, which is equivalent to about 5.5% of China’s
GDP and 3.6% of US GDP respectively. Moreover, by the end of 2019, the US and
China had imposed 20 percent import tariffs on more than 60 percent of bilateral
merchandise trade turnover, resulting in the reduction of the global GDP growth in 2019
by an average of 0.5 percentage points and it can be illustrated as the figure below:

Figure: World GDP growth affected by US-China Trade War
Source: Knoema, World Bank data

In addition, the extent of the slowdown in global growth is also influenced by
economic policy reactions, for instance, the degree to which monetary and fiscal
stimulus is assumed to support the economy.
•

US’s manufacturing export suffered a big loss:
As retaliation conduct by the Chinese government, the tariffs have adversely

affected the US manufacturing industry. It can be explained by the fact that many US
companies imported raw materials and inputs from China to produce final products;
however, the deterioration of relations between these two countries forces many US
companies, as well as many other large economies such as EU, need to bear a larger
share of tax or look for new alternatives. Both these options increased the expense a lot

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and bring disadvantages for the development of many companies in manufacturing
industries.
In addition, US manufacturers have lost a huge share in the Chinese market
because after the US imposed high tariffs on Chinese goods, China retaliated by
introducing tariffs of its own. As a result, these manufacturing companies lost the
domestic market in the US and the international market in China. Besides, their
competitiveness in the international market is significantly reduced compared to the
third countries when the production cost is too high and they cannot adjust it due to the
increase in input prices.
•

A decrease in financial and currency market:
The US-China trade dispute has also brought about enormous changes in the

finance and currency market. The yuan's exchange rate against the US dollar has
depreciated. With the retaliation of these two superpowers in the world, global financial
markets have plunged, many major currencies have lost value, stock indexes have
plummeted, causing serious damage to the global economy. According to many
economic experts, the "double" war - a trade war associated with a currency war - not
only hurts the US and China but also negatively affects the international financial order;
hence, it could cause instability in global financial markets, even became risker when
pushing the world economy into a new recession.
Furthermore, the stock market has become chaotic when investors' psychology
became confused and worried about the news of the US-China trade war. In addition,
the currency war with China could undermine the central role of the US in the world
financial system. Therefore, most stock indexes across the globe have been on a

downtrend since the US launched the trade war.
2.2.2. Political impacts
The US-China trade war also resulted from political conflicts with the goal of
"America first" in the protectionist trade policy of the Trump administration and the
competition to become the most superpower country in the world between China and

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the US. Therefore, the trade war had some significant impacts on the global political
situation.
On the US side, the higher costs of imported products from the original tariffs,
plus declining sales overseas because of the retaliatory tariffs imposed by trading
partners, harmed certain groups and areas of the country more than others. If voters in
these areas blamed Republicans for their economic distress, it is possible that
Republicans would have lost votes. That needs an appropriate response from the Trump
administration to stable the political as well as economic situation within the United
States.
On the China side, except for the economic field, the issue of Taiwan, Hong
Kong, and relations with the US are the three major challenges for the Chinese
government from the beginning of 2009. The political distance between the two sides of
the Taiwan Strait became even further when the Taiwanese ruler did not recognize the
"One-China" policy. Under Trump, the US Navy in 2019 intensified freedom of
navigation operations in the Taiwan Strait, which indirectly affect China's plans, and
consequently, the relationship between the US and China becomes worsened.
In addition, the international political situation had certain fluctuations. A typical
example is that EU- the largest trading bloc and also the top trading partner of the US
and China is facing a difficult situation after President Trump increased pressure on

Beijing earlier this month - especially the decision to sign an executive order banning
Chinese telecommunications company Huawei from accessing the US supply chain.
Therefore, EU is in danger of being fragmented because of different political decisions
under pressure from China and the US.
2.2.3. Political economic impacts on a global scale
Besides imposing tariff targeting mainly on China, these tariffs still affect goods
from some large economies such as Mexico, the European Union (EU), and Canada. On a
large scale, when the wars break out, the global political economy, including Vietnam's
economy will be affected in some ways. As calculated, of the 15 countries with the largest
change in US imports in 2019, 11 increased while only 4 decreased. For China's

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imports, 7 countries changed up and 8 countries changed down. The research paper
focuses on the world aspect as well as the effect on Vietnam in specific:
•

World:

After the US-China trade war, the global trade picture can be visualized as
follows:
•

The European Union:
The EU, the third major economic region along China and the USA, called parties to

negotiate. Because it’s obvious that the US-China trade war has benefited very little to

European economic sectors opened to noninstitutional, private consumers in tourism,
residential real estate, and education. Chinese companies seem not to favor European
countries over the USA for investment, but China’s direct investment deceleration in the

EU is slower than in the USA. Moreover, a report conducted by a survey among
European companies in China showed that nearly 54 percent of European companies in
China considered US tariffs on Chinese goods negatively, and 42.9 percent of these
companies said China’s tariffs on American imports negatively affected their activities;

as a result, the European economy is negatively affected in some ways. However, it’s
believed that the US-China trade war may create opportunities for EU member states.
Among EU member states, Germany and France would be the most likely to benefit from
this dispute according to Barclay. European companies may gain market share in China,
thanks to trade substitution caused by tariffs (Smith, 2019). According to UNCTAD’s
estimations, EU exports will benefit from the escalation of the US-China trade war,
with the capture of $70 billion ($50 billion of Chinese exports to the US and $20 billion of
US exports to China). Besides, many European countries are expanding their trade with
China as many EU members found economic benefits in sticking closer
with China in ‘BRI’ trade and investment projects. Therefore, this shows that the EU is

moving towards a completely new model of cooperation when promoting trade with
other economies.
•

Latin America Region:
This region is unequally affected and has not benefited much from these trade

tensions. While some sectors received an increase, soybean production in Brazil and
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Mexico for example, other sectors, and many countries suffered from loss. As
noticeable, the uncertainties in global demand, trade, and investment during the peak of
the US-China trade war (2018-2019) further exacerbated the downward trajectory of
commodity prices. Moreover, other consequences resulting from the US-China trade war
included: the worsening debt situation of many countries, the increase in unemployment
and poverty rate; serious problems from industrial emissions and environmental
pollution. Therefore, Latin America is at risk of becoming a market for cheap counterfeit
goods of the large countries. Besides, America's nationalist, protectionist and antiimmigration policies under President Donald Trump have pushed Venezuela, Cuba, and
many leftist countries into a "whirlpool" of instability both economically and politically.
•

Asia region:
When the world's two largest economies continuously retaliated against each

other with tariff measures, Asian countries are more or less affected in many ways, both
positive and negative. On the positive side, Asia's low-cost manufacturing hubs will
benefit as many big companies tend to move their production or supply out of China in
order not to bear high tariffs and taxes. In fact, in recent years, many enterprises have
relocated their production bases from China to Vietnam, Cambodia, India, Indonesia,
etc. This trend of shifting seems to have accelerated as the US-China became worsened.
According to the results of a survey by the American Chamber of Commerce in China,
more than 40% of US companies operating in China are considering or have moved
production facilities to other countries, which mainly accumulated in Southeast Asia.
Meanwhile, some Asian countries are believed to benefit from the production
allocations due to the US-China trade war, the countries considered as the "Asian tigers"
are likely to suffer a lot from the loss. Economies that rely heavily on trade and
transshipment such as Singapore and Hong Kong, or highly developed economies such

as South Korea and Japan, got many disadvantages. The high cost of labor is one of the
disadvantages for these countries to become destinations for the production allocations
out of China. As estimated, in 2019, Singapore saw exports decline for the second
consecutive month when it fell 17.3% in June compared to the same period last year,
second-quarter growth decreased by 3.4% compared to the previous quarter. South 20

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Korea's GDP growth fell by about 0.4% in 2018, and Taiwan and Singapore fell by
about 0.5%.
•

Vietnam
The Chinese goods being imposed taxes by The US are among the export

strengths of Vietnam. Therefore, this may be a good opportunity for Vietnam to capture
market share. As estimated, in April 2019, Vietnam showed a 29 percent increase in USbound export year-on-year.
Furthermore, foreign direct investment (FDI) inflows into Vietnam may increase
when FDI inflows into countries bearing high taxes imposed by the US tend to slow
down. Evidence for that is capital contributions from foreign investors were up to 215
percent, largely in manufacturing. In addition, many Chinese projects with a large scale
of over 200 million US dollars have been deployed concentratedly in Southern
provinces such as Tay Ninh, Binh Duong, etc. Meanwhile, some big corporations and
companies tend to shift out of China or broaden their markets to include Vietnam. With
trade tensions between China and the United States projected to worsen, the trend of
international investors flocking to Southeast Asia and India is expected to increase. Due
to the tripling of Chinese manufacturing salaries over the previous seven years,
multinational corporations such as Foxconn, Samsung, and Daikin are already
establishing new plants in Vietnam rather than China. As a result, the recruitment

demand is also increasing and this is a good sign for the Vietnam labor market. In short,
Vietnam stands to profit a lot from the US-China trade war.
Besides the positive impact on trade, Vietnam also suffered some disadvantages
from the US-China trade war. Although Vietnam's economy is quite open and highly
dependent on exports and imports, of which China and the US are the two largest
foreign trade partners of Vietnam. Therefore, when two major partners have conflict, it
would cause certain impacts on Vietnam's import and export activities. The US-China
trade war also increases the risk of trade deficit of Vietnam with China in a short time.
Due to its geographical location, the excess amount of Chinese goods will flow to the
Vietnamese market, putting competitive pressure on prices for Vietnamese businesses.
Besides, exporting goods from Vietnam to China would be more difficult because China
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preferred to focus on consuming domestic goods. Additionally, there are also worries
about China labeling products with 'made in Vietnam' to avoid US tariffs. If Vietnam
does not strictly control this issue, it is likely that the US would impose tariffs on
Vietnam products like China's.
In addition to the impact on the Vietnamese economy, the US-China trade war
also has impacts on Vietnam's financial and currency markets, especially the stock
market. Many industry groups would get benefits in the short term, such as real estate,
textiles, and food, but in the long term, Vietnam will still suffer negative impacts when
the stock market became chaotic. The proof of that is the continuous net selling of
foreign investors, making Vietnamese investors' sentiment become more cautious.
2.3. Evaluation
This battle is the result of economic trends prompted by policy changes, populist
ideologies, and new forms of protectionism based on economic strength, which stem
from global geo-economic and geopolitical factors. One party implements measures

against the other, the other reacts with proportional measures, and the escalation in
mutual sanctions expands to other areas.
In the framework of present globalization, a bilateral trade war between the two
powers will, of course, affect other economies. Each side will aim to entice allies or
countries that are under their authority. On the economic front, the battle between the
two main economic powers will be broadcast throughout the world. Stock indices
around the world plummeted when Trump signed an order imposing tariffs on Chinese
goods. This battle will harm the global economy, and each country will prioritize its
own interests. This is also the cause of the contagion of the trade war.
The trade war between the United States and China has wreaked havoc on the
global economy. Global GDP growth slowed as the global economy still struggled to
recover from the 2008 financial crisis and faced significant changes since the Industrial
Revolution 4.0 and the Green Revolution.
The shift in geoeconomics from the North Atlantic to the Pacific is at the root of
the problem. The US recognizes the significance of this transition, and it recognizes that
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if it wants to maintain its position as the world's top economic power, it must first show
its presence in the Pacific.
The United States has long viewed China as the source of all its trade problems
and the source of its trade deficit. China is a source of concern for the United States not
just in terms of trade, but also in terms of economic restructuring and industrial strategy.
In recent years, China has developed a strong manufacturing industry, which has put it
in direct competition with US goods. China has two axes that allow it to control the
global economy.
For developed nations, the most significant of which is the United States, the first
axis is that China sells inexpensively, often dropping prices to win market share. China

leverages the "One Belt, One Road" concept and FTAs with other nations to help nearby
countries.
The US wants to keep dominating the global economy by reducing Chinese
competition in future technological industries and beyond. In reality, imposing tariffs
and trade restrictions on China are just the tip of the iceberg for the US to accomplish its
long-term economic and political objectives.
CHAPTER 3. RECOMMENDATIONS AND FORECAST
3.1. Actions have been done in order to de-escalate the trade war
3.1.1. “Phase One” trade agreement
On January 15, 2020, President Donald Trump and China’s Vice Premier Liu He
signed a “Phase One” trade agreement. It forms part of an effort to resolve trade tensions

that have been ongoing since March 2018
•

Tariff Reductions
As a concession, the Trump Administration agreed to lower tariffs from 15 percent

to 7.5 percent on an announced $120 billion worth of U.S. imports from China. In addition
to announcing tariff reductions on January 15, during negotiations the Trump
Administration also suspended planned tariffs on about $180 billion of U.S. imports,

which had been set to take effect in mid-December 2019. Likewise, China’s State
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