The effects of US-China trade war and Trumponomics

Evans, Olaniyi (2019): The effects of US-China trade war and Trumponomics. Published in: Forum Scientiae Oeconomia , Vol. 2, No. 1 (2019): pp. 47-55.

Abstract

Trumponomics describes the economic policies of U.S. President Donald Trump and has “America-first” approach. The Trump administration risks creating a more fragmented global economy and has started the biggest global trade war. The various sides are still on tenterhooks to impose additional tariffs worth hundreds of billions of dollars. Using deadweight loss (also known as excess burden or allocative inefficiency) and Harberger's triangle, this study shows that: the trade war is devastating not just for the US and China, but for the whole world economy: (i) the prices of items that directly affect consumers’ welfare will rise; (ii) firms will face extra costs for exports; (iii) investors will become more nervous; (iv) some investors will diversify into Bitcoin and other cryptocurrencies; (v) the trade war could turn into a currency war; (vi) even developed countries could be hit by the trade war; and (vii) tariffs applied on developing countries’ exports would rise steeply. In a trade war, everyone may lose.

• Item Type: MPRA Paper
• Language: English
• Keywords: Trumponomics, US-China Trade War, Consumers, Stocks, Cryptocurrency, Brexit
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance; F - International Economics > F6 - Economic Impacts of Globalization; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; P - Economic Systems > P0 - General

References

Abboushi, S. (2010), Trade protectionism: Reasons and outcomes, Competitiveness Review: An International Business Journal, 20(5): 384-394. DOI: 10.1108/10595421011080760.

Alden, E. (2018) Trump: Reckless free trader or genuine protectionist?, Intereconomics, 53(4): 239-240.

Biswas, A. K., Sengupta, S. (2015), Corrupt importers, domestic producers & welfare: role of trade policy, Economics & Politics, 27(3): 459-487. DOI: 10.1111/ecpo.12065.

Blinder, A. S. (2016). Financial entropy and the optimality of over-regulation. in the new international financial system: Analyzing the cumulative impact of regulatory reform Eds: Douglas D Evanoff, Andrew G Haldane, George G Kaufman (pp. 3-35). World Scientific, Singapore.

Chen, B., Ma, H. (2012). Trade restrictiveness and deadweight loss in China’s imports. Frontiers of Economics in China, 7(3): 478-494. DOI: 10.3868/s060-001-012-0021-3.

Chow, D. C. (2017). Can the United States impose trade sanctions on china for currency manipulation? Washington University Global Studies Law Review, 16, 295.

Costinot, A. (2009). Jobs, jobs, jobs: a “new” perspective on protectionism. Journal of the European Economic Association, 7(5): 1011-1041. https://doi.org/10.1162/JEEA.2009.7.5.1011.

Coughlin, C. C. (2010). Measuring international trade policy: a primer on trade restrictiveness indices. Federal Reserve Bank of St. Louis Review, 92(5): 381-394.

Coughlin, C. C., Chrystal, K. A., Wood, G. E. (2000). Protectionist trade policies: A survey of theory, evidence, and rationale. International political economy: perspectives on global power and wealth, Ed: Jeffry A. Frieden, 308-317, Routledge, London, UK.

Dixon, P. B., Rimmer, M. T. (2010). Optimal tariffs: should Australia cut automotive tariffs unilaterally?. Economic Record, 86(273): 143-161. https://doi.org/10.1111/j.1475-4932.2009.00599.x.

Draper, T. (2017). American business and public policy: The politics of foreign trade. Routledge, London, UK.

Feldstein, M. (1999). Tax avoidance and the deadweight loss of the income tax. Review of Economics and Statistics, 81(4): 674-680. https://doi.org/10.1162/003465399558391.

Findlay, R. M. (2017). Britain under protection: an examination of the government's protectionist policy. Routledge, London, UK.

Fletcher, I. (2011). Why the theory of comparative advantage is wrong. International Journal of Pluralism and Economics Education, 2(4): 421-429.

Fong, G. R. (2017). Export dependence versus the new protectionism: constraints on trade policy in the industrial world. Routledge, London, UK.

George, H. (2017). Protection or free trade: an examination of the tariff question, with especial regard to the interests of labour. Routledge, London, UK.

Ghosh, J. (2017). Trumponomics and the developing world. New agenda. South African Journal of Social and Economic Policy, 2017(67): 42-46.

Harberger, A. C., Just, R. (2012). A conversation with Arnold Harberger. Annual Review of Resource Economics, 4(1): 1-26. https://doi.org/10.1146/annurev-resource-043012-101557.

Hsiang, A. C. (2016). Power Transition: The US vs. China in Latin America. Journal of China and International Relations Journal of China and International Relations, DOI:10.5278/ojs.jcir.v4i2.1589.

Hughes, N. C. (2005). A trade war with China?. Foreign Affairs, 84(4): 94-106.

Irwin, D. A. (2010). Trade restrictiveness and deadweight losses from US tariffs. American Economic Journal: Economic Policy, 2(3): 111-33. DOI: 10.1257/pol.2.3.111.

Irwin, D. A. (2017). Peddling protectionism: Smoot-Hawley and the great depression. Princeton University Press, Princeton, New Jersey, United States.

Jakupec, V. (2017). Trumponomics: From foreign trade to foreign aid. Leibniz Online, 25: 1-12.

Jakupec, V. (2018). Trumponomics. in development aid—populism and the end of the neoliberal agenda (pp. 53-68). Springer, Berlin, Germany.

Krugman, P. (2016). And the trade war came. New York Times, https://www.nytimes.com/2016/12/26/opinion/and-the-trade-war-came.html.

Lee, C. E., Schwartz, F. (2016). US competes with China for influence in Cuba. The Wall Street Journal. https://www.wsj.com/articles/u-s-competes-with-china-for-influence-in-cuba-1458293405.

Locke, R. R. (2017). Trumponomics, firm governance and US prosperity. Real-world Economics Review, (79): 120-135.

Magee, C. S. (2011). Why are trade barriers so low?. Economic Affairs, 31(3): 12-17.

Ojo, M. (2016). Free Trade and Trade Protectionism: US-China Relations and Post Brexit Impact on UK-China Relations. The Institute for Business and Finance Research, LLC.

Oliver, T., Williams, M. J. (2016). Special relationships in flux: Brexit and the future of the US–EU and US–UK relationships. International Affairs, 92(3): 547-567. https://doi.org/10.1111/1468-2346.12606.

Pabst, A. (2016). Brexit, post-liberalism, and the politics of paradox. Telos, 176(2016): 189-201. https://doi.org/10.3817/0916176189.

Perelman, M. (2011). Retrospectives: X-efficiency. Journal of Economic Perspectives, 25(4): 211-22. DOI: 10.1257/jep.25.4.211.

Porcher, S. (2014). Efficiency and equity in two-part tariffs: the case of residential water rates. Applied Economics, 46(5): 539-555. https://doi.org/10.1080/00036846.2013.857001.

Rösl, G., Tödter, K. H. (2017). The financial repression policy of the european central bank: interest income and welfare losses for German savers. IFO DICE Report, 15(1): 5-8.

Ruccio, D. F. (2017). Class and Trumponomics. Real-World Economics Review, 78: 62-85.

Rugman, A. (2016). Multinational enterprises from emerging markets. In Securing the Global Economy (pp. 81-100). Routledge, London, UK.

Rugman, A. M., Li, J. (2007). Will China’s multinationals succeed globally or regionally?. European management journal, 25(5), 333-343. https://doi.org/10.1016/j.emj.2007.07.005.

Sørensen, P. B. (2011). Measuring the deadweight loss from taxation in a small open economy. A general method with an application to Sweden (No. 2011-03). EPRU Working Paper Series.

Spulber, D. F. (2015). Public prizes versus market prices: should contents replace patents. Journal of the Patent and Trademark Office Society, 97: 690.

Tobin, J. (1977). How dead Is Keynes? Economic Inquiry, 15(4): 459–68.

Vashneya, U., Gupta, S. (2017). Economic reforms concept and strategy. Journal of Management Science, Operations & Strategies,1(1): 1-4.

Wang, Q., Chen, X. (2012). China's electricity market-oriented reform: from an absolute to a relative monopoly. Energy Policy, 51: 143-148. https://doi.org/10.1016/j.enpol.2012.08.039.

Weingast, B. R. (2018). War, Trade, and Mercantilism: Reconciling Adam Smith's Three Theories of the British Empire, Department of Political Science, Stanford University.

Zissimos, B. (2017). A theory of trade policy under dictatorship and democratization. Journal of International Economics, 109: 85-101. https://doi.org/10.1016/j.jinteco.2017.08.007.

Zoellick, R. (2017). If Trump Really Knows the Art of the Deal, he’ll Embrace Free Trade. The Washington Post, https://www.washingtonpost.com/opinions/if-trump-really-knows-the-art-of-the-deal-hell-embrace-free-trade/2017/01/05/6a1d8116-d113-11e6-a783-cd3fa950f2fd_story.html?noredirect=on&utm_term=.273ae91f1410.

Korniyenko, M. Y., Pinat, M., Dew, B. (2017). Assessing the fragility of global trade: the impact of localized supply shocks using network analysis. International Monetary Fund, Washington, D.C., United States.

Manners-Bell, J. (2017). Supply chain risk management: understanding emerging threats to global supply chains. Kogan Page Publishers, London, United Kingdom.