Economic and Political Studies (Vol. 7 No. 2, 2019) A Special Issue on the Sino-US Trade War

Economic and Political Studies (EPS) dedicates its Volume 7 Number 2, 2019 to scholarly discussion on the Sino-US trade war. You may be interested in viewing the article abstracts as follows. Their fulltexts are available online at

Terence Tai-leung Chong
The Sino-US trade war reflects the long-standing conflicts between the two countries over economic ideology. It has received worldwide attention due to its huge scale and impact on other countries. Many speculations about the reasons for as well as the development and implications of the trade war have emerged. Therefore, understanding the underlying forces at play allows us to predict how the trade war will evolve and to evaluate its economic consequences, which are important for investors and policymakers to make judicious decisions. It is against this backdrop that Economic and Political Studies (EPS) publishes this Special Issue to discuss the causes and the consequences of this trade war. This Special Issue provides a good opportunity for readers to better understand the real situation of the Sino-US trade war and will evoke further discussion on this significant issue among the international academic cycle.

The sky is not falling!
Lawrence J. Lau

As of October 2018, almost half of US imports of goods from China are subject to new US tariffs at various rates, mostly at 10% until the year-end of 2018, when the rates were scheduled to be raised to 25%. These tariff rates will prove to be prohibitive for most if not all of the US imports from China. Assuming that US imports from China will be reduced by 1/2, the initial direct real impact on the Chinese economy may be estimated at a loss of 0.43% of GDP. If indirect effects are included, the full real impact may be estimated at a maximum loss of 1.12% of Chinese GDP. These estimated impacts are relatively small and quite manageable. There is a possibility that the scope of the US tariffs may be expanded to cover all US imports from China, in which case the full negative economic impact will be doubled, but still leaving an expected rate of economic growth in excess of 4%. The Renminbi is not likely to be significantly devalued as a result of the trade war. However, there are also longer-term underlying forces at work behind the China-US trade war – the competition for economic and technological dominance and the rise of populism, isolationism, nationalism and protectionism. It is important for China-US relations, and China’s relations with the rest of the world, in particular with the European Union, Association of Southeast Asian Nations (ASEAN), Japan and Russia, to be carefully managed going forward.

Analysis of the China-US trade war through the Lens of the Trade Literature
Larry D. Qiu, Xing Wei & Chaoqun Zhan

The current China-US trade war that started in early 2018 has been the largest of this kind in the global market in the past half century, if not longer. Many speculations about the reasons for and progress and potential implications of the trade war emerge. Countries must understand the reasons for the war to avoid future trade wars. Predicting what will happen in the near future and the related economic consequences is even more important for people (including businessmen and government policymakers) to prepare for them and make corresponding decisions. However, endeavoring to predict is a tough job. The present paper tries to provide an unbiased analysis through the lens of the trade literature. That is, we want to ask how much we can understand the current trade war on the basis of the accumulated knowledge we can obtain from our profession. Related theories include imperfect competition, increasing returns, terms of trade argument, distributional effects, and political economy argument.

The US-China trade war, the American public opinions and its effects on China
Edwin L.-C. Lai

Donald Trump’s trade war with China does not make economic sense, but he does not face much domestic opposition to this trade war. Moreover, it is a part of a broader strategy of the nationalistic Americans’ attempt to suppress the rise of China. Would China give in to the requests of the US under the threat of the escalation of the trade war? In what way? My conjecture is that China is willing to compromise up to a point. What China is likely to do is to promise to buy more goods and services from the US, allow greater market access for American firms, reduce Chinese subsidies to its industries, reduce forced technology transfers by American firms, strengthen enforcement of intellectual property rights protection, and make verification all these commitments more transparent. Although the US might stop escalating the trade war, it is likely that the tariffs already imposed on Chinese goods would not be removed soon. In response to that, China also would not remove most of those tariffs already imposed on imports from the US, in keeping with the spirit of the tit-for-tat policy. It is possible that a temporary ceasefire is agreed, but the trade war can last for a long time. The final assembly stage of many industries might leave China, but not necessarily the whole production process. Hong Kong can be a victim of the trade war if it escalates.

Understanding the China-US trade war: causes, economic Impact, and the worst-case scenario
Terence Tai-leung Chong & Xiaoyang Li

This paper studies the current trade war between China and the US from a historical standpoint. By comparing the ongoing trade war with similar trade conflicts in history, we reveal three major causes, with varying degrees of importance, from both economic and political perspectives. The trade war can principally be attributed to trade imbalances, the US midterm elections and rivalry over global economic dominance. As the fundamental conflicts between China and the US cannot be easily resolved, we hold a pessimistic view on the complete settlement of the trade war. In this paper, we perform a scenario analysis, which shows that in the worst-case scenario, China will suffer a 1.1% decrease in employment and a 1% GDP loss, which are not negligible, but manageable for China.

Why did Trump launch a trade war? A political economy explanation from the perspective of financial constraints
Dongsheng Di, Gal Luft & Dian Zhong

The existing explanations for President Trump’s decision to trigger a trade war with most of America’s trading partners are not sufficient. The less explored motivation, we argue, is to raise income for the federal government through tariffs in order to balance the surging fiscal deficit caused by Trump’s bold tax cut policy since December 2017. The repeated increase in interest rates by the Federal Reserve throughout 2018 is leading to sharp increase in the cost of servicing America’s US$21 trillion and growing debt, which means that debt servicing would soon become the biggest outlay of the US government. This new explanation implies that the US will need additional sources of income like tariffs in order to balance its budget, and tariffs on Chinese products is viewed as a main source of such income. China should therefore rethink its strategy in seeking a resolution for the trade war.

The future of global trade in the presence of the Sino-US trade war
Badar Alam Iqbal & Nida Rahman

The looming of a vindictive spirit owing to dishevelled trade relations amidst China and United States (US) seems to be near. Never has it been so apparent than now. The US has had itself as the largest economy on the world stage and China’s attempt at shuffling this incumbency has led the US to open a tariff fire on Chinese imports. The tariff brawl appears to be not settling anytime soon as the retaliatory measures are swelling incessantly. Being the two largest economies of the world, giving in for disengaging trade with each other is bound to have a ripple effect on the global system of trade. Where the detesting to barrier-free trade on the part of the US and China are certain to inflict pain upon both countries, it might come as a benefit for other countries. This research explores the movement in global trade springing out of the Sino-US trade war.