Trump's four-point in China- US Trade War

Below is only my personal viewpoint.  Basically Trump has 4 key points throughout his talks

1. The United States believes that a bilateral trade surplus is a good thing and bilateral trade deficit is a bad thing
2. The long term imbalance between US-China trade is caused by subsidies from the Chinese government or other unfair trade polices.
3. The solution to the trade imbalance is to impose high tariff on products exports from China.
4. China should remain in the low-end of global trade value chain, and the United States should stay in the mid to high level of the global trade value chain

OK, so is it true?

1st, according to the statistics from China Custom Board of Protection, trade deficit with China is 275.8 billion. It is a lot. And it is increasing year after year since China joined WTO!  BUT IT IS A GOOD THING TO US ACTUALLY!  Trade deficit was caused by lots of goods exported from China. As exchange, China receives payment in US dollar for the goods sold to the US and US Dollars will be inevitably invested abroad. China takes most of its foreign exchange reserves to buy US treasure bonds. From this perspective, China is lending money to US and US is using Chinese funds to develop its own economy. Therefore, US has achieved economic growth while enjoying cheap products from China.

2nd, Trump think government subsidies is unfair. Question, if you let one healthy man compete with a disabled man in marathon running, is that fair? In terms of trade policy, China imposes 25% tariff on cars originating from US while US imposes 2.5% tariff on Chinese cars. In fact, this tariff policy is announced before China joined WTO in 2001 and it is approved by US. Not like what Trump is claiming, this tariff policy is executed after China joined WTO and manipulated WTO. According to the regulations, developing countries can set higher tar tariffs in a reasonable act to protect themselves. Just like what I emphasize on fair or unfair justice, how can you set up exactly the same rules to two different levels of individuals? If you ask another third world country to impose free duty to US goods, maybe it will very soon become US colony in an economy aspect. In addition, car is just a particular extreme example that all media is taking advantages of. On average, the difference in tariff between two country is about 6% . Gradually, when China transforms itself from export- orientated country to import- orientated country, it will lower the duty rate little by little but it indeed takes some time.

3rd, Trump think it is necessary to increase the high tariff on Chinese goods. This is very stupid idea. No one will win eventually as long as the war continues. We as consumers, the bottom of the bottom, will eat up all the cost of this stupid trade war. And nobody will come to increase our salary.

4th, and this is most controversial point of view. It reflects not only Trump , but many western economists viewpoint. 100 years ago, US was at the low -end of value chain compared to European country and then slowly climbed to the high-end trough technology revolution and political structural change. Today, history is repeating itself. China is trying to do same thing, of course, survival of the fittest.  If China becomes second largest market in the world with huge importing needs, why would everyone worry about it but instead feel happy? The expansion of market will reduce the fixed cost of each export product, so the manufactures have the incentive to produce more, thus achieving the economic scales, namely 1+1> 2. It is going to benefit everyone. China and US can both benefit from economies of scale brought by market expansion. Let's hope trade war ends soon and two countries develop together peacefully.

Written by: Coco Yang, LCH, CCS