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Why Does the US Face Greater Disadvantages in the Trade War with China?

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  • Yew‐Kwang Ng

Abstract

The rhetoric used by President Trump regarding the trade war against China is rife with misinterpretation. The actual American trade deficit with China is much lower if evaluated in the correct terms of value‐added. The deficit is mainly a result of insufficient domestic US savings. In addition, as the US dollar is an international currency which is being increasingly held as a result of increases in world population, income, prices and transaction intensity, Americans can benefit from having trade deficits of hundreds of billions of US dollars each year. My analysis, as well as a model of the Bank of England, reveals that the trade war is not only mutually harmful but also actually hurts America more than China. The Thucydides Trap is likely avoidable in the current nuclear era of assured mutual destruction and because China, facing many structural impediments, is still far behind America in technology and military power.

Suggested Citation

  • Yew‐Kwang Ng, 2020. "Why Does the US Face Greater Disadvantages in the Trade War with China?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(2), pages 113-122, March.
    • Handle: RePEc:bla:chinae:v:28:y:2020:i:2:p:113-122
    DOI: 10.1111/cwe.12323
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    References listed on IDEAS

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    1. Redding, Stephen & Amiti, Mary & Weinstein, David, 2019. "The impact of the 2018 trade war on U.S. prices and welfare," LSE Research Online Documents on Economics 102619, London School of Economics and Political Science, LSE Library.
    2. Alberto Cavallo & Gita Gopinath & Brent Neiman & Jenny Tang, 2021. "Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy," American Economic Review: Insights, American Economic Association, vol. 3(1), pages 19-34, March.
    3. Pablo D Fajgelbaum & Pinelopi K Goldberg & Patrick J Kennedy & Amit K Khandelwal, 2020. "The Return to Protectionism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(1), pages 1-55.
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    Cited by:

    1. Liu, Duan & Wang, Qiuhong & Wang, Aidi & Yao, Shujie, 2023. "Export profitability and firm R&D: on China's export diversification under trade war," Structural Change and Economic Dynamics, Elsevier, vol. 67(C), pages 151-166.
    2. Jie Wu & Jacob Wood & Xianhai Huang, 2021. "How does GVC reconstruction affect economic growth and employment? Analysis of USA–China decoupling," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 35(1), pages 67-81, May.
    3. Yang, Shanran & Shi, Benye & Yang, Fujia, 2023. "Macroeconomic impact of the Sino–U.S. trade frictions: Based on a two-country, two-sector DSGE model," Research in International Business and Finance, Elsevier, vol. 65(C).

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