Trade War on Steel Between China and the U.S. (Mathematics & Economics Essay) (Essay Sample)
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Trade War on Steel Between China and the U.S.
Trade War on Steel Between China and the U.S.
In the last two decades, there has been a significant rise in globalization. In this period, China has risen to become one of the greatest world economies, thereby undergoing tremendous industrialization. This led to increased production of steel to match the high demands. The steel demand then started facing a period of decline that made China explore international markets, the U.S. being one of the leading importers. Data from Worldsteel in May 2017 indicated that China produced 808.4 million metric tons of steel in 2016, making it a global leader accounting for 33 percent of the world's total steel. On the other hand, in 2017, the US was the biggest importer of steel, importing 34.6 million metric tons of steel (Steel Imports Report: The United States, 2018). In 2018, the U.S. initiated tariffs on Chinese steel, which made the price go up by 25 percent, thus triggering a trade war between the two countries.
Theories of Trade War between China and the U.S
Theory of imperfect competition
The imperfect competition theory states that countries often seek market opportunities overseas where they can trade their products. These countries usually come up with strategic decisions to capitalize on their competitors' capabilities. The capabilities rely on the advantage of nations in terms of market imperfections and factors of production. The theory dictates that countries produce homogeneous products while at the same time enjoying aspects of production (Morgan & Katsikeas, 1997).
In April 2016, the BBC News released an article on why China was a dominant steel industry force. The main reason behind China's dominance was that their steel was relatively cheap compared to other countries' countries. During this period that the Chinese economy was growing, there was a great steel demand. This prompted the Chinese government to invest more in steel to keep with the growing demand in that period. The demand for steel in China suddenly diminished, thereby leaving the country with a surplus supply of steel. The demand for steel in China was projected to be at 808.4 million tons, yet they only produced 672 million tons leaving them with a huge deficit.
China ended up selling their steel in the international market at meager prices. Critics of China suggested that they were selling their steel at a loss, a suggestion that China thoroughly disputed. China's move to sell their steel at low prices made it difficult for steel from other countries to find its way into the international market. The U.S., one of the leading importers of steel, remained with only one option, to impose higher tariffs on Chinese steel. This meant that if a Chinese manufacturer offered a ton of steel at a lower price, the U.S. government would add tax on the original price, making it expensive for the importer. The move would make Chinese steel more expensive; thus, the Americans will have no option but to resort to domestic steel. Another option would be to buy steel from countries where the government had imposed no tariffs.
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