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Case B

General analysis

Serval days back, president Trump singed a
series of contracts to impose steep tariffs on washing machines and solar
panels. It is just a beginning signal of the “trade war” in 2018. We can see
America may expand their protectionism to a range of other domains. Due to the
diversity of marketing strategies and the difference of product costs, it is
hard to verdict a Chinese company is dumping or not. Even more, cheap products
are welcomed by most American locals. Anyway, for both individual consumers and
group buyers, they consider their cost effectiveness. Anti-dumping is actually
a political behavior. President Trump is tending to save the unemployment rate
and the taxation. However, this move may cause a lose-lose situation. It will
hurt everybody. The growth of economy growth in 2018 will definitely be influenced
by this.

In the currency market, since President Trump
came to power, the dollar index has been a year-long decline. Although Trump is
always saying that he wants to make a strong dollar. Even American Federal Reserve
is raising interest rate and normalizing the monetary policy faster than its counterparts,
the market is still selling dollars. For fostering trading and saving
unemployment rate, America will take more actions. We may see America will
start a trade war. However, if it happens, dollar will be at a very negative position.
Euro and yen will benefit from it, but some emerging countries will also

Once you take measures against one of your trading
partners, your partner will take measure back for sure. China will do whatever
is needed to fight back. Normally China will intervene currency. China will depreciate
their currency in order to keep the cost advantage on exporting. As dollars continues
going down, dollar asset could lose appeal. China may cut back on Treasury
purchases because they are no longer as attractive and because of Trump trade
policies. China is the largest holder of Treasuries, but it’s not expected to
back out of the Treasury markets in a significant way.

America may join a multilateral trade pact. President
Trump said he would reconsider joining the Trans Pacific Partnership if the
U.S. could get a better deal, but analysts were skeptical anything would come
of that. Because the upcoming Congressional midterm election, Mr. Trump may
soften his talks about trade partners.

Impact to particular


The thing may be going to the opposite way
with Trump’s initial design.

Firstly, Americans may lose a lot of jobs.
For example, the Solar Energy Industries Association, a trade group,
estimates that the tariffs could end up threatening 23,000 American jobs.
That’s because most jobs are in installing and assembling solar panels, not in
manufacturing the solar cells. Although president Trump may want to support the
development of local companies, but at this time, big companies benefit nothing
from it.

Secondly, tariffs are tax imposed on the
ending customers. For customers, when they get a budget to buy a washing
machine they must pay the extra instead of the country. They can’t wait for
years long for the recovery of American manufacturers to get a competitive
phasing price. Enjoying the relatively continues low price is a contribution
made by China.

Some foreign companies are encouraged to
build their plants in the USA. This may be a piece of good news for American citizens.
and LG have announced plans to build factories in South Carolina and Tennessee,
creating 1,600 jobs. But America is a more “VUCA” world, how to adjust to the
culture and survive under the changeable and unpredictable polices
should be their major concern.

Some 40 years ago, America was the only
giant in the world. Outsourcing made China the workshop of the world and India
the back office of the world. Technology made the world flat. China and India served
as the biggest players in the process while America is biggest winner.  America benefited a lot from that. But today
when we look at the balance sheet of America, we curios about where the money
gone. They started 13 wars as a “world police” instead of spending money on
people or infrastructures. Besides, money flowed into the Wall street rather
than write collars and blue collars. All of a sudden, they realize they rely
too much on China, India and Japan etc. Hence, they start to
anti-globalization.  However, because they
rely too much on China, this policy can’t last too long.


As for China, the benefits from the scale of
population is fading away in manufacturing. In some areas especially in some
low-end areas we are losing our advantages. Many stuff made in China today are
not as popular as things made in Vietnam. But for the country, exportation is
still a big driving engine for the economy.

As a communist country, China has the power
to intervene the currency. Not only the power but also the experience. In order
to foster exportation, China may depreciate CNY and even dump products in other
countries. But this is actually a lose-lose situation. Weather happy or no, China
will face this problem sooner or later. Chinese government needs to do a lot to
help build a relatively fair and free trading environment under the frame of

According to the formula, GDP=C+I+G+(X-M).
China may focus more on the domestic consumption. Researches reveal that China
has the greatest amount of middle-class people. The so-called supplying side
reform has been promoted by the government several years ago. Chinese government
believes that Chinese people have the purchasing power now and we can see many Chinese
people shopping everywhere around the world. As the rise of middle class in China,
people are not satisfied with dressing the same way as people in New York or driving
the same way as people in Tokyo. Chinese people have the special value towards beauty
and they are desperately seeking recognition for the national brands. The domestic
demands will contribute a lot to the growth of Chinese economy.

Government investment is still playing a
great role in developing economy. Serving as a country level strategy, the Belt
and Road initiative is a significant government project and many counties will
benefit from the new silk road. It is chance to make the best use of the AIIB (Asian
Infrastructure Investment Bank).


China and India are at a very special but also an awkward position. China
and India have many things in common. Especially the large population and the
needs for oil. Similarity causes coemption. India imposed steep tariff on
specific items after 2018 new year. For exporting, China needs to find other
alternative ways.  


Considering all the factors above, we may see this policy is not going
to last for long. But 2018 is not going to be a peaceful year.

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