The U.S. is Right to Push for a Better Trade Deal with China But…

July 17, 2018 07:03 AM
A professor at Virginia Tech University says the U.S. should try to get the best trade deal with China that it can, but it should be wary of the potential consequences.

The U.S. is right to push for a better trade deal with China, says a Virginia Tech professor, but escalating the dispute with retaliatory tariffs is not the best strategy.

“We should be persistent in our demands that China reduce their tariffs and remove their non-tariff regulatory trade barriers on imports,” said finance professor Raman Kumar. “We have to change the current scenario -- lose for U.S. and win for China in some instances -- to a win-win scenario for both countries. We should not try to change it to a win for the U.S and lose for China -- because their retaliatory tariffs will turn that into a lose-lose scenario for both countries.”
Raman Kumar, professor at Virginia Tech University (Credit: Virginia Tech)

Kumar said the U.S. should “apply coordinated pressure on China” using a variety of tactics, including: building a strong and irrefutable case demonstrating how their non-tariff regulatory trade barriers are hurting U.S. exports to China, leveraging the World Trade Organization; applying coordinated pressure on China with the help of our allies; and using the threat of higher tariffs as a last resort.

Kumar shares his thoughts on:

How U.S. consumers will be impacted by the trade dispute with China
“Most of the goods subject to the increased tariffs by the U.S. that went into effect on July 6, 2018 are not consumer goods, but rather intermediary goods such as semiconductors, and industrial goods and medical devices that are used in the manufacture or distribution of consumer goods and services. Consequently, the immediate impact of the trade war on U.S. consumers will be small. However, the longer-term indirect impact would be to increase the prices for consumers in U.S., as companies that buy such equipment and machinery from China pass on their higher costs to the consumers. This price increase for consumers would be greater if additional retaliatory tariffs, currently under consideration, are introduced on additional products, and, even more so, if the additional tariffs are introduced on consumer goods.”

The short-term impact on the U.S. economy
“The short-term impact of the tariffs by the U.S. will be small on the domestic economy and may not be noticeable, given the current strength of the economy. However, the short-term negative impact of the retaliatory tariffs by China on U.S. exports will be greater and noticeable for the producers and distributors of the agricultural, meat, and dairy products subject to these tariffs. These tariffs are likely to weaken the demand and reduce the prices for these products, resulting in losses and potentially bankruptcies for small farmers producing and exporting these products.”

The long-term impact on the economy
“Negative impacts are likely to be relatively small for the U.S. economy if the trade war is contained at the current levels with no additional tariffs from either side. However, the long-term costs could become significantly higher and severe if the trade war continues to escalate with tit-for-tat additional rounds of retaliatory tariffs.”


Back to news


Spell Check

Wesley, IA
7/20/2018 04:55 AM

  China has been cutting our financial feet out from under us for years. They own a huge portion of our national debt and, I believe, their chief financial officer is a Harvard Business graduate. They steal what they can't buy, i.e. plant genetics, and they have bought everything from iron range mines to Smithfield Foods and our Congress can't see through their own hot air and smoke to realize what's going on. Now with Trump giving away our moral-ethical world respected traditions to the likes of Putin, and trashing time honored alliances, our country is in grave danger. A wise man I once knew and respected had the vision to say, "This country will be taken over without a shot being fired." Wake up folks!

Western, NE
7/18/2018 02:55 PM

  Common sense would dictate that you look at your trade deals on a regular basis. Kumar has the right idea. China has been a thorn in the side of trade since they were admitted into the WTO in 2001. Yet trying to get them to more appropriately follow WTO guidelines has been exhausting. They were given basically a developing nation (third world) status that allowed them all kinds of exemptions from environmental and other WTO rules that developed nations including the United States didn't have. China used that status to their fullest advantage and American businesses were eager to utilize their very cheap labor. It has never made sense to me to have raw materials shipped to China, have a product manufactured there and shipped back to the United States for sale cheaper than we can make it in the US. There has always been something wrong with that picture. US consumers, Wall Street and big business are really to blame for the position we are in currently. Do I think Trump is correct in his methods with China? No!! He needed to be more diplomatic as Kumar has indicated. Trump's method has cost us a very large customer for our ag produce. Anyone in retail knows that a lost customer is very hard to regain! Trump screwed the pooch on trade. After Helsinki on Monday we know where Trump's allegiances lie! They certainly are not with America!


Corn College TV Education Series


Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!


Market Data provided by
Brought to you by Beyer