ECX2630 Chap.5 China and the United States
China and the United States
Move from chronology to transmission
China-US relations combine trade, technology, investment, security and domestic politics. Chronology locates turning points, but analysis follows the instrument. A concern about market access, industrial policy, intellectual property or strategic dependence may produce tariffs, controls, screening or negotiation.
Firms then respond through prices, margins, sourcing, investment and product design.
Trace incidence across actors
The legal payer of a tariff is not necessarily the actor bearing the full economic cost. Consumers may pay higher prices, importers may accept lower margins, exporters may discount and firms may switch suppliers. Third countries can receive diverted trade.
Effects also change over time as contracts expire and supply chains become more flexible.
Use evidence at the correct level
Aggregate trade flows show a pattern but rarely identify the reason one firm moved. Firm announcements show intentions but may be strategic. Price data inform incidence but need a benchmark. Combine evidence and state remaining ambiguity.
A calibrated conclusion identifies the actor, instrument, time horizon and condition that could reverse the result.
What this chapter covers
- 01
Commercial engagement and strategic interests
- 02
Trade-war causes and policy justifications
- 03
Tariffs, controls and investment screening
- 04
Consumer, producer and worker incidence
- 05
Supply-chain adjustment and trade diversion
- 06
Negotiation, retaliation and conditional cooperation
Worked example · free
Trace a component tariff through a supply chain
- 2Identify the immediate cost increase faced by the importer.
- 2Allocate possible burden across price, domestic margin and supplier discount.
- 2Explain how substitution and redesign change incidence over time.
- 2Name evidence on prices, quantities, sourcing and investment.
Key terms
- Tariff Incidence
- Tariff incidence is the distribution of the economic burden across consumers, importers, exporters and other actors, distinct from who legally remits the charge.
- Trade Diversion
- Trade diversion is movement toward a different foreign supplier because policy changes relative costs, without necessarily creating domestic production.
- Export Control
- An export control restricts specified cross-border goods, technology or services for strategic, security or policy reasons.
- Investment Screening
- Investment screening reviews proposed foreign investments against criteria such as security, control, technology or public interest.
- Supply Chain
- A supply chain is the linked sequence of suppliers, production, logistics and distribution through which a product reaches its user.
- Bargaining Power
- Bargaining power is an actor's ability to influence price or terms, often shaped by alternatives, switching cost and time pressure.
China and the United States FAQ
What causes tension in the bilateral relationship?
Course questions direct attention to trade conditions, market access, technology, strategic interests and political change. A strong answer distinguishes the public justification, underlying interest and instrument rather than assuming one permanent cause.
Who pays for a tariff?
The importer may legally remit it, but the economic burden can be shared through higher consumer prices, lower importer margins, exporter discounts, exchange-rate movement or reduced demand. Substitution changes the allocation over time.
Does a fall in direct imports prove domestic production recovered?
No. Imports may shift through another country or firms may reduce demand. Check domestic output, value added, third-country imports, input origins and prices before concluding that the policy created domestic capacity.
How should I structure a relations essay?
Use chronology only to locate policy shifts. Organise the analytical body by concern, instrument, transmission, actor-specific incidence and response, then finish with the condition under which competition or cooperation changes.
Assessment move
Build a policy-transmission table with concern, instrument, immediate target, firm response and third-country effect. Practise incidence diagrams in words by allocating the burden across named actors. For historical essays, select only turning points that change the mechanism. Replace winner-loser claims with actor-specific, time-specific conclusions and identify evidence that would distinguish reshoring from trade diversion.
Make separate cards for tariffs, export controls, investment screening and negotiated commitments, recording the transaction each instrument changes and the substitution it may induce. For a tariff case, trace legal payment, price pass-through, supplier margins, quantities and longer-run sourcing; do not stop at the border.
For technology restrictions, distinguish a security objective from commercial spillovers and ask whether a narrower tool could achieve the same protection. Revise third-country effects explicitly by tracking rerouting, new assembly locations and the origin of embedded inputs. In essay practice, treat official statements as evidence of justification rather than conclusive evidence of cause.
Finish each plan with one short-run and one long-run judgement, plus the firm-level or value-added evidence needed to test them.
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