Discussion
The term trade protectionism can be defined as the government policies which possess the potential to restrict international trade from helping domestic industries. The protectionist policies are implemented usually with their goal of enhancing economic activities within a Domestic economy. Some governments use trade protectionism as a policy tool to shield native industry from international competition. While trade protectionism may help boost local production as well as business in the short term, it can make the nation and its sectors less competitive in the international commerce in the long run. Politically driven trade protectionism might result in trade isolation. Tariff barriers, subsidies, quotas, as well as currency controls are the 4 most crucial government policy mechanisms employed in trade protectionism. It is also implemented for concerns related to quality and safety concerns. The key aim of the paper is to evaluate the recent trends related to trade protectionism in China and USA, its impact on the Multinational enterprises in both the nation. Along with this this the aim of this paper is to identify appropriate response to trade protectionism for the MNEs of both the nations.
Recent trends of trade protectionism in China
As per Li and Whalley (2021), since after China has become the member of Word Trade Organization (WTO) in the year 2001, on 11th December, the nation has gradually reduced administrative barriers to trade and have liberalized its foreign trade system. However Olabisi et al. (2021) have argued that the trade protectionism acts in China is highly prevalent since the year 2009, after the financial crisis. The key reason behind strict trade protectionism act is to recover the local organizations while stabilizing and expanding. China, has a lucrative market and hence setting strict barriers, did not prevent MEs to invest on trading in the nation. It has been found that china ranks 4th when it comes to trade protection measures and the nation has trade volumes and significantly high number of trading partners, high rate of participation in the global value chains and this has high potential to generate trade frictions. According to Anderson (2020), in the end of the year 2008, the number of trade protection measures of the nation has reached 671, of which 121 protection measures falls in the yellow trade protectionism category and the rest falls in the red category.
Noland (2020) have highlighted that the recent Dual Circulation strategy, that will be considered central to the 14th Five year plan of China for the year 2021 to 2025 aims at less reliance on foreign technology and higher focus on the consumption of the domestic trade. Recently china have reduced it tariff rates in order to enhance international business. The Tariff rate of china was increasing till 2017. The country first lowered its tariff rate by 0.44 percent in the year 2018. In 2019, the country lowered its tariff rate from 3.39 to 2.53 percent (Boylan et al., 2021). Siby (2018) has highlighted that all goods that are imported into china has been subjected to the value added tax (VAT) of either 17 percent or 13 percent. While goods that falls under the category of agricultural as well as utility items falls under 13 percent tax, 17 percent tax is applied for other items. International Companies that produce and export taxable items, process taxable goods on loan, or sell taxable products are subject to China’s consumption tax (CT). Foreign goods that are taxed under the CT of China are cigarettes and alcohol, luxury items like jewelry and cosmetics, along with high-end products like passenger vehicles, motorbikes and others. The CT on imported products varies based on the type of product brought into the nation.
Recent trends of Trade protectionism in USA
According to Cheong and Tongzon (2018), United States focuses on protectionist economic policy which erects tariffs as well as other barriers on the imported goods. In the nation, this policy was highly relevant in the 19th century. As per the traditional trade protection theory, developed nation, being the supreme leaders of the value chain, have occupied a favorable position in trade behavior. Compared to the low end nations in the value chain, countries like USA have built trade barriers for protecting their own interest. In the year 2019, exports of goods in the United States totaled 1.7 trillion dollars, down 1.3 percent (21.5 billion dollars) from the previous year. Over that period, the amount of merchandise imports into the United States was 2.5 trillion dollars, down 1.7 percent (43 billion dollars) from the year 2018.
The goods trade imbalance in the United States fell by 21.1 billion dollars (2.4 percent) to 866 billion dollars as imports outpaced exports. The US has placed on hold an already well-advanced negotiated trade deals both with Europe and the trans-Pacific nations — TTIP as well as TPP cannot go into effect for the foreseeable being. If targets like reducing the trade imbalance are not met, official documents on the foreign trade plan of the USA president recommend renegotiating previous accords. The United States has stated that the North American Free Trade Agreement would be renegotiated (NAFTA). Additionally, the Korean agreement as well as WTO membership standards of China are potential targets for US protectionism.
As per the US Import duty and taxes 101 policy, import duty and taxes that owed while importing goods into the USA, the method of valuation is FOB, which includes taxes are duty charges are calculated based on the value of the imported goods. The tariff rate of USA increased from 1.50 percent to 13.78 percent.
As per the current trade protectionism policy, all imports under Section 5.5.582 that is imports from licensed independent entrepreneurs who are not on the prohibited list of the State, needs to comply with all the current custom and border protection formal as well as informal entry requirements of USA. This indicates while there is no value cap on the amount of products, the applicable dues in HTSUS is considered. As per the HTSUS 9804.65, duty free importation for personal us up to the cost of 800 dollar is allowed. A duty rate of 4 percent is imposed for products above the cost of 1000 dollars.
As per Sukar and Ahmed (2019), the key effect of trade protectionism includes declination in trade, higher prices for a significant number of commodities as well as a form of subsidy for the protected industries. While some number of industries gets saved, a significant number of jobs in other industries are likely to get lost. According to the trade protectionism theory, protectionism is required in order to protect domestic industries against foreign competition with the help of tariffs, import quotas, subsidies as well as other restrictions.
The impact of MNEs of China impose highly negative impact on the nation. Local protectionism has taken the form of usage of a restrictive economic blockage form the end of the nation’s local as well as provincial governments for preventing the outflow of low raw materials along with the sale of goods that is produced non locally, within their areas.
Impact of Trade Protectionism on MNEs in China and USA
According to Ushanov and Reshad (2020), in case, an indivdual considers the trade cases associated with involving China with in WTO, it is the nation most badly harmed by protectionism. As per the World Trade Organization, China was the subject of seventy three anti-dumping as well as 10 compensatory duty inquiries in 2008, representing for 40 per cent as well as 71 per cent of all anti-dumping as well as compensatory duty complaints, respectively. China was involved in fifty eight trade remedy proceedings totaling eight billion dollars in the 1st half of this year. Several trade protectionist policies are specifically targeted towards China. The US Omnibus Appropriations Act of the year 2009 that, as enacted by the US Senate on March 10, for instance, expressly prohibits the importation of chicken products from China. The US International trade Commission, during that time, ruled against China in an investigation that involved certain passenger vehicle as well as light truck tires.
As per the recent data from the GTA (Global Trade Alert), the USA is considered to the most protectionist nation within the group of G20 countries. The country have implemented the highest number of non-tariff barriers, till so far. Given the fact that, USA is a developed country, the tariff and no tariff policies was higher than non-developing nations. The trade war had resulted in economic pain on both the sides. This will led to trade diversion that flows away from both USA and China. As a result of the trade war, the economic growth of USA had slowed down, the business investment has got frozen along with organizations did not hire the amount of workers that should be hired by them. The effect of trade war has gone beyond the economics and the prioritization of USA on the trade deal specifically, while lack of prioritization on major factors ,were highly prominent. This has imposed highly negative impact on the trade of both the nations, with a sudden diminished rate of progress. Y?lmaz (2020) have highlighted that as a result of high protectionism in China, the international trade relation deteriorated. As a result of this, The Chinese MNEs lost the ability to enter the foreign market, result in lack of exports of products and enhanced revenue . Thus the nation has gone through severe economic isolation result in a major adverse act on is economic condition. As a result of the trade war, USA had ensured strict and high trade protectionism against China. As per Zhang (2021), the high trade barrier from the end of USA had lowered the economic growth of China in 2017, by 0.07 percent. However, the same factor has resulted in the boost in US economic growth by .12 percentage.
However, Ushanov and Reshad (2020) have highlighted that while the economic growth enjoyed by the nation was a short term outcome, in the long run high Trade protections have imposed negative impact on the economy. The MNCs of china, used to provide USA products at a much cheaper price. High protectionism has thus resulted in enhanced price of the products.
From the above discussion, it can be clearly understood that trade protection is impose highly negative impact on multinational organizations. Higher cost of selling products in foreign countries acts as a barrier to flourish and generate the expected revenue. While highly established MNEs, like Apple or Amazon, deals with this barriers, newly established MNEs that are opting for global expansion are the worst suffers. As per Li, He and Lin (2018), one of the prominent negative consequences, that MNCs are likely to face includes depleting cost advantages.
For more than 2 decades, organizations steadily moved their manufacturing operations from western nations to Asia. More than 45 percent of the manufacturing across the world is done in Asia. Because of the increased demand for labor, wage expenses have increased by fifteen to twenty percentage without equivalent gains in productivity. During the same time period, earnings in the USA have been steadily declining due to growing unemployment. The labor cost as a percentage of overall production costs will plummet. As a result, it would make no difference where the items were made. It would be absurd to ship the jobs to another country.
Conclusion
From the above discussion, it can be concluded that as a result of the trade war, USA had ensured strict and high trade protectionism against China. However, Kapustina et al. (2020) have highlighted that while the economic growth enjoyed by the nation was a short term outcome, in the long run high Trade protections have imposed negative impact on the economy. The MNCs of china, used to provide USA products at a much cheaper price. High protectionism has thus resulted in enhanced price of the products.
While conducting the research, I developed an effective idea about the trade protectionism polices of both China and USA. I understood that how trade war have imposed negative impact on the MNCs of both the nation. The paper helped me to understand the advantages and disadvantages of trade protectionism on MNCs and I will be able to apply the gained knowledge in my future.
References
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