Examine the US-China Tariff War from a Theoretical Perspective: Discussion Questions from Students in FASH455

#1 In class, we discussed that trade always creates both winners and losers. So who are the winners and losers in the US-China tariff war? Also, why should or should not the government use trade policy to pick up winners and losers in international trade?

#2 Why do you think U.S. fashion brands and retailers oppose Section 301 tariffs on apparel imports from China, whereas the National Council of Textile Organizations (NCTO), which represents the US textile industry, supports Trump’s tariff action?

#3 The U.S.-China tariff war continues during the pandemic, resulting in higher sourcing costs for U.S. fashion brands and retailers, which have been struggling hard financially. In such a case, if you were the CEO of Macy’s, why or why not would you pass the tariff burden to consumers, i.e., ask consumers to pay a higher price?

#4 Why or why not do you agree with the Trump Administration to lift the Section 301 tariffs on PPE imports from China? Isn’t a high tariff typically protects the domestic industry and would incentivize more U.S.-based PPE production?

#5 Most classic trade theories (such as the comparative advantage trade theory and the factor proportion trade theory) advocate free trade with no government interventions. However, international trade in the real world has been so heavily influenced by government policy, such as tariffs. How to explain this phenomenon? Are trade theories wrong, or is the government wrong?

[Anyone is welcome to join the online discussion. For students in FASH455, please address at least two questions in your comment. Please also mention the question number in your comment]

Author: Sheng Lu

Professor @ University of Delaware

16 thoughts on “Examine the US-China Tariff War from a Theoretical Perspective: Discussion Questions from Students in FASH455”

  1. #1 In my opinion, both the United States and China are losers in this trade war. The dispute results in negative side effects for both countries. The United States is hurting its retailers by forcing them to either pay more for production and importing from China, or choose to uproot all production factories in China and relocate to countries with lower cost manufacturing, which is not an easy task. China is losing as well because they are losing a great deal of manufacturing business which is a big contributor to their economy.

    #3 With the current challenges facing American retailers CEO’s of brands like Macy’s are certainly facing some tough decisions. With the rise of the cost of manufacturing, we would either have to keep prices the same and risk losing a great deal of profit, or raise prices and risk losing customers in order to keep our numbers up. If I were the CEO and found myself in this position, I think I would have to take the chance of raising prices. Raising prices at least gives the brand a chance to last against the rising cost of manufacturing goods. Hopefully, consumer loyalty will remain strong and the the company will survive.

    1. very interesting comment for the 1st question–like you said, if both the US and China are the losers of the trade war, then why it was triggered? Also, as mentioned in the article, the US textile industry seemed to support the tariff on imports from China. Why is that?

      1. That’s very easy:
        1) apparel production = low invest, but labour intensive -> shift to low-cost countries since 50 years-> liberal approach to global trade and imports
        2) textile production = high invest and not labour intensive -> still production in high-cost countries like US -> protectionist approach.

        Another examples which makes this conflict very obvious are the rules of origin which are the strictest in TC because of successful lobbying of textiles industry since decades.

      2. haha~ I was pushing my students to think harder, Bernd! But thank you for your always valuable and insightful comments! please continue!

      3. Why triggered? Not because of logic but because of populism. Duties are easy to understand. Most people -especially those who have no clue about economy- believe that high duties restrict imports and protects and promotes the local industry. But in most cases this easy logic does not work – but it is sufficient to make them believe it works and make them vote for DJT.

  2. #1
    I believe there is no clear winner or loser, but rather both China and the U.S. are at a loss. The new imposed tariffs could destroy U.S. business’s profits, while some are already struggling with their current thin operating margins from cutting prices. In fact, it is said that the tariff could lead up to 12,000 stores going out of business further down the line. It is evident that the U.S. apparel and textile industry, along with China paying higher tariffs and losing manufacturing business are both foreseeable losers of the U.S-China trade dispute, for these reasons. In the grand scheme of things, consumers are ultimately winners, experiencing the benefits of globalization without hassle; consumers are able to experience better quality goods from around the world at a lower price. It is a scary thought to think of what our textile-apparel industry may look like in the coming year but I am sure the U.S. will find a way to adapt in the long run.

  3. post on behalf of jamieweiner
    #1 In class, we discussed that trade always creates both winners and losers. So who are the winners and losers in the US-China tariff war? Also, why should or should not the government use trade policy to pick up winners and losers in international trade?

    The clear losers of the US-China tariff war are the apparel and textile companies in both the US and China, as well as US consumers. Due to higher tariffs on imports with China, numerous retailers are shutting down in the US. To try and resolve this, retailers have hiked up prices to compensate for their losses in tariffs, but only further increase their problem when consumers won’t pay the higher price. Or there is a 90 day deferral for only some retailers, but this simply isn’t enough time for them and it’s hard to liquidate relationships that took a long time to build with Chinese factories and suppliers. Additionally, China loses when these US retailers and companies start pulling out from their trade with China and place them in different countries where the tariffs won’t affect them, causing China to lose their consumers and long term relationships. However, no one would have to lose if Trump simply revokes these tariffs. Winners would be these new countries picking up business that China has lost.

    In international trade, there are always losers and winners, but this gets even more distorted with these new tariffs and policies. The US could use international trade to their advantage by not posing other countries such as China as a threat to American society and “taking away American jobs.” As we have seen, international trade increases wealth and spending, especially in America, where we import more than we export.

    #3: On behalf of the team of Macy’s (as I once interned for them), I know that they are all about relationships, communication, personability, and overall, caring about the welfare of their workers and consumers. If I were the CEO of Macy’s, I would only pass the tariff onto consumers for certain items. Apparel- no. However, in order to compensate for this, I would try and raise the prices of other goods OR maybe, do something spontaneous and make a special offer of having a tariff priced apparel item come with something non-apparel related in order to get away with the higher price.

    1. Your answer for number three is very interesting considering I created an answer for that question as well. This is a different way of thinking about it, and it honestly could work. I never would have thought of this and it is very creative. Good thinking!

  4. #1 U.S. textile and apparel companies care about the trade dispute between the US and China because of the mass percentage of imports they get from China. 98 percent of the clothing and shoes purchased in the United States are imported. Therefore, the U.S. textile and apparel companies care because this will directly affect the tariffs put on their companies’ products. Moreover, this then affects the customers purchasing products from the U.S. companies. The customers will be less inclined to buy a product that has increased in price, then decreasing sales for the U.S textile and apparel company. Overall, I believe the U.S. textile and apparel companies come out as losers.

    #2 The U.S companies are the ones taking a toll because of increases pricing on their products. The Trump administration, on the other hand, are for the tariffs being imposed because they believe in mercantilism, which is things being produced domestically.

  5. #3-If I were the CEO of Macy’s I would not make consumers take the burden of the tariff because consumers do not want to pay extra money for something that they know was cheaper before. We would lose customers if we raised prices of things, and then customers would just go somewhere else to buy what they need. As the CEO of Macy’s I would try to work out a deal or pay the tariff burden as a company ourselves, Macy’s as a company definitely has enough money to cover some of the tariff so maybe prices would only rise a little bit.
    #2- The apparel industry does not like the tariffs because now we are spending more money on getting the apparel in the country when it is supposed to be cheap, also we have to either rise prices for consumers or, take the tariff burden for their company and pay it. The textile industry agrees with the Trump administration on the tariffs because they believe china has been gaining profits illegally from taking our designs and machinery. They have also been making patented U.S. fabrics in China for cheaper.

  6. 2. The U.S fashion brands and retailers oppose these tariffs on apparel imports from China because many of them are doing production in China. The cheap labor in China makes it easier to grab higher margin on apparel sold in the U.S. The apparel industry is largely imported into the U.S. because this industry is labor intensive. By contrast, the textile industry is more capital and technology intensive which the U.S. has. By imposing tariffs, the U.S. is not greatly affected as many textiles are being produced in the United States.

    4. I believe that if the Trump administration wants to lift the tariff for emergency products and PPE production, it should have to lift the tariffs for all products. In my opinion, it is selfish of the government to pick and choose what they place tariffs on and this is unfair to China and other countries that require exporting to the United State in order to support their production and economy. While the tariff would protect the United States, it hurts other countries, causing bad relations and could eventually damage the trade of products internationally completely.

  7. #3: If I were the CEO of Macy’s during the pandemic, a company who was struggling to stay afloat even before Covid-19 hit, I would not pass the burden of the tariffs onto my consumers. Many people were out of work for so long during covid and did not have extra cash to use. If prices were increased then it would drive customers out the door and to other stores where the same product was much cheaper. For Macy’s specifically, they are known for giving pretty good prices on their products and having big sales where customers can get the best prices. They were already having a hard time keeping customers coming in so even though absorbing the tariffs into the company would definitely make it hard, I would rather do that than place the burden on the consumer. I think there is a better chance for the company to stay afloat by absorbing the tariffs.

    #4: I think the United States government should not put tariffs on the PPE being imported from China. As much as President Trump wants everything to be made domestically, during a global crisis I think it’s more important than ever to help wherever you can. The United States did not have the time or resources to be making the mass amounts of PPE needed across the country. Since China is a labor abundant country, it was much easier and quicker for them to make the PPE and send it to us. I think this is exactly what globalization is all about. Being able to help when your country is better and more efficient at something. The PPE was so desperately needed that tariffs should have never been in question. This could have prevented people from receiving protection that was so greatly needed to remain safe. I think if China was able to make it more efficiently than the U.S. then that is their contribution in globalization.

  8. #1 I see both sides as losers. The tariffs would affect the Chinese economy and that would result in the US having the burden of losing profit because Chinese manufacturers may ask for a higher payment. Also, US customers would become affected by this because many brands may begin to increase their prices as a result of this tariff.

    #3 I would not pass the burden of tariffs on consumers. COVID-19 has caused a huge spike in unemployment in the United States. If a company were to do this they may end up losing customers to similar brands that can substitute for Macy’s. Sadly some companies are doing this to consumers. Overall it will cause a bad affect on the company in the long haul.

  9. #3 Being Macy’s, a company who was already having issues before the pandemic, they are faced with tough choices during this time. If I were the CEO, I think that I would have to pass the burden of the tariffs off to consumers, but I would do it only on certain products. Raising the prices of more expensive pieces such as furniture would likely be less noticeable and taken better by consumers as opposed to raising the price of clothing, shoes etc. Doing this risks losing loyal customers, but it maybe the best option in order to try to ease some of the companies costs.
    #4 I do not think that there should be tariffs on PPE coming from China because this is a crisis and the most important thing here is that people are getting the protection that they need. It would be very difficult to try to produce all the PPE we need domestically as we might not have all the resources for that and it would take longer than importing some as well. It would be very selfish for the government to place a tariff on these materials during Covid, money is not the most important thing here, and this is not the appropriate time to be pushing domestic production.

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