Market Economics and Political Change: Comparing China and Mexico
A trade war happens when one country retaliates against another by raising import tariffs or placing other restrictions on the opposing country's imports. A tariff is a tax or duty imposed on the goods imported into a nation. In a global economy, a trade war can become very damaging to the consumers and businesses of both nations, and the contagion can grow to affect many aspects of both economies. Trade wars are a side effect of protectionism , which are government actions and policies that restrict international trade. A country will generally undertake protectionist actions with the intent of shielding domestic businesses and jobs from foreign competition.
Protectionism is also a method used to balance trade deficits. A trade deficit happens when a country's imports exceed the amounts of its exports. Trade wars can commence if one country perceives a competitor nation has unfair trading practices. Domestic trade unions or industry lobbyists can place pressure on politicians to make imported goods less attractive to consumers, pushing international policy toward a trade war.
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- Market Economics and Political Change: Comparing China and Mexico.
Also, trade wars are often a result of a misunderstanding of the widespread benefits of free trade. A trade war that begins in one sector can grow to affect other sectors. Likewise, a trade war that begins between two countries can affect other countries not initially involved in the trade war. As noted above, this import tit-for-tat battle can result from a protectionist penchant.
A trade war is distinct from other actions taken to control imports and exports, such as sanctions. Instead, the war has detrimental effects on the trading relationship between two countries in that its goals are related specifically to trade. In addition to tariffs, protectionist policies can be implemented by placing a cap on import quotas, setting clear product standards, or implementing government subsidies for processes to deter outsourcing. Trade wars are not an invention of modern society.
Such battles have been going on for as long as nations have conducted trades with one another. Colonial powers fought with each other over the rights to trade exclusively with overseas colonies in the 17th century. The British Empire has a long history of such trade battles. An example can be seen in the opium wars of the 19th century with China.
The British had been sending Indian-produced opium into China for years when the Chinese emperor decreed it to be illegal. Attempts to settle the conflict failed, and the emperor eventually sent troops to confiscate the drugs. However, the might of the British navy prevailed, and China conceded additional entry of foreign trade into the nation. In , the U. In response, several nations retaliated against the U.
Beginning in January , President Donald Trump started the imposition of a series of tariffs on everything from steel and aluminum to solar panels and washing machines. Canada imposed a series of temporary duties on American steel and other products. The EU also imposed tariffs on American agricultural imports and other products including Harley Davidson motorcycles. As with all trade wars, China retaliated and imposed stiff duties on American imports.
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Many believe these costs will, in turn, be passed on to the American consumer in the form of higher product prices. The advantages and disadvantages of trade wars in particular and protectionism, in general, are the subjects of fierce and ongoing debate. Proponents of protectionism argue that well-crafted policies provide competitive advantages. By blocking or discouraging imports, protective policies throw more business toward the domestic producers, which ultimately creates more American employment.
These policies also serve to overcome a trade deficit. Further, proponents believe that painful tariffs and trade wars may also be the only effective way to deal with a nation that behaves unfairly or unethically in its trading policies.
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Critics argue that protectionism often hurts the people it is intended to protect long-term by choking off markets and slowing economic growth and cultural exchange. Consumers may begin to have less choice in the marketplace. They may even face shortages if there is no ready domestic substitute for the imported goods that tariffs have impacted or eliminated. Having to pay more for raw materials hurts manufacturers' profit margins.
As a result, trade wars can lead to price increases—with manufactured goods, in particular, becoming more expensive—sparking inflation in the local economy overall. While running for President in , President Donald Trump expressed his disdain for many current trade agreements, promising to bring manufacturing jobs back to the United States from other nations where they have been outsourced, such as China and India. After his election, he embarked on a protectionist campaign.
In the battle of exportation with China, Mexico lost both profit and market share. However, the one industry that recovered the fastest after the financial crisis and remained steady after was the autoparts-automobile sector. At this point, Mexico remained the third largest autoparts-automobile exporter to the United States, after Japan and Canada. It would be easy to assert that Mexico has dominated China in the autoparts-automobile sector.
In , China represented only 3.
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At the same time, China paid tariffs 38 times that of Mexico. In , China was able to surpass Canada to become the second largest exporter of automotive parts to the United States after Mexico.
The rivalry between Mexico and China in the U. Greater cooperation between Mexico and China is foreseeable due to the massive amount of infrastructure investment China has been making in Latin America. For Mexico, China is seen as an ideal partner for infrastructure investment because of its commendable record of domestic and international infrastructural programs. The trip was intended to smooth relations between the two countries, and it has certainly done so.
Also, the report suggests that Mexico has successfully made the process of starting a new business less difficult. For example, the energy and telecommunication sector only allow for restricted access. Within the energy sector, the oil industry remain strictly controlled by the state. At the same time, the telecommunications sector only allows up to 49 percent of foreign control. Further reforms have been made to attract foreign direct investment FDI.
More specifically, the new Public-Private Partnership PPP , enacted in , has attempted to create a more efficient legal framework. The PPP law also makes the bidding process in Mexico more competitive, efficient, and transparent.
On the other hand, updated laws do not guarantee protection for foreign businesses. Many steps need to be taken before Mexico can become an ideal destination for foreign investors. Just when Mexico and China seemed to be building a promising relationship, Mexico surprised China with the cancellation of a China-led bid for a bullet train project. This multimillion dollar project was put on hold, after commencing in , because it has severely damaged sensitive beaches and plantations in the area.
The developer failed to obtain a permit from the local government at the beginning of the project, but after a series of appeals and legal processes, the project obtained a permit and construction resumed. In conclusion, it is obvious that Mexico and China have had difficulties within their relations, but the general trend suggests that Chinese investment in Mexico will continue to grow.