Read the article "The Contentious U.S.-China Trade Relationship". Available at:

https://www.cfr.org/backgrounder/contentious-us-china-trade-relationship

1. A brief summary of main points of the article. (150 words)

2. How does the article relate to what you have learned in Notes ? Be sure to include specific terms and concepts from the Notes in your answer. (200-250 words)

Note A. CONFLICTING OUTCOMES OF TRADE PROTECTIONISM Protectionism Dened as: Governmental actions (i.e., mainly restrictions) aimed at limiting international trade. While protecting local industries, often results in increased prices for local consumers B. ECONOMIC RATIONALES (REASONS) FOR GOVERNMENT INTERVENTION Fighting Unemployment in domestic industries. Aim: to protect jobs in some industries (e.g., Gov't may wish to protect domestic Steelworkers. Achieved by limiting imports. Could backfire if it leads to loss of domestic jobs in other peripheral industries (e.g., if, due to reduction in imports, the volume of shipping decreases; therefore, affecting dock workers). Other countries may retaliate when threatened with trade restrictions (e. g., China). To Improve Comparative (i.e., Economic) Relationships with Other Countries using: Balance-of-trade adjustments 7 running trade decits or surpluses (e.g., through currency adjustments; monetary and scal policy) Comparable access/Fairness argument the argument that countries are entitled to equal access to the markets of their trade partners Import restrictions 7 threatening to limit imports (e.g., may lead to voluntary export restraints) Export restrictions Restricting exports from their country forces up world prices for such exports. Used if shortage of domestic supplies Only feasible if the country has a monopoly or near-monopoly of that good (e.g. OPEC). Prevent dumping i Occurs when producers sell goods in a foreign market at prices below cost or below their home country price. OMIT \"Prevention of Foreign Monopolies\" and \"Optimum- tariff Theory\" C. NON-ECONOMIC RATIONALES (REASONS) FOR GOVT INTERVENTION I. To Protect or Maintain \"Essential\" Industries l.Essential-industry Argument gov't should protect \"essential" industries from imports during peacetime to avoid dependence on foreign suppliers during war (e.g., US. defense industry). 2.Achieved by limiting competition or ownership by foreign companies in domestic industries. 11. To Promote Acceptable Practices Abroad l.By limiting trade with \"unfriendly countries\". 2.Achieved by imposing export restrictions on domestic producers through embargoes. III. To Maintain or Extend Spheres of Inuence Gov't will use trade restrictions etc., to force other countries to comply (e.g., Caribbean Basin Initiative). D. MAJOR INSTRUMENTS OF TRADE CONTROL Tariff Barriers 1. Directly affect prices 2. Tariff a. Dened as: a fee imposed on goods entering, leaving or passing through a country. b. Types include: i. Specic duty , tariff imposed on a per-unit basis (e.g., $100 on each computer). ii. Ad valorem duty tariff imposed as % of item's value. iii. Compound duty , tariff imposed using a combination of specic and ad valorem duty. iv. Export tariff imposed on goods leaving the country. v. Transit tariff imposed on goods passing through the country. vi. Import tariff , imposed on goods entering the country. Nontariff Barriers (may affect price or quantity) 1. Non-tariff barriers affecting price a. Subsidies a direct payment by gov't to its domestic producers (e. g., gov't pays portion of production costs of wheat producers). b. Tied aid and loans , government aid/loans with conditions attached (e.g., funds must be spent domestically). c. Customs valuation , amount of duty assessed and the methods used by customs ofcials to determine this amount. 2. Non-tariff barriers affecting quantity a. Quota i. Dened as: limit placed on the quantity of an item imported or exported. ii. Types include: ' Voluntary export restraints (VER) , one country asks another to voluntarily restrict exports or else face restrictions (e.g., U.S. with Japanese auto manufacturers). - Embargoes , prohibits all trade b. \"Buy Local\" legislation , restrict gov't purchases to domestic goods only. Problem is trying to classify global products as \"domestic\" or \"imported\" A. WORLD TRADE ORGANIZATION and GENERAL AGREEMENT ON TARIFF S AND TRADE I. General Agreement on Tariffs and Trade (GATT) l. Formed in 1947 (under the United Nations) to abolish quotas and reduce tariffs among member countries 2. Fundamental principle each member must open its markets equally to all other members 3. Most-Favored-Nation (MFN) Clause a. Prohibited discrimination through its principle of \"trade without discrimination\" b. Reduced tariffs automatically extended to all members 4. GATT did not cover trade in services. II. World Trade Organization (WTO) 1. Formed in 1995 to replace GATT 2. Expanded GATT's scope to include trade in services, investment, intellectual property rights, among other items. 3. In the US, the Most Favored Nation clause is known as Normal Trade Relations (NTR) B. REGIONAL ECONOMIC INTEGRATION (REI) I. Types of Regional Economic Integration 1. Free Trade Area a. Features: i. No internal tariffs among member countries. ii. Each member sets its own tariff with non-members. II. Effects of Integration 1. Static effects a. Trade barriers fall (e.g. when an FTA is formed). b. Inefficient producers are no longer protected by trade barriers. c. Due to competition, inefficient producers are replaced by efficient ones. d. Because the demand for goods made by inefficient producers is replaced by demand for goods by efficient producers, the overall level of demand stays the same (hence the term "static") e. Can develop when either trade creation or trade diversion occurs. 2. Dynamic effects a. Trade barriers fall. b. Volume of market potential increases (more countries/consumers now available). c. Production increases resulting in greater economies of scale. d. There is overall growth in the region. 3. Trade creation a. Trade barriers fall. b. Companies now able to export to new markets without additional costs caused by barriers. c. New products now shipped to these markets. d. New industries develop as a result of new products entering market. e. Example: Assume there are no computers in Country A. When Country A joins the FTA, computers from Country B are exported to A. As a result, other industries (computer repair shops, retail outlets, software developers, etc) are created in Country A. 4. Trade diversion Occurs when companies trade with inefficient member countries instead of efficient non-members when trade barriers fall