As the US government continues to raise the topic of trade decoupling with China, entrepreneurs are left to wonder how the new relationship will benefit them.
While it might seem dark from all angles, there’s still a ray of hope. This article discusses how the US trade relationship with China can benefit US entrepreneurs.
The Trade Relationship between China and the US – An Introduction
The trade relationship between China and the US has taken a negative turn since former President, Trump’s administration. Sadly, Biden’s government has continued to oxygenate the fire since he took over power in 2021. This has caused some uproar from entrepreneurs whose major clients are on the other side of the world.
A trade war has many consequences, all of which heavily affect both countries involved. That said, the US government has a lot to lose from severing trade ties with China. The same applies to China, whose burgeoning economy might face some significant setbacks. Entrepreneurs whose revenue flows primarily from exports are facing a lot of deficits due to tariffs and import duties. While the US government is increasing tariffs and import duties on Chinese products, the Chinese government is reciprocating the gesture.
However, amidst the demerits of the trade relationship, there are still a few ways the US entrepreneurs can benefit.
Ways US Entrepreneurs Can Benefit From the Trade Relationship with China
These are the ways US entrepreneurs can benefit from the trade relationship with China:
1. Increase in the Demand for US-made Goods
One party that benefits greatly from trade wars are local producers. Since January 2018, when the US government introduced tariffs on steel, washing machines, and solar panels, until this moment, US consumers of imported goods have suffered the brunt of high product prices. To worsen the situation, two months later, the government placed import tariffs on $60 billion of Chinese goods.
This made many consumers look inwards toward locally made products. As a result, many US entrepreneurs have seen a significant surge in the demand for their products. The more demands they meet, the more resources they have to expand production and diversify their products.
2. Opens Up Diversification Opportunities
The import tariffs on Chinese goods reduces the quantity of goods Chinese entrepreneurs will ship into the US. This creates a gap, as some products will become extremely scarce. This gap is a huge diversification opportunity for most US entrepreneurs.
As an entrepreneur, you can diversify into a range of products similar to what you currently supply. However, if you have the resources, you can diversify into an entirely new market, provided there’s a serious demand for it.
3. Government Support and Protection
The major reason for the import tariffs is to protect local industries while reducing the trade deficit. The US government wants to reduce the volume of imports and force consumers to resort to domestic products. However, since it’s a game for two, the Chinese government equally responds by limiting imports into its territories.
Trade tariffs are very beneficial to domestic industries, especially the young ones seeking market approval. It gives them a competitive advantage over the more popular products shipped from China and other countries.
The government also offers support to domestic companies to help them meet consumer demand. For instance, to compensate for losses due to China’s import tariffs on agricultural products, Trump gave US farmers an aid package worth $12 billion in 2018. He followed that up with an additional $16 billion in 2019.
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4. Take Advantage of the New US industrial Policy
Following the end of the COVID-19 lockdowns, President Joe Biden’s administration announced the introduction of a new industrial policy. This policy, made up of the Inflation Reduction Act, the CHIPS and Science Act, and the Infrastructure Investment and Jobs Act, aims to accelerate the economic growth of the US and repair broken supply chain links.
The policy looks to bolster domestic manufacturing by investing heavily in research and development, science and technology, and the workforce of the future. All these are intended to greatly reduce America’s dependence on China for high-tech equipment, semiconductors, and other key manufacturing supplies.
The incentives promised by the US government are enough to spur domestic manufacturers into deep research and development. This is a great benefit to US entrepreneurs, which wouldn’t have been available had the harmonious trade relationship with China continued. Many US companies and entrepreneurs are already taking advantage by making private investments in the manufacturing of memory chips and semiconductors.
Why does the US end up with a trade deficit with China?
China is the most populated country in the world, with over 1.4 billion people. That makes labor extremely cheap in China compared to the US.
The cost of production for a product in China is four times less than what it is in the US. Even with the cost of importation, most Chinese products in the US are cheaper than their US equivalents. This leads to increased demand for Chinese products in the US and reduced demand for US products in China.
Since the US imports more from China than it exports, the imbalance in the transactions will always be negative for the US.
How does a trade war with China affect the US?
The negative effects of the trade war with China on the US are huge. Due to the increasing restrictions on Chinese products, the Chinese government has embarked on several trade agreements with other countries. This reduces the volume of products they can import from and export to the US. Since production is cheaper in China than it is in the US, China will definitely attract more trading partners than the US.
Conclusion on How US Entrepreneurs Can Benefit from the Trade Relationship with China
Thousands of jobs have been created since the US government announced the new industrial policy. Many companies, both local and international, are investing massively in US industries. This is a great leap by President Biden’s administration, as it looks to keep and enforce most of Donald Trump’s protectionist laws.
Though China and the US would benefit more from a more cordial trade relationship, this series of tariffs and restrictions has a significant benefit for US entrepreneurs.
