ECON

Ruoqi Liu

Junior Independent Study

Dr. Amyaz Moledina

Table of contents Comment by Amyaz Moledina: Use the functionality in Word to make a table of contents and headings. Doing it this way will mean you will always have to update page numbers, which will become annoying fast. See https://youtu.be/S8ZQhywCvWo for help.

1. Proposal………………………………………………………………………..3

a. Timeline……………………………………………………………………4

2. Introduction……………………………………………………………………6

3. Theory…………………………………………………………………………7

a. Introduction……………………………………………………………..7

b. Overview………………………………………………………………..10

c. Intra and inter-industry trade…………………………………………...11

d. Comparative advantage…………………………………………………13

e. Trade protection…………………………………………………………16

f. Conclusion……………………………………………………………….22

4. Literature review…………………………………………………………….23

a. Literature review 1………………………………………………………23

b. Literature review 2……………………………………………………….30

c. Literature review 3……………………………………………………….33

6. Reference……………………………………………………………………..42

Proposal

The trade war between China and the US is happening right now. I am from China and studying in the US. Thus, s, and I feel like this current incident is related to me. In this cross-culture context, I experienced the difference between the Chinese and the US economic system. China and the US as two of the most significant economic entities, the trade war that happened between these two economic entities can influence the world economy. China, as a rapidly economically developing country, has been viewed as a threat to the US public. Thus, the trade war is a way to stop China to continue growing, especially in the high-end technology manufacturing. As the largest intelligent manufacturing in the world, I am personally curious about how the trade war could influence China. Therefore, for this topic, I come up with the hypothesis is: the trade war can increase the export of Chinese high-end technology manufacturing in the world. Comment by Amyaz Moledina: Start date of trade war? This sounds a bit too personal. I am glad you are motivated by personal interest. As a researcher you want to appear impersonal and starting with a personal statement like this for a GIS research thesis may not be the best choice. Comment by Amyaz Moledina: Your feelings and experience are useful, but I am wondering if those feelings have anything to do with your analysis? Comment by Amyaz Moledina: Here you listing a series of assertions that have no citations. For example, China and the US are the most significant entities? Significant for whom or what? Also, you are calling China a “developing” country. Is that really how you see it? The World Bank classifies countries by income. China is an “Upper Middle Income” country as measured by GDP per person. Also notice that we don’t use the phrase “developing country” anymore. Comment by Amyaz Moledina: What do you mean? Are they the highest exporter of high-tech goods? What is the definition of high-tech?

           In my Junior IS, the dependent variable is Chinesea exports, and the independent variable is the tariffs. Thus, what I need for my research areis the international theoretical models which that connecttain the tariffs and exports. The models can give me a clear idea about what will happen base on my topic and the hypothesis. I focus on multiple international trade theories such as Ricardo’s theory of comparative advantage, trade protection, and inter and intra-industry trade. In order to do that, I go over some journal articles which mainly talk about the trade, trade war, tariff, and theoretical models. For the model part, I focus on the comparative advantage, trade protection and inter and intra-industry trade. I also go to some data websites to collect information about the trade war. Since the trade war is currently happening, there do not have many journal articles that talk about it.   Comment by Amyaz Moledina: Too vague. Mention one model and show what it predicts will be the effect. Comment by Amyaz Moledina: Again, list which ones and explain and connect them in a few senetences. Comment by Amyaz Moledina: This is not a very well written proposal summary.

Timeline

Junior IS

First few weeks (the weeks with Professor Mellizo): understand what independent study is and how to write about the IS. Define the topic you would like to research and start to read some article that related to your interested topics.

1st week with Professor Moledina (Feb 24): define the research topic, goal and area.

2nd week (March 2): work on the literature review

3rd week (March 9): work on the literature review

4th week (March 16): work on the literature review and start to look at the theory

5th week (March 23): define theory and think about what kind of theory you want to use in your IS

6th week (March 30): modify literature review and thinking about theory

7th week (April 6): work on the theory and finalize the literature review

8th week (April 13): modify theory, presentation about your model and hand in all of the literature review

9th week (April 20): hand in draft of theory and about finalize the Junior IS

10th week (April 27): final presentation, hand in Junior IS

Senior IS (first semester)

1st week (Aug 19): go over the Junior IS and start to read article

2nd week (Aug 24): modify the Junior IS’s literature review and the theory

3rd week (Aug 31): start to write the literature review

4th week (Sep 7): write the literature review

5th week (Sep 14): write the literature review and start to work on the theory

6th week (Sep 21): continue working on theory and start to collect the data for dep. and indep. Variables

7th week (Sep 28): collect the data and continue working on the literature review and theory

8th week (Oct 5): think about the methodology

9th week (Oct 12): outline the details of research methods, continue working on the theory

10th week (Oct 19): come up with few methodologies

11th week (Oct 26): define the statistical method you want to use and start to run the model

12th week (Nov 2): analyze the data, like if it is correct? If missing some data? Comment by Amyaz Moledina: I like that you are hoping to do some data work in the Fall. This is a good goal. It depends on how well your Theory and Lit Review Chapters go. I would plan on having many revisions and trips to the writing center to get better and better drafts.

13th week (Nov 9): analyze the data, find out if I need multiple regression

14th week (Nov 16): analyze the data, check if you come out some results 15th week (Nov 23): modify the literature review

16th week (Nov 30): go over how many works you have done and what works you still need to work on

17th week (Dec 7): Examination

Senior IS (Second Semester)

1st week (Jan 11): Organize the works you done

2nd week (Jan 18): check the regression model, make sure it is all correct

3rd week (Jan 25): work on the theory

4th week (Feb 1): work on the theory

5th week (Feb 8): start to make the contents

6th week (Feb 15): finalize the literature

7th week (Feb 22): modify the theory

8th week (March 1): modify the theory

9th week (March 8): modify theory / finalize the theory

10th week (March 15): finalize theory and put all the works together

11th week (March 22): hand in Senior IS

Introduction 

           Since the trade war between China and the US is still happening, lots of researches and the data still continue to update. For the current stage, some problems in China have already show up. For example, the devaluation of the Chinese currency and the decrease of quantity demand in China. China has experienced the negative effect of trade war. Today, due to the outbreak of coronavirus, the trade war is laid aside. The whole world is working hard to against the virus. In the future, there is still uncertain how far the trade war will go and how many problems will show up by the trade war.       Comment by Amyaz Moledina: This is not a very good introduction. Your topic is about tariffs and its effect on Chinese high technology exports. Your research question should determine what you talk about in the introduction. So, this introduction should first tell me something about the trade war. It should then say something about what high-technology means. What is the definition? Is there universal agreement of what a high-technology sector means? For example, if I have some smart scientists that use computers to provide marketing insights to companies, is that high tech? What about a phone? Show some data on what portion of Chinese GDP that is in high-technology exports. Show some data on trade and talk about these trends and how they relate to each other. Then discuss what your theory and literature review found. Don’t talk about the Corona virus, unless its relevant to your thesis. Right now, it is not.

Theory

Introduction

The trade war between China and the United States has been a significant economic event of the 21st century. The United States is the world's largest economy with a total Gross Domestic Product (GDP) of over $20 trillion in the fiscal year ending 2019.China is also the second-largest economy in the world, with a GDP of $14.3 trillion in the fiscal year ending 2019 (Scissors, 2020). This bilateral trade war has created uncertainty in the global economy because the two countries contribute significant amounts to the global economy. A majority of countries in the world depend on trade with either China, the United States, or both, to maintain their economic growth. The involvement of the two countries in the global economy spells the extent of how their trade war impacts the economy of other countries (Scissors, 2020). The trade war between the United States and China is an evolving conflict between the two countries and the resilience of each country in withstanding the pressure of the effects that emerge as a result of the war. Comment by Amyaz Moledina: As measured by what? Comment by Amyaz Moledina: Try not to reference news article and think tanks that have an agenda. You want to be as objective as possible in your research.

Source: Bloomberg Economic

The trade war between China and the United States has escalated every time it appears to settle down for a trade agreement. Economic experts express concerns over the fact that the two countries need to show more collaboration in terms of trade rather than animosity. However, the president of the United States, Donald Trump, has expressed determination to impose more tariffs on China in case it does not respond to the demands made by Washington (Swanson, 2020). At the moment, both economies have hit rock bottom due to the outbreak of the COVID-19 pandemic. The first cases of the pandemic were first reported in China, but the virus managed to spread quickly across Europe and other countries across the world. Currently, the United States is the most hit country with the highest reported cases of the virus and the highest number of deaths from the virus (Swanson, 2020). Both countries are currently focused on containing the virus within their boundaries and offering support to other countries that also felt the impacts of the virus, leaving uncertainty on the issue of their trade war. However, the events of the pandemic do not erase the effects that the trade war had on the economies of both countries. Comment by Amyaz Moledina: Like who? Comment by Amyaz Moledina: Again. I am not sure this is relevant. Comment by Amyaz Moledina: You are attributing this fact to Swanson, but when I looked at the reference, this fact is not to be seen?

The trade war between China and the United States majorly affected the imports and exports between the two countries. While the United States placed tariffs on imports from China, China also placed tariffs on imports from the United States as countermeasures to Washington's aggressive approach. Industries in both countries experienced significant impacts of the trade war, majorly affecting their industries (Swanson, 2020). The Chinese technology industry is among the industries that experienced significant effects of the trade war between the two countries. China has advanced in the technology sector over the past decade to become a highly competitive technology hub. The recent rollout of the 5G network by the Chinese tech giant Huawei depicts the rate at which China is advancing in terms of technology (Swanson, 2020). The research will review the impacts of trade restrictions on the Chinese technology sector in terms of production and distribution amid the Sino-US trade war through the lens of the trade liberalization theory. Other theoretical frameworks can also provide an overview of how the trade war has impacted the technology sector in the Chinese economy, focusing on production and distribution. Comment by Amyaz Moledina: This fact is not in the article you cited. You are misrepresenting your evidence! Comment by Amyaz Moledina: Be more precise. You need to lead into this section better.

Graph1 Comment by Amyaz Moledina: The convention is to use Figure.

Graph 1 is showing China export based on the a partial equilbrium international trade classical model. As the tariff increase, the producer surplus will decrease. The quantitylity demanded decreasesreduce from (Q1, Q2) to (Q3, Q4). For large countries, like China and the US. When China increase the tariff, it will increase the domestic market price and decrease the domestic demand. Then the world demand will reducefall. For China, in order to maintain the export volume, they have to lower the export price under the world price. Thus, the add tariff will led to a new world price. Comment by Amyaz Moledina: This Figure comes from a series of assumptions. What are they? Look at a textbook that discusses this model. Set up the model properly. Also, you are not explaining all aspects of this model. The RESULT is correct, but it is not explained well in a sequential and logical manner.

Overview of Trade War and Impact on the Chinese Technological Sector

According to Kif Leswing, the trade war between China and the United States had already cost technology firms in China, more than $10 billion in 2019 in lost exports to The United States. According to the tariffs that the United States enforced on China, technology firms in China importing products from the United States would have to pay a tax of 15% to the government of the United States. According to Colback, both countries have the intention to make a significant gain from the ongoing trade war. The US tariffs on China restrict the importation of Chinese products into the United States unless the importing companies pay the 15% tax on the goods. The tariffs imply that Chinese firms would have to incur higher costs of importing products from the United States. The tariffs will have a significant impact on the production of technology products in China for various reasons. Comment by Amyaz Moledina: Kif Leswing is a news reporter. You seem to be reading news articles. Ruoqi, you are supposed to read JOURNAL articles. These are found here: http://libguides.wooster.edu/c.php?g=123856&p=811436 Comment by Amyaz Moledina: Citation needed

Chinese technology firms depend on semiconductors, transistors, and other electronic elements for use in their production processes. Paying a high tax on the imports imply that the Chinese companies will incur a higher cost of production on their technological devices (Smialowski, 2019). The US trade tariffs also indicate that the United States will impose taxation on the products that China exports to the United States. The United States is among the biggest consumers of Chinese products. Charging a high tax rate on the exports implies that the Chinese manufacturers of technological products will incur high costs of exportation, gaining little revenue from their exports to the United States (Smialowski, 2019). China also responded with tariffs on products that it imports from the United States and the products that American producers export to China. Various economic theories can explain the economic impact of the trade war on the production and distribution of Chinese technological products in the market. Comment by Amyaz Moledina: Not sure what the definition of high technology is still. Comment by Amyaz Moledina: I don’t see this reference in your works cited page. Comment by Amyaz Moledina: Can you show these points in your theory. For example how does a low versus high tariff affect Graph 1. Would the graph look the same for high-technology industries versus other industries? Not using your understanding of principles enough.

Intra and Inter-industry Trade

The recent years have been tough based on the bilateral trade between China and the United States. China’s competitiveness largely reflects low labor costs regardless of the economic growth of the country compared to other developed countries like the United States. The low costs, foreign technology, and Foreign Direct Investment (FDI) inflow have also improved the competence of Chinese industries, and this has resulted in the inter and intra-industry spillovers to the manufacturing sector of China (Caporale & Sova, 2015). Comment by Amyaz Moledina: Be careful about paraphrasing.

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Graph 2: Source: López, J. A. A., Valdez, S. G., & Rodil, Ó. M. (2014). The impact of china’s incursion into the north american free trade agreement (NAFTA) on intra-industry trade

Graph 2 shows the levels of intra-industry trade found between China and United State, and the results compared to other countries such as Mexico and Japan. China tends to have a high intra-industry trade level compared to the United States. The high level of intra-industry trade between the United States and China in this sector is part of the evidence of the devolution of the Chinese technological industries and the United States automotive industry (López, Valdez & Rodil, 2014). Comment by Amyaz Moledina: I don’t understand why inter and intra-industry trade are relevant for your story. Comment by Amyaz Moledina: You sections in this theory chapter need to connect and flow into each other.

Comparative Advantage

China is one of the most populated country in the world, meaning that it has access to a high large labour force compared to the United States. The production of technological products requires the assembly and manufacture of various components that work together to create the tech products. China is in a better position in manufacturing products that need intensive labor. For instance, the manufacture of computers requires the assembly of various elements on the motherboard. Although China has a higher advantage when it comes to the issue of labour, companies in the United States have an advantage in terms of technology and capital (Swanson, 2020). Therefore, the two factors create a comparative advantage for both China and the United States in terms of the manufacture of tech products.

The trade war between the United States and China will have a significant negative impact on the production of tech products in China because it denies them the comparative advantage. China depends on the high tech components from the United States, such as transistors and semiconductors, in the assembly and manufacture of their tech products (Smialowski, 2019). Chinese firms already acquire the components at a high cost due to their initial cost of production. Therefore, paying an additional 15% on the importation of the components will cripple the Chinese manufacturing sector in terms of technology products. The technology manufacturing companies in China will face a major challenge in coping with the high costs of production. Eventually, China would lose its competitive advantage in the field of technology due to low revenue from the production of technological products. Comment by Amyaz Moledina: Evidence? The semiconductor supply chain is complicated. The US has 50% of the market share, but there are other sources.

Graph 3 Comment by Amyaz Moledina: Not well explained. What is true for product X vis China? How does this relate to the Figure 1.

Graph 4

Graph 3 and Graph 4 are only considering China’s situation when add the tariff.

Graph 3 is showing the time when China and the US haven’t started a trade war as the graph shows that both countries are better off. However, as the tariff increased, the quality demand in China is decreased. Graph 4 is showing the situation when China is facing increased tariff. China lost its comparative advantage in Product X and need to spend more money to buy Product Y from the US. Comment by Amyaz Moledina: ?? Did you make the edits I suggested?

According to the Ricardian model, a trade deal between the two countries will enable Chinese companies to import raw materials for production in the technology sector. Gaining access to the raw materials is the only way China can maximize the use of its diverse labor force in production because many companies will expand their production capacity.

The theory of comparative advantage depicts that China is likely to face negative impacts of its trade war with the United States. On the other hand, the United States does not face a higher risk due to its tariffs on Chinese products and the counter-tariffs from the Chinese government because it still has the opportunity to acquire labour from other countries. According to the theory of comparative advantage, efficiency is important compared to direct production (Cinquetti, 2017). China is also a technological hub that has the capacity to invest in the manufacture of the electronic components needed for manufacturing in their technological sector. However, the country would incur high initial costs of setting up production industries for specific components. The returns on investments would also remain low for China because of maintaining the industries as opposed to importing already manufactured components from the United States for use in tech companies in China. The logic of the theory explains why China is doing everything possible to ensure that it reaches an agreeable and convenient trade deal with the United States. Comment by Amyaz Moledina: The text and the graphs do not connect. Logic needs to improve.

Trade Protection

In recent years, China has been experiencing the fastest economic growth. The realization of the growing economy is due to focusing on trade and opening its economy. The country is currently taking second position in economic development after the United States. The increase of the United States trade deficit with China has raised tension between the two biggest economies around the globe. Although China is opening its economy, it is still protecting its trade by restricting some of its industries and involving in unfair trade practices. China has been considered as a world threat based on economic development. Comment by Amyaz Moledina: I am not sure all this repetition about the size of the two economies is needed. If this section is about tariffs as a means of trade protection, then perhaps start with a definition. Then show the various ways in which different types of trade protection would work in the graph. Thoery is supposed to be about being able to generate a prediction using your model.

On the other hand, President Trump administration asserts that trade deficit hurts the United States manufacturing and the administration is planning to cut them. The previous administration utilized the World Trade Organization process to dare China for neglecting intellectual property rights, subsidizing its industries, and restricting trade. Trade protection hurts both China and the United States. The United States of America is among the leading trade partner of China. The United States tariffs can slow its economic growth. On the other hand, the Chinese tariffs can raise prices on the United States goods. The unilateral approach of imposing tariffs as a trade barrier not only reduces deficits for a country but also leads to an increased level of unemployment (Sukar & Syed, 2019). Comment by Amyaz Moledina: ? Exposition.

Graph 5

The below graph shows how the United States lost in its economy in 2018 after imposing trade tariffs from the exported products from the United States. Comment by Amyaz Moledina: Where is it from? What were the assumptions behind constructing this graph?

Graph 6

The China trade deficit with the U.S. in 2019 was about $345.6 billion, and this was approximately 18% less compared to the 2018 trade deficit that recorded $419.5 billion. The trade deficit occurred because the United States exports to China recorded about $106.6 billion, while China recorded about $452.2 billion as imports from the United States. The biggest categories of China’s exports include sporting products, toys, apparel, cell phones, computers, among others. The most significant categories of U.S. exports include semiconductors, soya beans, and commercial aircraft, among others. Trade protection has led to the China-US trade, thus affecting the competitiveness of the Chinese high-tech technology manufacturing industry. For example, the exportation of soya beans by the United States was cancelled by China in 2018 because the President of the United States, Donald Trump, had started a trade war with China. He introduced strict tariffs on China’s steel exports, among other products (Amadeo, 2020).

China manufactures a variety of high-tech products at a lower cost compared to the United States. Many buyers from the United States and other countries consider buying Chinese products due to the low prices tagged on the products. Many economists will consent that the competitive pricing of Chinese products is a result of the exchange rate and standard of living. The Chinese standard of living is lower compared to the standard of living in the United States, and this is the reason Chinese companies pay low wages to the employees. The Chinese exchange rate is also fixed to the dollar. If the U.S. introduced trade protection, the United States customers would have to pay additional prices because the products are made from America. However, most customers will consider buying products such as computers and other electronics from the Chinese sellers even if Americans have to lose their jobs (Amadeo, 2020). Comment by Amyaz Moledina: Connect these ideas to your graph.

Graph 7 showed the effect when the United States imposed tariffs in 2018. China also imposed tariffs in the same year. According to graph 7, the imposing of the tariff as a trade barrier and trade protection had a significant effect on each country. The economic growths were steady before the introduction of trade protection. However, economic growth declined after imposing the tariffs.

Graph 7: Source: Michael Waugh 19 November, 2019

Graph 7 gives a comparison in tariff imposition between January 2018 and January 2019. It represents significant events during the U.S.-China trade war. The graph shows the difference in the growth of auto sales between high-and low-tariffs. The implementation of the first tariff resulted in the slow growth of the region represented with a large magnitude. Comment by Amyaz Moledina: Ok. Are auto-sales high technology?

In 2019, a comprehensive grand bargain or trade agreement between Beijing and Washington scored a high value on the visitors’ wish list. The succeeding months were full of ball negotiations that led to the introduction of harsh language and strict trade tariffs. Considering that markers can perform with the trade protection proves a false comfort as we can see several areas in trade affected. Competition between the two countries is being affected, with China broadening its market to African countries (Mackenzie, 2019). The tense in trade between the United States and China has increased and has had economic implications for the global market. The root cause of this is the current direction by the United States in the introduction of a new trade policy, this affecting the globalization of the international economy. The media coverage of the ongoing U.S.-China trade war has been focusing on President Donald Trump as he played a significant role in the introduction of trade policies (Varblane & Mathias, 2019). Comment by Amyaz Moledina: ? Comment by Amyaz Moledina: Relevance?

Conclusion

The trade war between China and the United States has considerable impacts on the economies of both countries. However, the trade war threatens the Chinese technology sector more than the American economy. The comparative advantage theory, Trade protection theory, and the intra and inter-industry theory support the idea that China will feel a greater impact on its tech sector due to the trade restrictions implemented by the United States in terms of tariffs. China enjoys the availability of cheap labor as its comparative advantage in the technological sector. However, the United States enjoys a comparative advantage in terms of raw materials. The three theories support the idea that the comparative advantage of a country ascertains its capability and the cost of producing various products. China needs raw materials to manufacture products in its tech sector. However, the US has imposed tariffs of 15% tax on all imports from the United States to China. Chinese companies will find it costly to manufacture products because of the taxation on raw materials. The United States will also lose in terms of costly tech products from China and the challenges for American tech firms in China to compete in the international market. Comment by Amyaz Moledina: This theory section is not passing. The only thing that is making this acceptable is that you do have a correct partial equilibrium model that shows the impact of a tariff on exports. I suggest that you re-write this theory chapter. What should be in this chapter? Like I have said before: Start with some stylized facts and define what you mean by the high tech sector. Show and discuss data on the evolution of trade in high tech and provide a sequence of tit-for-tat tariffs specifically focused on the high tech sector. definitions. What is a tariff? What is a trade war? Why does trade occur? Show a simple example of two country two good trade model. Then show the effect of the tariff on a simple partial equilibrium model (Figure 1). Discuss it fully showing who gains and who loses. Conclude by reiterating the impact of tariffs on trade volume.

Literature Review 1

The article focuses on trade liberalization that has acted as a starting point of many nations trading together. Allowing nations to trade freely by removing or reducing barriers or restrictions to enable a free exchange of goods has cleared away problems experienced in boarders. This has allowed high trading to take place and more interactions in trading markets. As a result, trade has grown, making some low trading countries to upgrade in trading word. However, this has caused effects in trade liberalization (Balassa, 1965). This has been due that states have to trade for more income; some resources were used for what they had not been intended for the use. This being the case, trade liberalization led to effects such as resources being reallocated for trading purposes even though they were to be used for another purpose. Although reallocation may lead to a more useful way of resources, the initially planned projects for the reallocated resources fails. As well, trade liberalization has led to completion among nations. Competitions in trading have created unity among nations that have led to the enhancement of more competitive ways of trading. Although some countries have differed in trading terms, trade liberalization opened up a competitive advantage that has led to the growth of markets. Comment by Amyaz Moledina: Not true. Many countries trade without liberalization? Comment by Amyaz Moledina: Increased the volume of trade. Please work with the writing center. Comment by Amyaz Moledina: ? Comment by Amyaz Moledina: ? Comment by Amyaz Moledina: Do you mean competition? Comment by Amyaz Moledina: Word choice.

Comparing of relative shares of country in the world’s export can be a means of measuring the export performance of a particular country. the comparable progress degrees can provide a deceptive impression of a relative improvement since high development rates are well-matched with small exports in complete terms (Balassa, 1965). However, a nation that has a huge section of the export market in a given product can barely be expected to raise its share further. Nations that are in the mid of the range among industrial economies are likely to export technologically less developed products to economies at advanced levels of industrialization and more refined products to countries at lower levels of industrial advancement.

The reallocation of resources relies on the comparative advantage, hence making contrasts on the foundation of a manufacture agreement that happens simultaneously through identical evaluation in all nations (Balassa, 1965). Practically, the conducting of production consensus during diverse times through different methods of inquiry and adequate data for carrying out the intercountry cost-comparisons is unavailable. In the case of the United States of America and the United Kingdom, their inter-industry cost-comparisons from the 1950s are available. Yet, the year is not normal due to the long-time elapse. For the current times, an additional deficiency of approximations has led to an increase of the cost to the value-added alongside the depreciation. Comment by Amyaz Moledina: ? I don’t understand this. Comment by Amyaz Moledina: ? Comment by Amyaz Moledina: ? Your exposition is really difficult to follow. I think you are trying to say computing cost advantage is difficult because the data are not available?

The utilization of industry studies provides cost comparisons for production industries of developed countries. The National Industrial Conference Board discusses matters of production costs, foreign and domestic operations. But without the classification of industries, the breakdown analysis becomes a big challenge, but still, there is a reliance on the pattern of comparative advantage and consideration as well as classical theories of comparative advantage. Comment by Amyaz Moledina: So yes. This is an important point.

In a two-country, a two-factor world where manufacturing processes are globally similar and the pliability of substitution among the aspects of production is unity or zero. The strengths of single commodities will be exceptionally established, and the global speculation will be corresponding with the intercountry variations in factor-endowments (Balassa, 1965). In case the provision is made for taste variations, the expression of relative factor-endowments is in the relative factor prices. For instance, if a country has a low relative labour pricing, then it will be abundant labour meaning the trade-partner will be capital abundant. Comment by Amyaz Moledina: ????

The companies might lay off some of the workers so as to manage their finances and profits, which will then result in low production (Balassa, 1965). Due to low productions in these countries, then they will have no surplus goods to export to other countries which will affect the trade relations and revenue that was gained from exports. In another analysis that was conducted for 19 countries, it was evident that there are low substitution elasticities compared to unity and the differences in various industries imply the lack of interdependence in the relative factor intensities on factor prices (Balassa, 1965). Then later the substituted products will be sold at equally the same price as before and generate a similar income as it was generating in the past. As wages rise in comparison to the capital price, the industrial capital-intensity with high elasticity of substitution increases relatively to the industry where there is low elasticity; hence in case, the latter industry is capital intensive at a low wage level provision. There will be a shift in the factor intensities, and the relative factor endowments will not have a discrete effect on the comparative advantage (Balassa, 1965).

Nonetheless, regardless of the possible factor reversal, a computation of direct alongside indirect labour and capital coefficients will never afford a suitable indication of comparative advantage in case the inter-country variation inefficiency is there. With the assumption that the variations apply equally to every industry, those nations with the high-efficiency levels will have an overhead in industries which use the intermediate products in large volumes (Balassa, 1965). There is a suggestion that the separate consideration of direct labour and capital demands and the material inputs, where there are intercountry variations in consideration with the latter show the relative efficiency in stages within the production process. Therefore, it is conduct to my study of US - China trade war where there are direct labour and capital demands and intermediate products, there are possible differences that will then come out in the manufacturing process of the high-end products.

Within the Heckscher-Ohlinm theory, it is suggested that a relative factor comparison is a two-factor rather than three-factor. In a situation where there are capital, labour, and materials, only two aspects can be considered. Trade performance of a single nation determines the comparative advantage in the manufacture of products because the pattern in trading of products has a reflection of the relative costs and the variations in the non-price aspects (Balassa, 1965). The proportional advantage determines the exportation structure and in the assumption of uniformity in tastes and the universal occurrence of the responsibilities of all industries in each nation; the ratio of exports and imports can also impact on the relative advantages. Comment by Amyaz Moledina: This is not well explained. Balassa is actually referencing earlier work by Arrow to expand his thoughts. But his basic story on page 100 starts with an understanding of the Heckscher-Ohlin-Samuelson (HOS) model.

Therefore, whereas the heterogeneity of statistical commodities permits exportation and importation within a similar class, the high advantage of a country in the manufacture of the target commodities results in the high ration of F.O.B. worth of exports to the one of imports (Balassa, 1965). In an actual situation, consistency in tastes and frequency of duties is never there; what happens is that intercountry variations in tastes affect imports because of the levels of production. Besides, when there are intermediate products, demand affects the exportation-importation ratios. It is also vital to consider special situations which affect single products, and they enhance the general comparisons.

According to Balassa(1965), the situation, there are short-run complications of change and the consequences for the balance-of-payments of the nation’s partaking in negotiations. However, very little attention has been paid to the enduring effects of trade liberalization, the rearrangement of resources following the release of trade barriers. Since the redistribution of resources depends on comparative advantage, it is appropriate to determine where the proportional advantage of industries lies in their trade with each other.

While this will directly affect this industry, it also reduces their international competitiveness (Balassa, 1965). Obviously, the increased competitiveness makes it a little bit difficult for high-end manufacturing products to go out of the country due to the rise in prices. Still, the production cost of enterprises will definitely rise while the foreign capital of departments will flow back to the U.S. Indeed, the U.S-China trade war has created some excessive waves globally. For example, while some factories are collapsing owing to a sudden change, there are those that suddenly need to cope with excess demand due to the presence of unsustainable growth. The results of the increase of in-demand cuts assume concerns of quality on products as the focus is based on satisfying the market. Comment by Amyaz Moledina: What is competitiveness?

Balassa (1965) in this paper have gone through some historical highlights of trade relationships which have existed between China and the United States. Given that such countries have been trading partners for quite some time, it is observed that they are both economically interdependent. This type of relationship generally manipulates the order of trade globally. As a matter of fact, whenever there is a trade fight between China and the United States, this definitely affects the flow of business in many nations

LITERATURE REVIEW 23

There are several methodologies that are applied in the measurement of revealed comparative advantage. Revealed comparative advantage has been used over time to point out to region's strengths versus weaknesses in the production of various goods. Various resource combinations act to determine the costs that are associated with the production process. Some countries have high labour endowments, while others shave high resource endowments. The RCA indices are very critical in the process of estimation of normal export shares. Comment by Amyaz Moledina: ? Comment by Amyaz Moledina: This review is not passing. You are struggling to understand what Balassa is saying in his paper and relating it to Chen. I am not sure Chen was a good paper to relate it to, since they did not use RCA?

Literature Review 2 Comment by Amyaz Moledina: Can you use the Authors name or Article title as the subtitle.

The article focuses on economic activities that led to a change of economy in the late 1950s and the late 1980s, leading to income growth. In the evolution of the economy, many factors are considered that might have impacted the change. According to the article, various factors are considered that led to growing world trade among various nations. According to author Paul Krugman, the growth of new technology is one of the primary factors that have raised growing world trade (Baier, & Bergstrand, 2001). Technology has enabled faster communication and keeping the world interconnected in one network, thus allowing more rapid trading. Traders can trade internationally through utilizing current technology, meaning the author was right his suggestion. However, economists see it from the perspective of trading policies as the reason behind world trade growth. Moreover, competition among nations has been linked with economic growth. Nations have been in high competition for a better economy and increasing trading activities. The more the competition increased, the more the countries' income rose. As well, falling transportation costs and liberalization of trade highly impacted world trade growth. This led to intermediate goods to be allowed to cross borders if various nations with decreased restrictions. As a result, many countries started trading together. In the end, it became like a chain of various nations trading together, thus increasing international trade.

In the modern world, the growth of trade amongst countries can be attributed to many factors. The essential factors that have contributed to the growth of trade include advances in technology and the significant decline in the costs of transport (Baier & Bergstrand, 2001). Economists attribute the growth in foreign trade to the increased bilateral and multilateral trade among countries. Several studies have been done to explain the spurs that spur growth in international trade. In the modern world today, there has been imperfect competition amongst counties; some countries are better placed to benefit from foreign trade compared to others. Monopolistic competition in international trade has been another significant factor in international trade. Comment by Amyaz Moledina: Which economists exactly. It seems Baier is starting by discussing the DIFFERENT points of view on why world trade has increased? There are four reasons proposed by different economists on page 2. So you need to attribute each idea to each economist so its clear. For example “trade has grown because economies have converged in economic size, as suggested in Helpman (1987)..” (Page 2)

The literature review will show the effects of reduced costs of transport, liberalization of tariffs, and the convergence of income on world trade growth. Studies indicate that the growth of income has contributed to 67%, while the effects of tariffs are rated at around 25% while the reduction in transport costs accounts for 8% (Baier & Bergstrand, 2001). In contrast, the convergence of income results in virtually none. Comment by Amyaz Moledina: ? none of what?

The end of the Second World War resulted in the removal of the previous protective measures which existed in the world market before. The increasing growth of world trade seems to have spurred the post-war growth of trade in the world. Krugman cites four essential factors that operate to trigger the expansion of world trade (Baier & Bergstrand, 2001). Declining costs of transport and trade liberalization, among other factors, include the convergence of sizes of economies and increased outsourcing activities. Reductions in tariffs have contributed to increased world trace by three times compared to the costs of transport among the other factors.

PXij =0(GDPi)1(GDPj)2(Dij)3e4(PTAij)e5(Aij)eij Comment by Amyaz Moledina: All equations should have an equation number. In this same paper, you will see your authors adopt this convention.

The article also conducting theories without Tariffs, Transportation Costs, and Distribution Costs. Anderson (1979) illustrated a framework that expounds on the expenditure systems making the assumptions that every country benefit from specialization in producing a certain product or commodity. Production of a good a country produces at the lowest costs with the assumption of normalization of price the units of the goods produced. The equation can illustrate a simplified model of illustrating the volume of the goods traded between the two countries

Xij=iYj

The regression results of frictionless or preliminary regression factors in the estimates coefficients for both tariff rates and costs of transportation the coefficients of the two estimates are negative while the transport estimate coefficients is an absolute value that is less. Growth rate coefficient estimates for the rate of growth has a negative value and has statistical significance as expected. The coefficient estimate is close to zero because the price is not measured correctly. Initial trade flow coefficients have a significant negative effect (Baier and Bergstrand, 2001). Comment by Amyaz Moledina: ?? Exposition Comment by Amyaz Moledina: Explain results more.

The growth of trade globalization meant that countries became better by dealing trade with countries producing goods that countries perceived easy for them to produce (Baier & Bergstrand, 2001). Before the trade war, China recorded high levels of growth and development in its economy. China had started emerging as a strong competitor to the United States. The trade war benefited and was detrimental to many countries in equal measure. The loss of one nation’s resource meant that another country somewhere was obtaining the positive impact of the process. On the other hand, the production of goods at the cheapest convenient for a country is essential. Comment by Amyaz Moledina: This article is not about a trade war. They do estimate the impact of tariffs on trade. And you can discuss their estimation method more.

Literature Review 3

In 2018, President Donald Trump issued a presidential memorandum that increased tariffs of those products imported from China. The aim of these tariffs, according to Trump's administration, was to decrease illegal intellectual property transfer to China and to close trade deficits between the two countries (Huang, Lin & Liu, 2018). The administration thought that the tariffs would weaken the competitive impact of Chinese firms. Besides, they hoped that weakening the Chinese economy would enable them to implement policies and create an enabling environment for US technological firms in China. The announcement significantly impacted US-Chinese firms in March 2018, as it triggered a trade war between the two countries.

Huang, Lin & Liu (2018) conducted a study on "Trade linkages and firm value; Evidence from the 2018 US-China Trade war''. The authors evaluated the market response to the events for firms that are located in the US and China, depending on how they are exposed to US-China trades. They applied an event-study approach to determine the heterogeneous impacts of the trade war on the public corporation in both countries. The authors found that the high technology firms in the United States that relied on Chinese exports and imports were characterized by low bond and stock returns. Also, the study found out that indirect exposure to the US-China trade by the use of various domestic output and input linkages significantly impacts on input-output linkages. The impacts arise from increased prices of inputs from high technological sectors due to the trade war announcement. Comment by Amyaz Moledina: So the dependent variable here is equity markets, not trade volume? This is okay, but I am not sure this is a good paper to keep for senior IS.

Trump imposing taxes on China intended to put under pressure their foreign trade policy. Firms interact globally in terms of input-output relationships. Tariffs reduce local firms from competition. Those domestic firms that rely on inputs from foreign firms likely tend to suffer the most. The key events that resulted in China-US trade wars were when Donald Trump signed an executive order that withdrew the US from Trans-Pacific Negotiations and Partnership. Trump proposed that he would impose tax on Chinese products by 45%/Washington state also enforced rates on solar and washing machines that were made in China (Huang, Lin & Liu, 2018). Tariffs were imposed on Aluminum and steel products that were from China. Furthermore, President Trump proposed that tariffs should be imposed up to 50 billions of Chinese products due to theft of intellectual property.

In response to this, the Chinese government retaliated, by listing 128 products that they would impose a 26% tax should their trade negotiations fail (Huang, Lin & Liu, 2018). The list provided by US minister of trade covered 1300 Chinese products which amount to $50 billions of Chinese products, including the high technology sectors. In response to the retaliation measure, Trump considered an additional $100 billion tariffs. The US commerce department prohibited businesses from selling China’s products such as software and ZTE Corp, telecommunication equipment and system. The administration also announced a new list of Chinese products that were over $200 billion in imports.

In responding to the US imposition of tariffs on China products, the market returns for the US firms that heavily depend on imported products from China are likely to decrease this is because tariffs raise prices and the cost of production. In reaction to the Chinese government retaliation and US tariffs against imports from both countries, the marketplace returns from Chinese and US firms that depend on sales to both countries will decrease as the expected sales will decrease (Huang, Lin & Liu, 2018).

In responding to the US proclamation of tariffs against those imports from China, market returns of US firms that compete with Chinese are likely to be prevalent as the tariffs on Chinese imports will raise prices of imported Chinese merchandises and US businesses that ate in the same sector. Furthermore, in response to the tariffs imposed on Chinese products by the US, the market returns for US industries that rely on inputs from China are more likely to decrease as the tariffs will weaken the market which hence increases prices of inputs (Huang, Lin & Liu, 2018). The imposition of tariffs is also likely to impacts the financial performance of the stock prices, which can also result in bankruptcy events. Besides, firms are likely to adopt other strategies that are likely to delay investments in the long run.

The study shows that there was a sharp fall in the stock market price index when Trump announced these tariffs, for instance, S& P index decreased by 2.5%, high tech markets in China depict similar patterns. Besides, when the ministry of commerce in China announced that trade tariffs were imposed on US technological products, stocks in China decreased by 2.2 %. Also, when the US, prohibited American organizations from selling components of China ZTE Corp and Software China stocks decreased by 1.6% (Huang, Lin & Liu, 2018). High technological firms that relied on exports from China had lower stock and bond returns and higher default risk in their short run.

Also, those high-tech companies in the immediate downstream businesses that sources their products from China experiences a decline in stock market returns. The evidence is concurrent with the adverse effects that are caused by an increase in the price of inputs from other upstream sectors as a result of the trade war announcement. The author illustrates that structure existing between the US trade and China is complex when compared to the simplistic view of global trade that is justified by Trump's trade confrontation against China. The findings from the study indicate that both the winners and the losers highly depend on the extent to which participation in worldwide assessment chains is shared among the countries.

The authors conducted a univariate analysis between those firms that were exposed to the US-China trade to its market performance. They found that in terms of sales, those firms in China had a lower CRR and CAR in the three days of announcement. Firms in the US that had offshoring activities with those of China had a lower CRR when compared to those firms that had limited exposure to China (Huang, Lin & Liu, 2018). From the bill of landing database, the authors found that those firms that sourced their inputs from China had a lower CRR and CAR.

Furthermore, the authors performed a regression analysis of the firm's stock returns to its exposure to China. The study found out that firms that sold more products to Chinese Markets had a lower CRR. Besides the US-China trade war negatively impacted those firms that are likely to derive sales from China. Furthermore, the authors examined if exports and from China could impact of the US financial market performance. Based on Hoberg-Moon, regression analysis, the authors found that those firms that outsource their inputs from China had a low CRR compared to those firms that do not obtain inputs from China (Huang, Lin & Liu, 2018). Besides the authors used positive procurement results obtained from the Bill of Landing database. They found out that those firms that import their products from China were likely to experience negative raw returns.

The authors also examine how the trade war between China and the US could impact the firm's bondholders by used of bond returns. They found out that those firms that sold their products to China had low abnormal bond returns, that is a 10% increase in sale to China resulted in a 0.6% low bond returns (Huang, Lin & Liu, 2018). Based on the Hoberg-Moon database, the authors found out that those firms that obtained inputs from China experienced a 0.4% drop in their cooperate bonds when compared to those that do not outsource products from China. Further, the authors sought to determine if the said trade war had a perceived risk on the firm's value. The authors discovered that firms that were exposed to both imports and exposed from China had a higher default risk. They also found out that firms that had a larger exposure to this trade war is experienced negative returns in terms of bond and stock markets in reaction to the trade wars. Investors also perceived such acts would be riskier due to a large increase in CDS spreads.

Besides, they examined how an industry’s indirect exposure to China can also impact on its market performance. The authors constructed three sectoral measures determining trade exposure to China, by determining import competition from China, exposure to Chinese products upstream and exposure to China imports to downstream industries. Those industries that are exposed to import rivalry from Chinese companies are not likely to respond positively to the US tariff declaration. Firms in the U.S do not expect that tariffs would weaken competition with China, but there is a perceived shock on the cost of inputs hence the production of those US firms that share global value chains with China even though this does not involve direct trade with China.

Import tariffs reduce market competition in the same industry and can also raise the average cost of inputs and the impact of tariffs on the firm's average performance and this will depend on counteracting impacts through both upstream and downstream channels. Also, when Trump announced that Chinese products should be added 10% tariffs, is that triggers a decrease in the Chinese market. Chinese stock decreased by 3.5% (Huang, Lin & Liu, 2018). Those firms in the United States that obtain their revenues from China are likely to achieve negative returns concerning other firms in the United States. Those firms in China that rely on revenue from the US are likely to experience losses in the equity market.

Huang, Lin & Liu (2018), compiled novel data sets that were used to construct firm-level measures to evaluate the US and direct Chinese exposure to exports and imports to the US and China. The authors used two data sources; these are organizations mentions of purchasing goods from China in their financial reports and their bill of lading records that are filed with US customs which contains detailed information of the firm’s transactions with China. The authors obtained data from publicly listed firms in the United States. The sample composed of 2,122 U.S listed firms both operated and headquartered in the United States (Huang, Lin & Liu, 2018). The study also downloaded daily stock returns from Bloomberg. To identify the effects on the equity market, the study used a cumulative stock return (CRR) as their dependent variable. The author used the Capital Asset Pricing Model to remove those returns that were unrelated to the effects of the regulation.

(1)

day around the date of announcement March,22,2018.

Rit= cumulative stock returns for i on date t

The announcement by the US government was abrupt hence X and Y =1.

They used a firm cumulative stock return over three days window that is CRR (-1+1) as the dependent variable of interest.

(2)

(3)

Where J is the number of bonds outstanding for firm i, w market value weight.

Besides, the study used four different data sources to obtain their main independent variables these were Factsheet Revere that track information on US publicly listed firms, SEC's electronic films that measure firms offshoring activities, US Bill of Landing Database in which the US custom tracks every waterborne export and import transaction, another data source is the China customs database, that has detailed annual summary of foreign trade transactions on Chinese firms. This database will provide transaction value, product type, quantity, and country the firm exports. The technique used by the authors was unique because rather than using a specific method, the authors used a wide range of methods that would fit well with their study results. Furthermore, the author's second data sources are based on SEC electronic filing, which provided the author with an opportunity to offshore activities in a foreign country. The third data source is the US bill of landing database, where US customs tracks every import and export transactions in the sea.

Outline and plan for Senior IS

· Figure out how the trade war influence the import and how the trade war affected the high-end tech industry for the import

· the plan Made in China 2025

· I may interview the important figures in Chinese high-end tech area and understand the current situation of Chinese high-end tech industry.

· Collect the data for China export, import and tariffs

· Methodologies that I want to use

· Regress models and empirical analysis

· Come out the result form the model

· Finalize the IS

Reference

Amadeo, Kimberly.(2020, Feb 26).The Real Reason American Jobs Are Going to: Retrieved from https://www.thebalance.com/u-s-china-trade-deficit-causes-effects-and-solutions-3306277.

Baier, S. L., & Bergstrand, J. H. (2001). The growth of world trade: tariffs, transport costs, and income similarity. Journal of international Economics, 53(1), 1-27.

Balassa, B. (1965). Trade liberalisation and "revealed "comparative advantage. The Manchester School of Economic and Social Studies, 33(2), 99–123. doi: 10.1111/j.1467-9957.1936.tb01431.x

Caporale, G. M., Sova, A., & Sova, R. (2015). Trade flows and trade specialisation: The case of China. China Economic Review, 34, 261–273. doi: 10.1016/j.chieco.2015.03.010

Chen, L., Xiu, X., & Kong, S. (2019). Exploring the Development Path of High-end Manufacturing Industry in Shanghai based on the Background of Sino-U.S. Trade War. Proceedings of the 2nd International Symposium on Social Science and Management Innovation (SSMI 2019), 375, 386–392. doi: 10.2991/ssmi-19.2019.65

Mackenzie, M. (2019, December 6). Investors try to filter out Sino-US trade war noise. Retrieved from https://www.ft.com/content/e152d114-1765-11ea-8d73-6303645ac406