Trade War Stories

Write a 450-500 word paper about one of the following trade war stories using what you know about the
economic theories regarding international trade, game theory, and political reactions to international trade
to explain why the trade war is abating and suggest how long the abatement is likely to last.
1. The USA drops tariff threats against five European countries
2. Ending the US-EU tariff war over Steel and Aluminum
3. China backs down in its trade war with Australia
When preparing your paper, include all citations as footnotes; format the footnotes according to the APA
guide section on how to prepare the list of references, adding the page numbers at the end. Footnotes do
not count in the word limit.


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1. The USA drops tariff threats against five European countries
Media reports indicate that US government has agreed to drop the threat of trade tariffs against five
European countries over their digital service taxes on big tech groups such as Amazon and Facebook.
This comes in return for those five governments’ agreement to join and implement a multilateral
agreement on global corporate taxes. In all, 130 governments have accepted the agreement, orchestrated
by the OECD, that includes a global minimum effective corporate tax rate of 15%, new reporting
requirements that the world’s multinational corporations declare profits more transparently, and rules that
will have them paying more taxes to the governments of countries where they do business than before.
The five European governments – of the Austria, France, Italy, Spain and the UK – had all introduced
new laws imposing more taxes on large US tech firms in recent years. The deal between the US
government and the five will allow their digital service tax laws to operate through 2023 pending
ratification of the proposed global tax rules in return for their providing multinational companies affected
by those laws with a credit that can be used against future tax bills. The credit system will operate during
a transition period until the new global rules come into place by 2023. The agreement will mean that
though digital service taxes can continue until the end of 2023, a company that has paid more tax in 2022
than if the new rules were in place can gain a credit against corporate taxes equal to the excess.
The US government had wanted countries to remove their digital taxes as soon as the OECD agreement
was reached. However the possibility that the US Congress might not ratify the OECD agreement caused
a lot of uncertainty and the prospect of transatlantic tariff wars over tax policy. US Trade representative
Katherine Tai, whose office had threatened trade tariffs against the five countries (as well as India,
Turkey and other countries where governments have introduced digital service taxes) said that the
combination of this interim arrangement and the OECD global agreement would put the world on a path
toward a standardization of corporate taxes, and that the US government would work with the five to
ensure implementation of the OECD agreement in 2023.
2. Ending the US-EU tariff war over Steel and Aluminum.
The EU is edging toward a deal to end the transatlantic trade war over steel and aluminum, via an
arrangement under which the EU accepts quotas on how much steel can be shipped to the United States
without paying higher level tariffs.
Former U.S. President Donald Trump triggered a trade war with the EU in 2018 by slapping tariffs on
steel and aluminum imports that he classed as a threat to national security. European diplomats had
originally hoped that Washington would remove these duties under U.S. President Joe Biden but he has
been unwilling to do so without winning concessions for key steelmaking constituencies in America.
The contours of a deal now appear to be forming around Europe accepting tariff rate quotas. This would
secure an immediate removal of the Trump-era tariffs but would mean that high duties on European metal
would kick in again if EU exports surpassed a certain level. EU officials had regarded these kinds of
measures as blackmail under Trump, but are now accepting there may be no other way out of the standoff.
Karl Tachelet, director of international relations and external affairs at EU steel industry lobby Eurofer,
said the future bilateral deal would involve tariff rate quotas. He said: “Both partners are looking to find
an agreement on tariff rate quotas that would replace the current import tariff of 25 percent.” He also said
knowing the details of the deal — including the size of the overall EU quota, subdivisions of quota by type
of steel product, and separate quotas for different EU countries.
Both sides previously said a future deal should lead to cooperation on addressing overall global steel
capacity. U.S. Trade Representative Katherine Tai told reporters in Brussels last week the negotiations
were about more than just tariffs.
The steel industry is optimistic a deal will be found. “I would be very surprised that this would totally
derail,” Tachelet said. He added that there’s much more at stake than steel.
“The Biden administration is keen on renewing more friendly relations and looking to common interests
more than the confrontational approach from the Trump Administration and [former U.S. Trade
Representative Robert] Lighthizer,” he said. “So that is a context which should really create a lot of
interest and energy towards a deal.”
The European aluminum lobby opposes a solution involving tariff rate quotas and called simply for a total
withdrawal of the Trump-era national security tariffs. “Any other proposed outcome would only continue
penalizing the aluminum-producing and using sectors on both sides of the Atlantic,” said Gerd Götz,
director general of European Aluminum.
The European Commission also insists that there was no legal basis for those duties.
“As a trusted U.S. ally, the EU cannot be deemed to pose a security threat to the U.S.” a Commission
spokesperson said on Thursday. “These Trump tariffs have to go.”
Unit 3 paper assignment, page 2
3. China backs down in its trade war with Australia 8 October 2021
In 2020 China imposed high tariffs on some Australian goods and effectively banned the importing of
The Australian economy has lost billions of dollars of exports to China after the nation slapped
restrictions on barley, coal, cotton, hay, logs, meat, rock lobsters and wine in response to a list of 14
grievances with Canberra.
They include Australia’s criticism of China’s human rights record, Canberra’s call for an independent
investigation into the origins of COVID-19, and the decision to ban China-owned telecommunications
giant Huawei from Australia’s 5G rollout.
But because Australia’s largest export to China – iron ore – was not restricted, trade surpluses with China
actually increased over the period Macrh 2020 through September 2021.
That is now changing as China’s demand for iron ore has fallen over the past three months from more
than $US213 (Aus$289) a tonne to less than $US125 (Aus$165) over that time frame, as China has
reduced steel mill production to reduce carbon emissions.
This change means China’s trade restrictions are now having a larger effect on the Australian economy as
iron ore exports barely offsetting decreases in other exports.
Yet In September 2021 Chinese customs data revealed resumed purchasing of Australian coal, copper,
wheat and cotton, all of which were among the goods banned.
Grappling with an energy crisis forcing rationing of electricity in major industrial areas, the Chinese
government is ready to unlock a million tons of Australian coal that had been landed at Chinese ports just
before the ban went into effect and had been stored in bonded warehouses [port warehouses where goods
can be kept if there is a delay between unloading and clearing them through customs so they can be
moved on to their buyer]. Limits on domestic supplies of coal – still the country’s main source of energy
production – and increases in its price are among the main causes of the power blackouts affecting more
than half of China’s provinces.
Several observers say that China will have trouble finding enough inexpensive coal without resuming
imports from Australia. Paradoxically, the resumption of purchases of Australian goods by China comes
at a time of maximum “strategic” tension between Beijing and Canberra. With the United States and
Great Britain, the Morrison administration has recently launched Aukus, a trilateral military pact which
will allow the Australian Navy to acquire eight nuclear submarines equipped with US technology