Trade and Development: is Walmart Good for America

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 On March 8, 2018, Donald J Trump, current president of United States, has launched a trade war between the United States and China by placing tariffs on billions of dollars’ worth of goods from the EU, Canada, Mexico and more specially in China. A trade war occurs when countries retaliate against each other by imposing tariffs or quota restrictions to try to protect their own economies. On June 16, 2018, President Trump announces 25 percent tariff on products worth US$50 billion imported from China. In return, China retaliates with the imposition of an additional 25 percent tariff on products worth US$50 billion imported from the United States.This tit for tat situation between countries can hurt their economies and can eventually lead to rising political tensions between them. President Trump believes that trade wars are beneficial and easy to win. According to one of his posts on his social media account, he states, “When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore- we win big. It’s easy!” The US Trump Administration states three main trade complaints against China: China’s trade surplus against the United States, China’s failure to implement its World Trade Organization commitments, and China’s acquisition of US technology. 

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According to the Census Bureau, The United States has had a goods trade deficit with China for the past 33 years. The imbalance between the two countries has grown from US$6 million in 1985 to US$301.37 billion in the first nine months of 2018. President Trump views the great disparity as a sign that the US is being ripped off by other countries, mainly China who has run a large current account surplus against the US. However, many people argue that Trump leaves out the services trade, which accounts for a larger share of the U.S. economy. The Census Bureau shows that the American bilateral deficit including services was only US$275.02 billion in 2018. Trade deficit occurs because China can produce many consumer goods at lower costs than other countries. This is because China pays lower wages to workers due to low standard of living and China uses a fixed exchange rate to keep its currency low to make its exports more competitive. If the United States implements trade protectionism, US consumers would have to pay high prices for goods “made in America.” Most people would rather pay low prices even if it’s at the expense of other Americans losing their job. Therefore, trade deficit will unlikely change.

Moreover, the US Trump Administration feels that China has failed to comply with many of its World Trade Organization commitments, specifically those related to the rule of law and human rights. When China joined the WTO, the Chinese government committed to “apply and administer in a uniform, impartial, and reasonable manner all its laws, regulations and other measures.” However, the law is used to repress, control and often neglected, displayed through the Commission’s Political Prisoner Database. The data shows that more than 1,300 men and women are imprisoned for exercising their rights under international law, such as freedom of religion, freedom of association and etc. In addition, China’s Internet censorship system has prevented individuals access to commercial information and imposed restrictions on economic reporting. Doing so limits the free flow of information, news, and market access online which can cause trade barriers to U.S companies and investors. Ultimately, the Chinese government has arbitrarily detained an American citizen and businesswoman Sandy Phan-Gillis. During her detention, they restricted communication between U.S. consular officials and Phan-Gillis and these restrictions are inconsistent with China’s obligations under the U.S.-China Consular Convention. She was denied access to legal counsel, held in solitary confinement at an undisclosed location, suffered physically and hospitalized. Her mistreatment challenges the safety of an American citizen travelling and conducting business in China.

The Trump administration has also accused China of employing unfair and unreasonable trade practices such as theft of intellectual property, forced transfer of technology to the Chinese in exchange for access to its market and industrial subsidies in order for China to achieve its goal of developing a higher value, innovative economy. According to Bloomberg News, Chinese spies has used a tiny chip to infiltrate U.S companies, endangering America’s technology supply chain. In 2015, when a third party security company tested server motherboards for Elemental Technologies assembled by Super Micro Computer Inc, they found a tiny microchip that wasn’t part of the board’s original design. Investigators determined that the chips allowed the attackers to create a pathway into any network that had the altered machines and that the chips had been inserted at factories run by manufacturing subcontractors in China. To protect US competitiveness in growing and dual-use technologies, the government announces new export controls and new legislation tightening foreign investment in the US, making it harder for Chinese companies to acquire US producers of advanced technologies.

Foreign Direct Investment (FDI) is an investment made by a firm or individual in one country into business interests located in another country. Foreign Direct Investment worldwide is declining due to trade wards, protectionist policies and immigration. Recently, global foreign direct investment into the United States from China and other nations has been declining. According to a report by the U.N. Conference on Trade and Development, investment into the United States fell by 40 percent, to $275 billion from $457 billion in 2016. One reason has been trade war in which The Trump administration imposed tariffs on Chinese imports ; another is uncertainty over U.S. policy. U.S President Donald Trump has been known to be unpredictable and his decisions may rattle his advisers and other world leaders. A report from consulting and research firm Rhodium group states that Chinese acquisitions and green investments in the U.S. decreased by 92 percent to just $1.8 billion in the first half of 2017. In addition, Chinese investors sold $9.6 billion in U.S. assets which resulted to an overall negative FDI flows from China to the United States. Foreign investors are seeking for both economic opportunities and political stability. With the trade war in place, investors and companies are more careful in buying assets in the United States. Moreover, President Trump’s stricter immigration policies have caused Foreign Direct Investment to fall further. FDI increases when migration to a country increases. For instance, immigrants get to know the new place and want to invest or start a business in the area. With that being said, immigration declines lead to lower FDI numbers. If there is a change in U.S. openness to Chinese investment, there will certainly be a retaliation from China against U.S. investors.

Walmart is an American multinational retail trade founded on July 2nd 1962 by Samuel Moore Walton and James Lawrence Walton. The company manages a chain of supermarkets, hypermarkets, wholesale clubs, and ecommerce site. It has 11,348 stores and clubs in 27 countries, operating under 55 different names. The company operates under the name Walmart in United States and Canada, and as Walmart de México y Centroamérica in Mexico and Central America. The company also offers a variety of merchandise such as apparel, house wares, small appliances, electronics, home improvement, pharmaceutical products, automotive tools and other miscellaneous. According to Fortune Global 500 list in 2018, Walmart is the world’s largest company by revenue with over US$500 billion and the largest private employer with approximately 2.3 million employees.

Walmart is America’s largest importer which means they are very reliant on trade relations. Although two-thirds of Walmart’s products are sourced, grown or assembled in the United States, many of the components are imported from China.Is walmart good for America ?

For example, Walmart has been making an effort to buy more bikes from American manufacturers, but not enough are made in the United States to meet demand. The company says that even with 25 percent tariffs, buying bikes with Chinese parts will still be cheaper than suppliers shifting production. The Trump administration is using tariffs to push companies to manufacture more goods in the United States. However, doing so will only make goods more expensive for consumers, compared to if the goods were outsourced. For instance, United States imported approximately $474 million worth of lights for Christmas trees were imported to the United States in 2017, 85 percent of which were from China. If the US were to stop outsourcing, Christmas lights will be more expensive in the following years. The administration overestimates the ability of US companies to shift supply chains out of China but the National Retail Federation says that carefully planned supply chain plans cannot be redrawn overnight because global supply chains are complex. It takes a great amount of effort and time to find the right partners that meet the criteria and produce at the optimal level of production.

The Trump administration’s protectionism and trade war against China would be economically detrimental to big retailers such as Walmart. In a letter to US Trade Representative Robert Lighthizer, Walmart said expanded tariffs on Chinese imports would hurt its customers, its suppliers and the US economy. The company would have to raise prices on consumers and tax American business and manufacturers. This means that working families would have to pay more for school and college essentials like notebooks, calculators, binders and desks. The administration did not bend to the company's plea. It imposed an initial 10 percent tariffs on those products and $200 billion worth of other imports from China, and has risen to 25 percent by the end of 2018. However, it did spare certain products such as bicycle helmets, high chairs, car seats and playpens. Walmart then has to decide whether they can take in the higher costs from tariffs by taking a hit to their profit margins, or they can pass some of the price increases on to their customers.  

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