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Applying Network Exchange Theory to the Trade War With China

The attached article references the recent trade war that has erupted between China and the United States. This initially started with President Donald Trump continuously claiming during his campaign that the United States had been swindled for years, regarding trade with China. As a result, he imposed tariffs on Chinese exports several months ago. China responded in kind by levying tariffs on exports from the United States. A back and forth “arms race” ensued, culminating in both nations imposing tariffs on tens of billions dollars of exports from each other.

This trade war has proved largely to be beneficial for neither China nor the United States. However, it has succeeded in creating opportunities for other nations. Because it is no longer beneficial for the United States and China to trade many products, they are beginning to turn to other countries for these imports. The article I have attached references increased trade opportunities for Southeast Asian nations as a result of this trade war. For example, tariffs on furniture exported by China has opened up opportunities for Vietnam to provide this item for the United States. Additionally, due to tariffs, the United States has already begun to turn to Southeast Asian countries for textiles and apparel. Meanwhile, China has been looking to Thailand for fish exports, due to tariffs placed on U.S. fish.

This recent China-United States trade war can be applied to the Networks topic of network exchange theory. This concept is fairly simplistic. It involves a connected network of nodes with edges between each of them. These edges represent the capabilities of exchange between the nodes. It also follows the idea that certain, connected nodes in a given network are more powerful depending on who they have the capability to exchange with. A key aspect of this topic is also that of outside options. Essentially, due to different power dynamics between nodes in a network, nodes will calculate how much to exchange between one another in order to create a balanced outcome. In order to calculate this, nodes will use the value they could obtain by exchanging with their best outside option. These outside options are represented by other nodes in the network, and are defined as the money that can be made by a node when exchanging with a different partner. We can apply the trade war in this instance, making nodes of China, the United States, and the Southeast Asian countries. These nodes exchange with one another only while they’re maximizing the value they can obtain in an exchange. However, because of the large tariffs, the price of the United States and China trading many products has reached a point where it is no longer beneficial for the two countries to continue doing so; their former best outside options now represent the partners that would maximize the value they can obtain. As a result, these these two countries are turning to these best outside options, which are often represented by Southeast Asian nations.


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October 2018