Throughout his campaign, Donald Trump bemoaned the status of the United States as perpetually having a trade deficit with the rest of the world, and he has continued to do so as President of the United States. The main target of President Trump’s antipathy is China, as he has criticized them for practices such as intellectual property theft and forced technology transfers, which undoubtedly impact US companies doing business in China. In addition, the Trump administration has accused China of dumping low-cost steel into global markets, which was an inspiration for the administration’s recent 25% steel tariff and 10% aluminum tariff. These new policies, paired with an additional $50bn set of tariffs aimed specifically at Chinese goods, have analysts concerned about a growing likelihood for a substantial trade war between the two nations. This has the potential to hurt the world economy, but will have a particularly large impact on many key American voters who work industries already depleted by global competition.
Are President Trump’s concerns well founded?
Yes and no. Could addressing this intellectual property (IP) theft problem with China be beneficial? Yes. China’s initial response, announcing only $3bn in retaliatory tariffs, shows that China is willing to negotiate. The Wall Street Journal reported last week that the Chinese economic czar, Liu He(刘鹤), was negotiating with U.S. Treasury Secretary Steven Mnuchin and U.S. trade representative Robert Lighthizer. A key concession for China would be to allow more foreign access to markets, where current U.S. joint ventures in China are limited to 51% ownership. Are tariffs on Chinese goods and the rest of the world going to be good for the U.S. in the long-term? In short, no. The steel and aluminum tariff, as well as the recently announced $50bn tariff on 1,333 Chinese products ranging from industrial robots and electric cars to locomotives, jet engines and snow-blowers are going to hit American consumers hard. In addition, this will hurt the world opinion of the U.S. even further, which could have ramifications for its ability to enter future trade agreements.
China’s side of the story: 来而不往非礼也(To Respond in Kind)
China’s responses have been rather soft, only responding to U.S. tariffs with ones of equal strength and degree. Many key people in charge of Sino-U.S. relations, such as Cui Tiankai (崔天凯), the Chinese ambassador to the U.S., have been expressing the danger that escalation of these trade measures could bring. With this, China is being smart; they are creating a narrative of the U.S. as an aggressor, a measure that could get them sympathy from the outside world. Shortly after the announcement of steel and aluminum tariffs by the Trump administration, President Xi Jinping and the German Chancellor Angela Merkel met, agreed to work on steel overcapacity, and announced a deepening strategic partnership. This is a sign of the possibility of more multilateral negotiation around the United States, rather than working with them, something that could hurt the U.S. for years to come.
What will come out of this?
To paraphrase from Ian Bremmer, founder of the political risk consulting firm Eurasia Group, the U.S. and China are slumping into a trade ‘skirmish’. The U.S. and China are the world’s two strongest economies, and a trade war between the two of them will certainly hurt the world as a whole. One must hope that both sides will be able to come to a safe resolution to any hostilities that might form between them.