NOW is probably not the best time for Trump to launch a trade war against China, with crucial mid-term elections due in November that will determine which party will control Congress for the next four years. The early signs aren’t looking good for the Republicans as the American president fires Twitter salvo after salvo at the Chinese.
For their part, the Chinese are going toe-to-toe with Trump, meeting his tariff increases with their own import duties on American goods. Thus far, Trump has imposed $3.6 billion of tariffs on imported Chinese steel and aluminium, and threatened a further $50bn on a wide range of products. When Beijing retaliated with its own list, Trump tweeted that instead of correcting its “unfair” trade practices, the Chinese had aimed their tariffs at American agriculture.
And indeed, Chinese officials have carefully targeted American soy beans, pork and dairy products with 25 per cent tariffs; all of these are produced in states that supported Trump in the 2016 election. Already, agricultural and manufacturing associations are up in arms, demanding that Trump withdraw his tariffs.
A trade war is the last thing the world economy needs right now. The tit-for-tat escalation has sent markets into a tailspin, and businessmen across America are nervous about the way Trump is conducting trade policy. Clearly, he was expecting the Chinese to crumble before his threats to subject a wide range of their products to punitive tariffs. Currently, over 1,300 Chinese products are in Trump’s sights. But the Chinese show no sign of backing off, and President Xi seems to be clear that any sign of weakness will be viewed in Washington as a green light for more bullying across a range of Chinese policies, including its dominance of the South China Sea.
But before Trump imposes punitive sanctions on $100bn worth of over 1,300 Chinese goods on May 11, Beijing has decided to go to the World Trade Organisations with a complaint against Washington for contravening WTO rules. Should China win its case, there could be serious fines imposed on the US, and this could well trigger American withdrawal from the WTO.
The reason underlying Trump’s launch of a destabilising trade war is his campaign promise “to bring manufacturing jobs back to America”. An anti-globalist and anti-free trader, Trump believes that America wields the same economic clout that it did in the ‘50s and ‘60s. But with the expansion and consolidation of the EU, and the rise of the Chinese economy, the US can no longer call the shots in the same way as it once did. By slapping punitive tariffs on a plethora of manufactured Chinese goods, Trump believes the US will import less, and this will force American industries to relocate their plants back to their home base, thus creating new jobs.
The problem with this expectation is that wages are much higher in the US than they are in China, and by disrupting existing supply chains, Trump will be raising prices to American consumers. As it is, European car manufacturers who have factories in China, and export to the American market from Asia, see themselves as collateral damage in the coming trade war. Already, the price of domestic hot-rolled steel in the US has gone up by 34pc since the announcement of steep tariff increases on imports.
Currently, the US faces an annual trade deficit of $375bn with China, something American conservatives see as an increasing drain on their foreign exchange reserves. Out of a total of $505.6bn worth of US imports from China, Trump has either imposed, or threatened to impose, tariff increases on $153.6bn worth of imports. China imported $130.4bn worth of goods from the US last year, and is running out of goods to slap tariffs on in retaliation to Trump’s measures.
Already, China is being seen as the mature upholder of globalisation, while Trump is viewed as a wrecker of the carefully crafted system of international trade established over the last seven decades. Many experts have warned the US president that a trade war will not lead to the return of manufacturing jobs to America. But as we have learned over the last year, Trump has little time for economic advice, especially in an area where he considers himself the ultimate expert.
So who’ll blink first?
Clearly, this irrational trade war was not one of China’s choosing, even though it has used currency fixing and state subsidies to push its exports in the past. Chinese leaders believe the Americans want to keep them from emerging as strong competitors in the growing market for cutting edge products featuring artificial intelligence, robotics and self-driving vehicles.
Another reason why Trump’s timing has been so bad is that he is counting on China to put pressure on North Korea ahead of the planned summit meeting between him and Kim Jong-un. Perhaps a back-channel deal could be worked out so that China can persuade Pyongyang to freeze its nuclear and missile programmes, and in return Trump could announce a face-saving withdrawal of his tariffs.
Clearly, by now even Trump should be able to see that there is no winner in this looming trade war. But while in a democracy like America, various groups can make their opposition to Trump’s policies clear through the media as well as via ballot boxes, China can push ahead with retaliatory tariffs without regard to public opinion.
Just as Trump has yet to learn the limits of US presidential power, he has to understand that we no longer live in a uni-polar world where Washington is at the epicentre of global power. But by surrounding himself with hawks, he has only reinforced his outdated sense of American exceptionalism.
Published in Dawn, April 9th, 2018