Trump pushes China further toward trade war

President Trump asked his administration on Monday to identify $200 billion in new tariffs on Chinese imports. Earlier in June, the White House confirmed that they would impose a 25 percent tariff on $50 billion worth of goods from China. Beijing responded in kind, imposing excise taxes on over 250 U.S. products also totaling $50 billion.

Reacting to the latest threat from the Trump administration, China’s Ministry of Commerce released the following statement:

“If the U.S. loses its senses and publishes such a list, China will have to take comprehensive quantitative and qualitative measures,” labeling the move as “extreme pressure and blackmail.”

While the U.S. has the upper-hand in the number and value of products on which it can place tariffs, excise taxes are not the only way in which China can respond. Eswar Prasad, an international trade professor at Cornell University, tells the Wall Street Journal:

“Mr. Trump seems to be taking the view that China’s room to retaliate against U.S. tariffs is limited by the fact that the U.S. imports far more from China than it exports to that country. This could prove to be a dire miscalculation since China could quite effectively hurt American businesses in other ways, including by limiting their sales operations in China and overtly or covertly disrupting their supply chains.”

In addition to the increase in the cost of goods for U.S. companies importing goods from China, economists worry that U.S. companies operating in China will be adversely affected by the administration’s posturing.

In an interview with Bloomberg, Jake Parker, vice president of China operations at U.S.-China Business Council said:

“We’re already beginning to see some increased regulatory scrutiny against U.S. companies operating in the market, whether it’s increased customs enforcement, local emissions inspections at our companies’ factories, stricter enforcement of the advertising law. All of these things are beginning to happen.”

“It’s difficult to draw a direct link between U.S.-China trade tensions, but there does seem to be a trend emerging of U.S. companies being targeted by Chinese regulators in response to enhanced conflict between the two sides. We’re obviously also concerned about growing nationalism that could turn anti-American, that would potentially lead to boycotts of U.S. goods.”

Financial markets around the world have responded as the threat of a tit-for-tat trade war came closer to reality. The Dow Jones Industrial Average declined 1.6 percent in pre-market trading Tuesday and prices of agricultural commodities fell more than two percent. The benchmark index of Chinese stocks fell almost four percent, as other Asian share markets declined.

Meanwhile, the U.S. Senate has included language in a must-pass defense bill that will reinstate the penalties on Chinese telecom giant ZTE, reversing a decision by the White House to lift penalties imposed in response to the company’s violation of sanctions against Iran and North Korea.

The company had halted operations due to the sanctions, costing China billions of dollars. The juxtaposition of the imposition of trade tariffs with the lifting of sanctions left many wondering what the administration’s over-arching policy is regarding China.

What is clear is that being tough on trade plays well with many in President Trump’s base; however, it doesn’t play as well with many in the Republican Party, who tend to take a more free-trade approach.

Additionally, U.S. tariffs on aluminum and steel have resulted in retaliatory tariffs from the EU, Canada, and Mexico — all of which could hit American consumers in the wallet before the mid-term elections in November. If they do, one might expect them to voice their displeasure at the ballot box, raising the political stakes for the president and his party.

 

[Bloomberg] [Wall Street Journal] [BBC] [Reuters] [Photo by Monica Almeida/New York Times via The Hill]