The Trump administration announced tariffs on Chinese high-tech and industrial imports worth of $50 billion. The first round, on imports totaling $34 billion, will begin July 6, while the second round is still under review.
China’s Ministry of Commerce responded immediately firmly opposing the lack of consistency in US policy by starting a trade war. China announced it would respond with equal measure matching US action in size and scale. Any results from earlier talks will be invalid.
China and the US have held three rounds of trade negotiations from which they were able to find common ground. During mid-May discussions in Washington, both sides agreed to strengthen cooperation in the agriculture and energy sectors to avoid a trade war. During negotiations both China and US delegations achieved a level of commonality in pushing for a win-win solution.
However, the White House decided to pick and raise its stick on the trade issue. As three weeks remain before the tariffs go into effect, was Friday’s move a tactic meant to apply pressure on China so they would yield to subsequent negotiations? Or is it intended to sacrifice the progress that had been achieved in previous talks to impose tariffs on high-tech Chinese products? The true intention behind the move has proven to be a conundrum for many speculators.
The cost is high for the US to impose such tariffs. Not only will they face equal retaliation from China regarding scale and strength, but also forfeit product orders that had placed with the US during previous negotiations. Obviously, this is not a profitable trade measure. From a public standpoint, the White House decision defies its logic.
The US on Friday said if China retaliates, the White House will attach additional duties. This is a threat that will not work with China. Nor will it condone reckless behavior from the US, and it is not afraid to forgo the benefits already in place designed to achieve long-term gains. China’s “don’t want, yet not afraid” attitude toward a trade war remains the same.
Washington chose to take the narrow path by imposing tariffs or going back and forth with their decisions, despite room for negotiations. One reasonable explanation could be that the White House is trying to gauge and calculate election interests. In using the trade negotiations and then starting trade war with China as two ways to attract different voter groups, the Trump administration can acquire more votes in the upcoming election. This is why the White House has been tossing back and forth.
In this trade war, it’s the US who is playing the role of provocateur, while China plays defense. This scenario was the result of a US trade deficit with China. Meanwhile, China is a powerful guardian and has enough ammunition to defend existing trade rules and fairness. It stands high in keeping the virtue of free trade and does not have any reason to be soft.
The China-US trade issue is complicated, but could also be described with one sentence – the trade dispute is caused by its structural problem.
In recent years, China has reduced its trade surplus with many countries, and some later had a trade deficit. But it is difficult to reduce the trade surplus with the US. The fundamental cause is how the US has a low national savings rate.
Americans spend more than they can make, which guarantees the country will always have a significant trade deficit with another nation.
Besides reducing the trade deficit, the Trump administration aims to curb China’s high-tech upgrades and prevent it from advancing along the global supply chain. They routinely accuse China of stealing intellectual property and force international companies to transfer their technology. The tariffs announced Friday by the White House begin with China’s high-tech products.
The US ignores the rules of the multilateral global trading system and has even set their credibility aside for bilateral negotiations. For a long time, it has been a staunch advocate of the current international system. Its interest should be fostered and appropriately collected. And yet here they are willing to sacrifice everything for short-term gains.
Dealing with the US is difficult, but China can easily refuse theft and coercion. China will remain with the US through negotiations and war. If a trade war between the two becomes fierce, the result will not provide a favorable political environment for President Trump.