This is the first of many” was the promise from Donald Trump on Thursday as he signed an executive order that could slap 25% tariffs on up to $60 billion of Chinese imports.
The order follows an investigation from the US Trade Representative, which confirmed what the Americans have described as a systematic pattern of “forced technology transfer” and “cyber theft”, and the tariffs are designed to make up for the loss of profits at US firms forced to hand over their intellectual property as the price of doing business in China.
The measures are the strongest sign yet that Trump is serious about meeting his campaign commitments on forcing China to “play by the trade rules”.
Round one was tariffs on steel and aluminium imports earlier this month (see WiC400), sectors that weren’t going to wreak much damage on the Chinese economy.
This newer campaign seems likely to target goods in areas that overlap directly with many of the sectors identified in Beijing’s “Made in China 2025” plan. Trump has also directed his Treasury Secretary Steven Mnuchin to propose new restrictions on investment by Chinese firms to safeguard technologies that Washington views as strategic.
That heightens frustrations in Beijing that the measures are really intended to block China’s advance in areas where it is challenging American leadership, such as advanced electronics, industrial robotics and electric cars.
The Chinese are also annoyed that some of their tech firms are being locked out of the American marketplace on allegations they threaten national security. Exhibit number one is Huawei, which has found it virtually impossible to sell its networking equipment to American businesses.
China’s embassy in Washington hit back at Trump’s order on Thursday, vowing that Beijing would “fight to the end” in any trade war. “We will retaliate. If people want to play tough, we will play tough with them and see who will last longer,” the Chinese ambassador warned in a video posted to the embassy’s Facebook page.
Back in Beijing, the commerce ministry responded with a list of 128 products from the US as potential targets for retaliation, according to a statement on its website this morning. Goods with an import value of $3 billion in 2017 were highlighted, including wine, fresh fruit, dried fruit and nuts, steel pipes, modified ethanol and ginseng.
The Chinese might respond with measures designed to hurt Trump’s electoral base. Soybeans and grains are the second-largest export to China, the Washington Post reports, and Trump carried eight of the top 10 soy-exporting states in the 2016 election. The situation is similar for pork, where eight of the top 10 hog-exporting states voted for Trump. Neither item was on the Chinese list, although the commerce ministry warned that higher tariffs on other goods, including pork, could be imposed in future.
Most thought the response was cautious in targeting just $3 billion of imports, a tiny fraction of the total goods expected to reach China from the US this year. But both sides have also left themselves room for manoeuvre by incorporating review periods for the planned tarriffs.
Beijing’s policymakers may also be calculating that upping the ante might be dangerous with such an unpredictable president, who seems to relish a fight. Hawkish advisors such as Peter Navarro and Wilbur Ross hold more sway in the Oval Office, following the departures of more moderate colleagues, and Trump brought in John Bolton – hardly a friend of the Chinese – as his new National Security Advisor this week too.
China’s more red-blooded newspapers were quick to take up the challenge, including the Global Times, which warned Trump that he was “playing with fire” and that trade conflict “will end in disaster for the US”.
But the American president believes that a tit-for-tat spiral of retaliation is unlikely because China’s trade surplus means that it has the most to lose from a full-blown confrontation.
Indeed, he seems to think he is on the verge of striking one of his much-vaunted deals with the Chinese, telling reporters he was ‘‘in the midst of a very large negotiation’’ with Beijing.
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