The US president, Donald Trump has said he considered China a friend and had “tremendous respect” for Chinese President Xi Jinping. He added: “But we have a trade deficit … there are many different ways of looking at it, but no matter which way you look at it, it is the largest trade deficit of any country in the history of the world.”
Trump’s approach of ‘American First’ go against the current trend of globalisation, which has seen a reduction in trade barriers and an increase in large Free Trade Agreements. This approach threatens America’s position as global economic power.
In an effort shore support with conservative and nationalist supporters, Trump claimed that “trade wars are good and easy to win”. This oversimplifies trade relation as a zero-sum game aimed at reducing America’s trade deficit with trade partners, including China. A trade deficit is to be expected with partners that provide manufacturing and resources. China itself has a trade deficit with most of its Africa trade partners.
Most economists agree, trade wars harm both parties and would result in an increase in the cost of goods in the US. The potential backlash from China could be painful. U.S. exports of goods and services to China supported more than 900,000 jobs in 2015, including 600,000 jobs supported by goods exports and 310,000 by services exports, according to the latest data available from the U.S. Department of Commerce.
What is Trump proposing?
Trump is seeking $100-billion reduction in trade gap with China. One of President Donald Trump’s senior trade advisers says the president is seeking a nearly one-third narrowing of the U.S. trade deficit with China. He is specifically asking for concessions on tariffs for US auto imports and for China to open its market to U.S. financial services.
On Thursday, the president signed a memorandum that could lead to the levying of tariffs on perhaps $60 billion of Chinese goods. He has directed the Treasury Department to consider the imposition of curbs on Chinese investment, which has introduced a huge amount of uncertainty according to analysts.
What Can China Do?
Beijing’s response includes planned tariffs on $3bn of US imports, a list that ran to 120 items, including pork, recycled aluminium, steel pipes, fruit, and wine. As the world’s largest importer of soy and the second-largest market for U.S. agricultural products, Beijing’s promise to halt imports of American agricultural products is a serious threat to US farmers, who played an important role in electing Trump. American farmers are among the biggest potential losers, who in 2016 sold $21 billion worth of farm products in China.
Other industries that would be prime targets for higher Chinese tariffs include aircraft (with $15 billion in 2016 exports), electrical machinery ($12 billion), machinery ($11 billion) and vehicles ($11 billion).
While some officials have recommended slowing or halting purchases of Treasuries, China’s foreign-exchange regulator has denied that China intends to slow or halt purchases of US government debt.
China is planning to pursue legal action through the World Trade Organization in response to the US planned tariffs on steel and aluminium imports, calling for dialogue to resolve the dispute.
What can we expect?
China’s foreign policy is in general reactive; it will respond in turn to tariffs and trade barriers with the potential for a tit-for-tat cycle of retaliation between the world’s two biggest economies.
In response to US steel and aluminium tariffs, Beijing unveiled tariffs on $3 billion of U.S. said all options are on the table, “China does not want to fight a trade war, but it is absolutely not afraid of a trade war,” said the commerce ministry.
“Let me assure those people who intend to fight a trade war,” Cui Tiankai, China’s ambassador to the U.S., told China Daily, Beijing’s official English-language newspaper. “We will certainly fight back. We will retaliate. If people want to play tough, we will play tough with them and see who will last longer.”
Given Trump’s recent actions and his flair for the grandiose, his approach seems a poor match to Beijing’s controlled response. His supporters may cheer him on in the short term, but the lack of a clear strategy will have consequences in the long run.
Trump slapped tariffs on $50 billion in Chinese imports after his officials concluded Beijing engages in a range of policies that violate U.S. intellectual property, sparking a selloff in U.S. stocks last week. The Chinese market is in a strong position as domestic brands have gained traction in the Chinese market. Many are resilient because Chinese consumers remain their most important market.
Jamie Mulholland 