Trump prepared to hit China with $60 billion in annual tariffs
March 20, 2018 in News by RBN Staff
Source: Washington Post | By Damian Paletta, Steven Mufson and Josh Dawsey
Trump has frequently called out China for currency manipulation, shirking duties with North Korea, bad trade deals and even “raping our economy.”
[China vows to open its markets further in response to Trump’s tariff threats]
The situation remains fluid, and Trump has previously in his presidency backed off economic threats at the last minute. But he has shown a recent willingness to unilaterally impose tariffs — even amid objections from advisers who fear starting a global trade war and economists who warn such actions could ultimately hurt U.S. businesses.
Here’s how leaders around the world are reacting to President Trump’s proposed tariffs on steel and aluminum.
Trump was particularly determined to follow through on tariffs on China, as criticism of U.S.-China relations was at the center of his presidential campaign, according to the administration officials, who spoke on the condition of anonymity to discuss the president’s plans.
If implemented, the tariff package would be one of the broadest sets of economic actions imposed by a modern U.S. president against China and could draw retaliation, fraying the trade partnership between two of the world’s largest economies.
“This looks much more like a president who is excessively eager to apply tariffs than a well-
calculated move to defend American interests,” said Phil Levy, who was a trade adviser to President George W. Bush. “There are real concerns about Chinese behavior on intellectual property, for example, but there are much more effective ways to address them.”
Most U.S. businesses agree with the Trump administration’s criticisms of China. But many disagree with the administration’s strategy.
“The U.S.-China Business Council believes that tariffs will do more harm than good in bringing about an improvement in intellectual property protection for American companies in China,” said John Frisbie, president of the council, a nonpartisan group of 200 U.S. companies that do business with China. “Business wants to see solutions to the issues, not just sanctions.”
Other business groups endorsed the proposed tariffs. “This would be a clear indication that he’s serious about ensuring there are consequences for intellectual property violations and other anti-competitive practices coming from China,” said Scott Paul, president of the union-backed Alliance for American Manufacturing. “He’s not the first president who’s promised he would do something about China. But if he follows through with these tariffs, he’d be the first to ensure there are real consequences for these violations. That’s a step forward for American workers.”
In 2017, China was the largest U.S. trading partner in goods (not counting services), edging out Canada and then Mexico.
Trump’s announcement of a 25 percent tariff on steel imports could greatly affect products that you may not know depend on it, like Reddi-wip.
The United States exported $130.4 billion in goods to China, but it imported nearly four times as much, running a trade deficit of $375.2 billion, according to the U.S. Census Bureau.
Economists specializing in China said that it would be difficult for the Trump administration to target Chinese companies because products imported from China are made by multinational companies with supply chains that stretch around the world.
Chinese manufacturers might assemble these products or put on the finishing touches, but the country does not export as many products to the United States that are entirely made in China, said Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics.
“So much of what we import from China is produced by multinational companies,” Lardy said. “Thirty percent are consumer electronics. I’m sure the president doesn’t want to raise the prices of those and send Apple’s stock into the toilet.”
It will be easier for China to hit back, Lardy said, as China can zero in on U.S. exports such as soybeans, which are entirely made in the United States. Soybeans are one of the top two goods the United States exports to China, along with aircraft and aircraft parts, according to government data.
Lardy also said that penalizing China probably would not help U.S. producers, even if the tariffs succeeded in stemming the inflow of goods from China.
“In the best case, they might reduce imports from China by $30 billion, but it will have virtually no effect on the U.S. global trade deficit,” he said. “We’ll just start buying things from the next lowest-cost supplier, such as Bangladesh or Vietnam. It’s not that the $30 billion will magically be produced in the United States the day after they announce these tariffs.”
China is also the largest foreign holder of U.S. government debt. It holds $1.17 trillion of U.S. Treasury securities, down about $33.5 billion since last August. The U.S. government faces huge borrowing needs, not only to finance new deficits but also to refinance past securities now coming due, so a drop in China’s appetite for that debt could nudge interest rates up in the United States. But experts also note that China would not want to hurt the value of the huge amount of securities it still holds, leaving the two nations’ finances in a state of mutual semi-dependency.
Beyond the escalating tensions with China, Trump’s pivot to protectionism has put much of the world on edge. His 2016 campaign was built around promises to put “America first” on every issue, but some aides managed to scale back his plans for trade restrictions in 2017 as the Republicans muscled tax cuts through Congress.
That has changed this year, however, with the tax bill signed into law and some of the people who had warned against protectionism exiting the White House.
Trump earlier this month ordered tariffs on imported steel and aluminum, a move U.S. allies and trading partners met with protests and threats of retaliatory tariffs. Gary Cohn, the top White House economic adviser, opposed the steel and aluminum tariffs and announced his resignation days before they were formally unveiled.
Republican leaders in Congress criticized the metal tariffs, but the GOP is not planning legislation to overturn them. The party is also worried that Trump will withdraw the United States from the North American Free Trade Agreement, a pact administration officials are renegotiating with their counterparts in Mexico and Canada.
The U.S.-China Business Council noted that many states – including some swing states that propelled to an unexpected victory in 2016 – have seen sharp increases in exports to China. Over the decade ending 2016, Pennsylvania’s exports of goods to China increased 83 percent, twice the rate as its exports to the rest of the world. And Pennsylvania’s exports of services jumped more than four-fold, more than five times the pace as its services exports to the rest of the world. Exports from Michigan, another state Trump won, showed a similar pattern.
Treasury Secretary Steven Mnuchin is in Buenos Aires on Monday and Tuesday meeting with global finance ministers. The foreign officials are trying to determine whether Trump plans to follow through on his threats to engage in a “trade war.”
Many of the financial ministers at the meeting have argued China should make changes to its trade policies, but so far most have tried to cajole Beijing multilaterally, a strategy that Trump has said doesn’t work.
Still, Trump’s approach to China has been uneven. He has tried to both befriend Chinese leader Xi Jinping while also isolating him, particularly on economic issues. On Sunday, the Treasury Department had to backtrack on an embarrassing misstep when a senior official said he had suspended economic talks with China, when a formal decision had not yet been made.
David J. Lynch contributed to this report.
