Long before President Trump was sworn into office, China was being viewed in Washington circles as a threat to America’s economy. In the world’s largest trade partnership, trade balance tilts towards China and many American companies have shifted to Chinese land in their quest for low costs. Hailing his ‘America-First’ rhetoric, Trump levels the blame for Americans losing their jobs on immigrants, and China.
It isn’t a surprise then that just days after announcing steel and aluminum tariffs on imports, Trump is bringing a host of measures—from across-the-board tariff protections to investment restrictions and visa caps—specifically targeted at China.
The decision to impose tariffs on steel and aluminum didn’t sit well with many American businessmen, proponents of free markets and conservatives who don’t believe in the virtues of protectionism. Apart from the fact that it would lead to retaliation from exporting countries, the rationale behind the decision was also called into question. Undoubtedly, many steel and aluminum using industries—which contribute sizably more to the GDP and employment than these two metal manufacturers—would see their costs escalate.
It has been evident that Trump indeed had China in mind when he announced these tariffs, but it was also contentious if this measure would impact China since the country accounts for only a small share in US steel imports. The US buys most steel items from Canada which has been given an exemption on these tariffs under North American Free Trade Agreement (NAFTA).
The supply glut for Chinese steel, on the other hand, has been real, backed by massive government subsidies inevitably leading to dumping at dirt cheap rates across the world, driving steel prices down. In fact, China also earned the ire of other developed economies including the EU who had adopted several anti-dumping and countervailing measures to ‘level the playing field’ for local manufacturers.
But as much as the steel tariffs earned Trump flak for being unreasonable, it is likely that the trade package to curb China’s economic influence and ‘unfair trade practices’ will find support on both ends of America’s political divide. These measures would come after the findings of an investigation done by Trump’s trade officials to quantify and document—what Trump calls—China’s economic aggression.
It has been a long running belief that China has been building a technological and industrial empire by stealing American intellectual property. Analysts claim companies that shift to China are often “required to transfer their technology to Chinese firms as a condition of market entry”, or “form joint ventures so Chinese firms can gain access to certain markets”.
The only way for US policymakers to take China to task is to strike where it would hurt most, using the only leverage US has on China: imports. The US imported $526 billion worth of imports from China in 2017. Broad tariff impositions on IT and consumer items would most certainly provoke Beijing.
Analysts are unsure. They are arguing that Americans cost of living would go up if cheap Chinese goods aren’t available (especially those that America no longer produces); or when Chinese goods aren’t giving American manufacturers a reason to keep prices reasonable. There are also many American companies that earn profits while operating in China.
Moreover, the US needs China’s alliance to counter North Korea and waging an economic war on the country doesn’t inspire the confidence to fight a common enemy together. Xi is also unlikely to take this anti-China trade package lying down. The country could hit back by not buying major US export items like grains including soya beans, beef and aircrafts; and blocking US investments, among other retaliatory measures.
As far as economic wars go, this would be a tricky one as neither economy may come out wiser. In a world so interconnected, can protectionism even be enforced without hurting one’s own economy? What’s certain is that China is unlikely to be backed into a corner and Trump isn’t the one to toe the line—all repercussions notwithstanding.
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