The Sino-American tit-for-tat trade standoff

By George N. Tzogopoulos

When Donald Trump was elected President in the US, Sino-American relations could not but enter a period of relative uncertainty. Trump’s pre-election rhetoric and his unclear policies on several fronts – including trade – raised serious questions. The two meetings with his Chinese counterpart Xi Jinping in both the US and China certainly contributed to a better understanding between the two sides enhancing dialogue initiatives. Despite the good climate Trump’s ‘America First’ agenda has not been abandoned though. This has been apparent in the recent weeks.

Soybeans and Banknotes of US Dollar [Photo: VCG]

In particular, the US President is targeting China by introducing some new tariffs. It all started with an announcement on potential tariffs against US imports of steel (25 percent) and aluminum (10 percent) at the beginning of March (US Section 232). On 22 March a presidential proclamation suspended tariffs for Argentina, Australia, Brazil, South Korea, Canada, Mexico and the European Union. It thus became evident that the main objective of Trump was to curb imports from China. 

On the very same day, the US President went further and decided to do a Section 301 trade action aiming at reducing the trade deficit with China. The initial calculation was an amount of 60 $billion. In addition to punitive tariffs, Trump directed US Trade Representative Robert Lighthizer to challenge China’s technology licensing programs at the WTO. In his relevant talk Lighthizer accused China for having ‘a policy of forced technology transfer’ and for ‘cyber theft’. 

Even before the recent introduction of tariffs by Washington, Beijing had warned against counter-measures to safeguard its interests. So, it is not surprising that it had responded firmly. The initial reaction took place on 1 April when the Customs Tariff Commission of the State Council decided impose a tariff of 15 percent on 120 items of products imported from the US. According to China’s Ministry of Foreign Affairs this was a response to the Section 232 measures and not the Section 301 investigation.

Subsequently, a tit-for-tat trade standoff began. 24 hours after the Chinese retaliation the Trump administration identified 1300 Chinese exports that could be targeted. And on 4 April the Chinese administration announced the imposing of additional tariffs of 25 percent on 106 American products worth of circa 50 $billion. A few days later Trump showed some signs of softening his style by tweeting: ‘President Xi and I will always be friends, no matter what happens with our dispute on trade’. Nonetheless, it remains unclear what the next steps will be. 

Perhaps the decision of Trump to target China is reflecting his will to partly act in line with his pre-election rhetoric As Time magazine observes: ‘this is an election year in the US and Trump wants supporters to see that he’s keeping his promises to get tough on China and trade deficits’. But the US President is unpredictable and therefore no scenario – even that of a trade war – should be excluded. Against this backdrop China is formulating its policies. In so doing, it has already filed a request for consultation under the WTO dispute settlement framework with the US regarding the Section 232 measures that slap tariffs on steel and aluminum imports. It has also done so concerning the Section 301 investigation against it. 

There is no question that no one would benefit by a trade war as well as instability, uncertainty and protectionism in economic affairs. For the time being, it is China’s nuanced retaliation approach that seems more likely to bring the situation back to normalcy by possibly leading the US administration to reconsider the long-term impact of its punitive practices. A Brooking study suggests that ‘the Chinese have done their homework about the geography of both the US production system and its divided politics’. In other words, they have managed to involve local and regional economies and jobs in their response paving arguably the way for a pushback to Trump by both Republicans and Democrats in Congress. 

While the majority of trade between China and the US has not been affected yet, the time is right for fair consultations and good will. China will not initiate a trade war and its door to negotiations will be always open. The steady development of Sino-American commercial ties is critical not only for the two countries but for the world. 

(Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. )