It was always going to turn ugly. With trade tensions between China and the United States rising, there are growing fears this tit-for-tat spat could spill over into the broader global economy.
On Monday, Beijing rolled out tariffs worth US$3 billion on an array of US goods in response to US President Donald Trump’s decision to target cheap steel and aluminum imports.
Last month, the White House also warned China that it will impose duties of about $60 billion on a host of Chinese products to punish the world’s second-largest economy for what it sees as widespread violations of American intellectual property rights.
“It’s just chaos,” Robert Shiller, the Nobel Prize-winning economist and academic at Yale University, told CNBC. “It will slow down [global] development in the future if people think that this kind of thing is likely.”
China was always going to react after Washington’s opening salvos in what could turn out to be a fully fledged trade war.
National interests
Just 10 days ago, new Vice-Premier Liu He was quoted by the state-owned Xinhua News Agency as saying that the country was “ready to defend itself” against US tariffs.
“We are ready and capable of defending our national interests but hope both sides will remain rational,” he told Xinhua.
Those words were translated into action on Monday when China slapped extra tariffs of up to 25% on 128 US products, including frozen pork, wine and an assortment of fruits and nuts. They had been widely expected and match a list published by Beijing on March 23.
In a short statement, the Ministry of Commerce reported that it had suspended its obligations to the World Trade Organization to reduce tariffs on 120 US goods and they will now be raised by an extra 15%.
Eight other products, including pork, will now be subject to additional tariffs of 25%, it added, “with measures effective from April 2.”
“China’s suspension of its tariff concessions is a legitimate action adopted under WTO rules to safeguard [the country’s] interests,” a spokesperson from the finance ministry said.
Yet in Washington, there is growing concerns that Beijing is bending the concept of free trade to suit its domestic agenda and global ambitions.
An investigation under the 1974 US Trade Act found that China engages in unfair practices by obliging US investors to turn over key technologies to domestic firms.
Naturally, this view has been challenged by President Xi Jinping’s government. Close aide Liu was cited by Xinhua as saying the investigation report “violates international trade rules and is beneficial to neither Chinese interests, US interests nor global interests.”
Still, Beijing’s rhetoric has failed to impress Trump’s team of advisers, who are quick to highlight the record $375.2 billion trade deficit, which the US racked up with China last year.
Arch critic
In February, the surplus with the US stood at $21 billion, official data from the General Administration of Customs showed, more than double the $10.4 billion reported during the same period last year.
Even one of Trump’s arch critics, the Democrat Senator Elizabeth Warren, said after a three-day visit to China that US policy had been “misdirected” and that she was not afraid of tariffs.
“We told ourselves a happy face story that never fit with the facts,” Warren told the media. “Now, US policymakers are starting to look more aggressively at pushing China to open up the markets without demanding a hostage price of access to US technology.”
Perhaps, though, there might be a glimmer of light to pierce the gloom hanging over Sino-US trade relations.
Analysts point to the fact that tariffs on major US exports to China, such as soybeans, were not included on the list, a sign that Beijing is desperate to avoid an all-out trade war.
“The amount subject to tariffs is not big, which shows China is willing to ease the intensity of the trade conflict that was started by the US,” Shi Yinhong, the director of the US research center at Renmin University in Beijing, told The Guardian newspaper. “Trump gave us a heavy shot and China is giving a light shot back.”
But more volleys could be on the way. “Even if this conflict can be eased, it won’t last long,” Shi added. “There will be rounds after rounds of trade wars in the future.”
China is saving some of its more potent weapons for a second round of tariffs, if the US continues imposing tariffs on Chinese goods. Soyabeans comes to mind as one area where China can badly hurt the US.
For China the whole country is united behind the leadership, thus better prepared to do battle. A country united cannot be defeated.
I dislike tariffs and President Trump’s (how I hate saying that) is immature and not helpful. At the same time, the theft of intellectual property by China was bound to create a backlash. This is just not good for anyone at all.
China is not sending someone begging like the Europeans, – the cadaver obedience of the Brussels bureaucracy is more then shamefully. Every sane observer in Europe foresaw this trent and instead Brussels unelected politically responsible showing solidarity with South-East Asia by not bending down to a chaotic miss management in Washington Europe is bending down. Don’t they see that a State indebted with 20 Trillion (1,06 with Japan & 1.18 with China) can not continue to live on credit from others and maintain a “defence” budget of over 600 Billion. This is like arming a murderer as we all know what their interpretation of "humanitarian" intervention…
not only US, also Europe. The gain can be reinvested, somethng like social-market-economie…
US Trade policy is seeking reciprocity. When China charges 25% for tariffs on US goods and the US is charging 2.5% for Chinese goods. The unfair balance is patently obvious. The US Trade policy is only seeking to level the playing field. Either China can reduce their tariffs, or the US will raise tariffs to match those of China.
My math says China’s trade surplus with the USA is the biggest in the world and the biggest in history. The idea that Trump should not try to make it less impactful is ludicrous on its face. China has enjoyed this trade surplus and now should work with the USA to get it reasonable so China can continue its BRI uninterrupted.
Art Laramee
Ever heard of Triffin Dilemma?
US dollar hegemony and trade balance are incompatible with each other. Either you give up USD global reserve+trade currency status and return to some sort of gold standard, or you bear the consequence of the current monetary system.
There is this thing called Triffin Dilemma?
US dollar hegemony and trade balance are incompatible with each other. Either you give up USD global reserve+trade currency status and return to some sort of gold standard, or you bear the consequence of the current monetary system. The US runs up trade deficit as a structural requirement for the USD based monetary system. As global trade increases, so does the US trade deficit. Increased trade deficit damages credit worthiness of the USD, and some kind of rebalance is needed. One often used tactic is to use the monetary tools to induce international money flows cause market turmoil and asset devaluations from which the US benefits financially thus improves balance sheet for the USD. Any intention/effort to escape from the stranglehold of the USD is met with fury of the US: Sadam Husein of Iraq got chopped for trying to use Euro to sell his oil, Gaddaffi got chopped for similar "crime". But this time around, the player on the otherside is China. No "Plaza Accord" type of forced rebalance can be imposed, no military solution is imaginable without self ruin. In the meantime, "Made in China 2025" looks set to challenge the US’ long held advantage in high tech thus making it ever harder to maintain current monopolistic income from selling high tech stuff at exhorbitant profit margins.
So, China must be stopped, otherwise the days of USA living off on other peoples’ sweat and labour are numbered, the days of USA printing money to fund its war machine are numbered. They will soon have to work and sweat just like all others to earn their desired living.
That’s the background for the trade war, the financial war, and the propaganda war.
Art Laramee Yes, China’s trade surplus with the US is the largest in the world. The reason is very simple. China manufactures and export all the goodies that the simple folks(and they form 90% of the population) of the US desires/need. And they are also what the rest of the world’s simple folks need/desire. They are stuff that the so-called advance western nations’ companies/corporations have no appetite to do themselves, but farm out to the needy small companies /enterprises, initially in China, and now to countries in Asia, Africa, South America. In the process, workers involved in such labor intensive industries have been unfortunately made redundant. The question here is, with all the smart economists in Yale/Harvard/ famous MBA schools, AND their know-it-all think tanks, why was there no wake up call on their government about the plight of all those workers displaced by natural market forces, and institute actions to have their skills upgraded/cross-trained? This is what the Chinese government is doing now, seeing that many of their manufacturing operations are not competitive any more.
As for the westerners constant harping on China "stealing" their IP, that’s the only accusation they can rely on as a greedy bad loser. The saw and wanted a good slice of the Chinese market, as they are now also want to have as big a slice of the Indian market, the market of all those countries in SE Asia, latin America, etc. As with going in to watch a show/performance, you have got to buy a ticket. The better the show/performance, the higher the price of the ticket. It’s no different with wanting to gain a market entry, especially into such a mouth-watering market like China/India or any of the other emerging countries. Stealing? Nobody stole. It’s pure deal bargaining. Ask all those corporations(e.g. Nike,Gap,Wlamart,GE,IBM,APPLE,IKEA,FORD,CHRYSLER,GM, etc etc. who have made billions in setting up operations in China whether they are unhappy being where they are. They went in willingly. Nobody twisted their arms, or put a gun to their heads. Afterall, its their own money. They being very smart capitalists, will only invest in an amount from which they expect to see a very handsome return, which through the last 15 years or so, have proven their investments decisions have been absolutely correct. They raked in tons of money. Stealing? In fact, it should be seen as the Ameicans who have been "stealing from the blood sweat and tears of the millions of Chinese who toiled for them on meagre income" to fatten themselves, and givng their own folks in the US a good life with products at very affordable prices.
I have come across a comment on intellectual theft. The author used 2 photographs showing identical cars to illustrate his point. The cars were identical because it was the same car with the photos taken at different angles. The backgrounds were the same in both photos.
Any intellectual theft is unlikely to be larger than the usual intellectual theft practised by companies in all countries.
Have you not noticed that China offers billions for ailing companies and their IPs?
My question to you is that if US does not permit China to buy what they need, does China need to accumulate more fiat U$ trading with US?
China by the way is transforming to an innovative economy fast. It is still not too late to share the fruits of innovative future technology. By sharing what US has now, get a stake and getting a pie of the pie before it all becomes superseded by new technologies.
The logical means to deal with bully is to hit it back hard
Wine is for the up incomes so what it goes up 25percent they will still buy it! Pig it is imported into china processed packaged and sent back! So they just shot their own foot! Companies will just process the meat and package it here that is a GAIN for US!
What the US politicians, so-called economists like Navarro and the pundits do not bring up is the impact of the USDollar as reserve currency on the US trade deficit.
If the USD is not a reserve currency, the US would have to finance its imports by buying foreign currencies, driving down the value of USD which makes imports more expensive and leading to a fall in imports. This is a self-adjusting mechanism.
Increasing imports for China depresses the yuan and the US calls it currency manipulation.
Currently, and since the 2nd World War, the US does not have this auto self adjustment. With USD as reserve currency, the US just issues USD to pay for imports and with increasing global trade and economic growth, the value of USD is maintained. This is an unfair economic advantage and an unfair trade practice.
Exporting countries holding the USD are holding a fiat currency which are worthless pieces of paper and what to do with them?? So the USD are recycled back to the US by " investing " in US securities, flooding the US with liquidity and financing the next round of imports, cheaply. The US has been importing on the cheap.
USD as reserve currency made it pain free for the US to pull out from the 2008 financial collapse which caused trillions of dollars of economic destruction around the world. Root cause of the financial destruction was the sub-prime gambling by the large US banks. Subsequent QEs did not depress the dollar.
The US trade deficit is equal to the excess of spending/investment over savings. This is an economic law. US is not saving enough because it can finance spending cheaply without inflationary pressure. A symptom of this excess spending is the missing 21 trillion USD missing from the Federal Budget which reflects a systemic and chronic breakdown in spending/accounting controls. Google Catherine Austin Fitts for this. The Congressional Military Industrial Complex spending has gone out of control with 1 USD trillion military budget and 1,000 bases around the world. An F35 costs almost 500 billion in development cost and sells for 95 million per plane. And the military has never been audited.
The systemic breakdown in spending/accounting controls is a threat to national security but the politicians and pundits do not discuss this problem, hiding it from the public.
You see, the US IS EXCEPTIONAL and can do no wrong, so, it blames other countries for its internal problems. It blames Russia for election problems and China for it economic problems. However, it did not blame China for its financial collapse in 2008 because the causes are too obvious. But it indicted and brought a small Chinese bank to court but did not charge the giant US banks in the courts for fraudulent sub-prime gambling and a small Chinese bank was used as scapegoat.
Instead of addressing the root cause of its trade deficit, the US government took the easy way out and blame China for its self-generated economic problems.
Of course the US would not let go of USD as the reserve currency. It wants the cake and eat it too. It wants everything.
This trade war is going to be brutal but necessary in order for both the USA and China to be independent of each other economically when war between them will break out in a very near future. There will never be two lions of different pride share the same territory on the Serengeti. War between these two countries are inevitable. It’s not a question of if but when.
Michael Wang
Ever heard of currency manipulation? There won’t be an issue if someone is playing by the rules.