US firms warn next trade salvo will give China upper hand

As resignation set in this week that the administration of US President Donald Trump will announce more steep import duties on Chinese goods, trade officials in Beijing stuck to a consistent script.

“If the US ignores opposition from a majority of businesses in comments [submitted to the administration], and obstinately enacts any new tariff measures, China has no choice but to enact retaliatory measures,” Chinese Ministry of Commerce spokesman Gao Feng said on Thursday.

His response to reporters was apparently in reference to comments made by hundreds of American businesses over the past several weeks, pleading with US trade officials to back off what they warn is a destructive and indiscriminate trade policy. The administration could slap tariffs on an additional US$200 billion worth of Chinese goods as soon as this week, which would bring the total value of imports from China subject to taxes up to$250 billion.

On Thursday morning, a coalition of more than 150 trade groups wrote a letter to Washington’s top trade official, reiterating staunch opposition to the escalation, which, they stressed, would undermine the competitiveness of US companies. Paradoxically, the hastily crafted policy will also strengthen Chinese firms’ global edge, the letter argues.

“US companies capture the highest value of most global value chains, so a reduction in trade due to these tariffs will disproportionately harm US companies with less impact on their Chinese suppliers who assemble, finish, or package these products,” said the statement from the multi-industry association, which represented companies from virtually every sector of the economy.

“Once these tariffs go into effect, taking them down may not happen any time soon, as both sides harden their positions. Without any timeline for when these tariffs will be removed, the added costs and negative effects on American businesses, farms, and citizens will only compound over time,” the letter added.

Underlining the disproportionately negative impact the Trump administration’s policy will have on US companies, a report released on Thursday by the American Chemistry Council detailed how tariffs will accelerate Asian economic integration, to the detriment of US firms.

China has recently committed to eliminating or reducing trade barriers on more than 8,500 goods imported from trading partners in the Asia-Pacific region, the report noted, which will significantly reduce costs of inter-Asia-Pacific business.

“As the US has receded, China has stayed involved in trade negotiations with other partners, especially in the Asia-Pacific region. The US ability to lead and influence in the areas of non-tariff barriers to trade with China and the entire Asia-Pacific region has been diminished,” the authors argued.

Despite the unending barrage of opposition voiced from domestic businesses, the administration has stressed repeatedly a belief that the United States is in a position of strength and “holds all the cards,” as Trump has said.

Last week, in an interview with Bloomberg, Trump reiterated that view when asked about the possibility of announcing the new round of tariffs this week, though he stopped short of confirming that any decision would be made.

“I delayed my devaluations. Monetary, you know, on the monetary – the devaluations. My currency manipulations, and also my tariffs, for a period of a year, with China, because I wanted to get as much help as – as they could give us with respect to North Korea. That had an impact. So I delayed it,” Trump said of his China trade policy.

“But there came time when I couldn’t delay it any more because it’s too much money that they drain out of our country. Just too much money,” he continued, adding: “We’re a much stronger – we are a much stronger country. We are much stronger.”

While many economists have noted that the tariffs will have limited impact on China’s economic growth, the president, along with other officials in the White House, have often focused on the relative performance of US and Chinese equities markets. But an analysis published on Thursday by the Council on Foreign Relations shows that the tariffs have nothing to do with the disparate results. Chinese stock underperformance can largely be attributed to the ongoing crackdown on excess leverage:

Trump says the Chinese market is down because of his tariffs. But is it? https://t.co/L0Pcfi7MIB by @BennSteil

— Council on Foreign Relations (@CFR_org) September 6, 2018

The continued stock-market exuberance in the US is little consolation for the businesses that will bear the brunt of tariffs. For Beijing, the move could present an opportunity to achieve long-term goals, as the American Chemistry Council report notes:

“As the US administration continues to erect costly barriers to accessing global supply chains and foreign customer markets, the Chinese government is actively working towards directing industrial capacity expansions in their own domestic economy and eliminating tariff and other barriers to doing business with other (non-US) foreign partners.”

Following the conclusion on Thursday of a public comment period, the Trump administration had yet to make an official announcement on whether it will move forward on the new round of tariffs. It is still unclear whether the rate will be set at 10% as initially proposed or 25% as threatened more recently.