China is expected to suffer from a 3.4% deflationary pressure if the United States revokes permanent normal trade relations (PNTR), previously known as most favored nation (MFN) status.
Beijing’s concerns about losing its MFN status have increased since the November 5 presidential election victory of Republican candidate Donald Trump, who has vowed to raise tariffs for all imported Chinese goods to 60%.
John Moolenaar, chairman of the House Select Committee on the Chinese Communist Party (CCP), heated up the issue further on November 14 by introducing the Restoring Trade Fairness Act, which calls for ending China’s PNTR.
Moolenaar said that when China prepared to enter the World Trade Organization (WTO) in 2000, the US Congress voted to extend PNTR status to China, hoping that the Chinese would liberalize and adopt fair trading practices, but “this gamble failed.”
“Having PNTR with China has failed our country, eroded our manufacturing base and sent jobs to our foremost adversary. At the same time, the CCP has taken advantage of our markets and betrayed the hopes of freedom and fair competition that were expected when its authoritarian regime was granted PNTR more than 20 years ago,” he said.
Republican Senators Marco Rubio, Tom Cotton and Josh Hawley on September 26 introduced The Neither Permanent Nor Normal Trade Relations Act to end PNTR with China. On November 13, Rubio was nominated by Trump to be the next US secretary of state. Rubio is likely to gain Senate confirmation and begin his term after Trump’s January 20, 2025, inauguration.
“Giving Communist China the same trade benefits that we give to our greatest allies was one of the most catastrophic decisions that our country has ever made,” Rubio said in a press release in September. “Our country’s trade deficit with China more than quadrupled, and we exported millions of American jobs. Ending normal trade relations with China is a no-brainer.”
Three scenarios
In October, Shenwan Hongyuan Securities, a state-owned brokerage firm, commissioned Infinite-Sum Modeling, a Shenzhen-based consulting firm, to conduct research on possible US tariff hikes against Chinese goods.
“If the US revokes China’s MFN status, it will impose an average of more than 60% tariffs on Chinese goods,” calculating from the facts that the US imposes “an average 42% tariff for non MFNs, and there is an additional 20% Section 301 tariff against Chinese products,” Zhao Wei, chief economist of Shenwan Hongyaun, writes in a research report.
After a trade war broke out in 2018, he says, 48% of Chinese goods imported by the US have ceased to enjoy the low MFN tariff. Citing a report published by the Peterson Institute for International Economics, he says the average tariff imposed on Chinese goods was 19.3% in June 2023, compared with about 2.3% in 2018.
Shenwan Hongyuan made economic forecasts for three scenarios if a new trade war breaks out between China and the US:
- 1. The US imposes a 60% tariff on Chinese goods;
- 2. The US imposes a 60% tariff on Chinese goods, and a 10% tariff on all other imported goods;
- 3. The US imposes a 60% tariff on Chinese goods, and a 10% tariff on all other imported goods, while China retaliates with a 60% tariff against American goods.
In all three scenarios, the US would be able to cut its trade deficit but it would also suffer from slower domestic consumption and economic growth.
Zhao points out that the US not want to have scenario 2 or 3 as its GDP would drop more than China’s.
A Jiangsu-based commentator using a pseudonym “Beibei” says in an article published on November 15 that if China’s MFN status is revoked by the US, Sino-US trade relations and the global supply chains will face a huge negative impact.
“If this really happens, tariff barriers will significantly increase, resulting in a plummeting of the trade between China and the US,” Beibei says. “Many Chinese exporters will suffer from shrinking orders and rising costs. Some small-and-medium-sized enterprises may even face risks of bankruptcy.”
However, the columnist says China will be able to overcome these challenges by focusing more on domestic markets and some Belt and Road countries. She says Chinese manufacturers may also use this chance to increase the added value of their products and shift from labor-intensive industries to knowledge-based ones.
She adds that US companies will be harmed by potential supply chain disruptions and rising costs. She says US retailers and consumers who rely on high-quality and low-priced Chinese goods will face rising prices.
Since Trump won the election, the Chinese foreign ministry has so far refused to comment on potential US tariff hikes and called the matter “hypothetical.”
Xie Feng, Chinese ambassador to the US, said on November 15 in a Hong Kong forum that cooperation between China and the US never has been a zero-sum game.
He said the US-China bilateral trade of more than US$660 billion per year allows 70,000 US companies to make profits totaling US$50 billion in China. He also said Chinese goods can help American consumers cut living costs.
Yong Jian is a contributor to the Asia Times. He is a Chinese journalist who specializes in Chinese technology, economy and politics.
If Trump removes China most favoured nation status, all China needs to do is to stop selling to US altogether, that makes Trump’s tariffs irrelevant. US will have to buy from third parties that will sell their Chinese stocks to US at higher price, and then replenish their stocks by buying from China at the normal price. The third parties make their money, and China’s trade with US remains the same. The only losers are the US consumers.
Right and China will replace the EU/US with African consumers!
Good luck with that.
This article is drivel. The Chinese authorities are scientific rationalists: they have thought everything through. Their view on US tariffs is who cares: they have burgeoning trade outside of the West.
Oh right, they can replace US/EU with Africa. Get a grip.
Most of China’s trade now comes from Global South countries. The US might need to re-evaluate its own sense of importance to China. Tectonics are shifting and Neocons will be left hanging dry, still clutching at straws with their pseudo intellectual solutions, left behind in the world of a bygone era. By now even a confused teenager can figure out that US sanctions have backfired.
The Global South is poor, not alot of money to buy Chinese tat.
Chinese exports to the US represents 3% of China’s GDP, so why all the doom and gloom by these so called “experts”? Any tariff increases by the US will also increase their inflation anyway so it’s a lose-lose scenario.
But 24% of total Chinese exports, and that doesn’t include Chinese owned factories in other countries.
But, as you say, nothing to see here. Nothing for Winnie Xi Pooh to worry about.
China owned factories? so does USA owned factories
Trump wants to reshore them too.
But don’t worry, the 3rd world can replace the USA/EU, can’t it ?
off course 3rd world countries could after dollar getting replaced as reserve currency as their dollar denominated debt value to IMF and WB got errased
haha, replacing the USD won’t suddenly make the 3rd world rich
US tariffs on chinese import will cause huge inflation in the US and with rising poverty and income inequality in the US, the american consumers and down stream enterprise will bear the full blunt of it – china has been preparing for this moment for at least 6 years now and of course there will be pain for china, the damage to the US could be devastating …
Short term yes, but long term the positions will be reversed.
The EU will follow the US, so who’s going to pick up the slack? Africa?
China’s BRI
Good infrastructure. But money down the gurgler.
How are things going in Pakistan?
the CPEC is more than just an infrastructure-economic project – its also a necessary geo-political hedge against US shenanigans in SEA, and its doing just fine …
Dude is peddling drivel as if he has this all mapped up from every perspective. Nobody knows for sure what will transpire, how it will pan out. Not Trump, nor Xi nor the other irrelevant parties. So sit tight and watch the world indulge in a loose-loose game, and go kaboom