How Trump can wage a trade war against China
As president of the United States, Trump can use trade – a cornerstone of his populist rise – as a weapon, with the potential to drastically reshape the world’s two largest economies, as well as the companies, industries and workers who depend on their hundreds of billions of dollars in closely linked goods. But neither side may win.
Cutting off trade will not bring back the bulk of US manufacturing jobs lost to China in previous decades as it became the world’s factory floor. Already, some industries that left the United States years ago, such as garment making and some light manufacturing, are now leaving China for even cheaper places. An aggressive stance with China+ also risks antagonizing an authoritarian government with its own brand of economic nationalism.
Yet the unsettling reality for Beijing is that Trump has a variety of ways to get back at China+ for trade practices that he, his supporters or people in the affected industries view as unfair. China sells a large array of goods to the United States that he can aim at for higher tariffs.
The opportunities for China to retaliate would be more limited. In the most basic terms, China buys less from the United States.
But China could make some strategic strikes at targets like Boeing, US automakers and American farmers. Beijing exerts tight control over China’s airlines, for example, and sometimes steers contracts to Airbus, Boeing‘s European rival, when officials feel that Washington is uncooperative.
“Boeing complains, ‘We have been pretty good friends with China. Why are we always a target?'” said He Weiwen, a former Chinese commerce ministry official who is now the co-director of the China-US-EU Study Center at the influential China Association of International Trade in Beijing.
Or China could wreak havoc on the vast yet delicate supply chain behind a wide range of products like iPhones and auto parts. Six years ago, Chinese restrictions on exports of obscure yet vital minerals led to a global outcry by manufacturers.
Early indications are that trade could take a more prominent place on the White House’s China agenda, which under President Barack Obama was dominated by Beijing’s territorial claims in East Asia and its influence over North Korea.
In a strong signal, Trump has turned to Dan DiMicco, a longtime steel executive and trade critic, to oversee trade issues during his administration’s transition. DiMicco writes a personal blog, liberally sprinkled with exclamation points, that blames America’s industrial decline on cheating by trade partners, particularly China.
“Hillary Clinton has claimed Trump’s trade policies will start a ‘Trade War’ but what she fails to recognize is we are already in one,” he wrote on his blog last summer. “Trump clearly sees it and he will work to put an end to China’s ‘Mercantilist Trade War’! A war it has been waging against us for nearly 2 decades!”
China over the last two days has emphasized that a healthy relationship would benefit both sides. On Thursday, Lu Kang, a spokesman for China’s Foreign Ministry, said, “It is in the common interests of both countries to develop a long-term, stable and prosperous trading relationship, and any American politician would take a policy in the interest of his country and the American people.”
Trump’s views veer widely from the free-trade positions of the Republican Party in recent years and signal a return to the more hawkish positions of the Reagan administration, which repeatedly went after Japan on trade issues. Since President Ronald Reagan, Republican and Democratic administrations have been reluctant to confront countries that may be subsidizing or dumping exports, either because the evidence is unclear or because of a risk of damaging diplomatic or strategic relations.
“This is the kind of stuff you learn in law school, and in the early days of your law career,” said Alan H Price, a longtime lawyer for the American steel and aluminum industries at Wiley Rein.
When used, the measures were sometimes deemed ineffective.
In one rare example, Obama used his powers to impose tariffs of up to 35 percent on imports of Chinese tires soon after he took office. The tariffs prompted China to impose steep tariffs on US chicken meat and automotive products. Both countries complained to the World Trade Organization, which mostly sided with the United States.
The case resulted in the United States producing more tires, but imports from other countries rose even faster. And the Obama administration later became more cautious about challenging China with trade restrictions.
Any trade actions by Trump would face limits.
This year, he mentioned imposing a tariff of 45 percent on all imports from China. But he later avoided specifics – and he has limited power to do so anyway. The law allows him to impose tariffs of no more than 15 percent, and for as long as 150 days, on all imports, unless a national emergency is declared. Other laws allow him to impose tariffs on targeted goods.
Should Trump want to signal an aggressive stance quickly, he could move against imports of steel and aluminum from China. The Obama administration has been preparing to file a World Trade Organization case against China over claims that it subsidized aluminum exports. And the United States, Japan and the European Union already complain that Chinese government subsidies have produced a bloated domestic steel industry that they say dumps millions of tons of excess goods on world markets each year.
China is more vulnerable given the sheer amount of stuff it sells to America. For more than a decade, China has consistently exported about $4 worth of goods to the United States for each $1 of goods that it imports. Exports to the US represent about 4 percent of the Chinese economy; US exports to China are only about two-thirds of 1 percent of the US economy.
“We don’t have many things in the toolbox for retaliation, because we export more than we import,” said He, the former Chinese commerce ministry official.
Still, China could inflict pain on sensitive areas that provide US jobs, like Boeing’s jetliners.
Boeing declined to comment except to say, “We congratulate President-elect Trump and newly elected members of Congress and look forward to working with them to make sure we continue to grow the global economy and protect our people.”
General Motors and Ford Motor Co, consider China a big contributor to sales. They mostly manufacture in China to supply the domestic market. But much of the design and engineering work is still done in the United States. China could hurt the automakers by adopting domestic policies that help their big European rivals, notably Volkswagen and Mercedes-Benz.
Other US companies may be less opposed to trade limits than in the past. Some US companies have been struggling to sell in China. Beijing has steered contracts to Chinese telecommunications companies after Edward Snowden’s revelations about US intelligence gathering in China. And Chinese state-owned enterprises have shifted much of their investment banking business from Wall Street to homegrown rivals.
US farmers have welcomed Chinese purchases, but it is unclear how badly they could be hurt by any trade action. Chicken meat, soybeans, corn and other foodstuffs are commodities traded in world markets, and farmers are often able to sell elsewhere.
Chinese goods have long helped keep prices down for Americans. But Chinese exports play a shrinking role in holding down prices as labor costs rise in China and as rivals like Indonesia, Vietnam and India expand manufacturing.
China’s biggest potential weapon is to disrupt the supply chains of multinationals by halting exports of crucial materials or components. But that could damage China’s reputation as a reliable supplier.
“I don’t think we will go that far at the moment, because there is a lot of room to negotiate,” He said. “If we are forced too much, nothing can be excluded.”