Trump’s trade war unlikely to end soon

Trump administration slaps more tariffs on Chinese imports

The latest escalation of trade tensions between the United States and China is further proof that US President Donald J. Trump has no intention of quickly coming to an agreement over a new trade relationship with China, according to Bart Oosterveld, director of the Atlantic Council’s Global Business and Economics Program.

“The [Trump] administration has no political or economic incentive to tone down these trade wars,” Oosterveld said.

On September 17, the Trump administration announced 10 percent tariffs on $200 billion worth of Chinese imports in an attempt to pressure China to change trade practices that the president says are hurting US businesses.

The tariffs, which will go into effect on September 24, will rise to 25 percent on January 1.

“Further, if China takes retaliatory action against our farmers or other industries, we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports,” Trump said in a statement.

These new tariffs come on top of the 25 percent tariffs on $50 billion of Chinese goods that the Trump administration imposed earlier this year.

Trump said the new tariffs were imposed after the US Trade Representative concluded that “China is engaged in numerous unfair policies and practices relating to United States technology and intellectual property—such as forcing United States companies to transfer technology to Chinese counterparts.  These practices plainly constitute a grave threat to the long-term health and prosperity of the United States economy.”

While some experts do not think that the impact of 10 percent tariffs will be severe enough to convince the Chinese to make any big concessions due to the recent depreciation of their currency, US businesses should view the period from now until January to alter their supply chain and prepare for the possibility of a protracted trade war.

With the September 17 announcement, almost half of all Chinese imports to the United States now face tariffs. While the previous tariffs affected mainly industrial products such as steel and machinery, the new list includes electronic goods such as Internet routers and Wi-Fi-connected devices, and consumer products such as furniture and household appliances.

Beijing has threatened to respond to the Trump administration’s actions with retaliatory tariffs on $60 billion of US products entering China. These new tariffs could push the total US exports to China impacted by tariffs to 85 or 95 percent.

The new tariffs are understood to be part of a US strategy to achieve a significant change in Chinese trade practices. Trump has long criticized Beijing for its unequal balance of trade with the United States. (China exports many more products to the United States than it is importing from the United States). Trump administration officials had hoped that the pressure of potential tariffs would push Beijing to agree to import more US goods, open more sectors to potential US investment, and revise their intellectual property practices to be more in line with the United States.

Top White House economic advisor Larry Kudlow said earlier on September 17 that the United States is “ready to negotiate and talk with China at any time that they are ready for serious and substantive negotiations towards free trade to reduce tariffs and non-tariff barriers, to open markets, to allow the most competitive economy in the world, ours, to export more and more goods and services to China.”

According to Oosterveld, the tariffs are pressuring Beijing to come to an agreement. “China is making concessions that it hasn’t made before, such as access for financial services firms, based on all the pressure that has been applied,” he said. Beijing, “can’t counter tariffs one-for-one for much longer. They are running out of countermeasures.”

Marie Kasperek, associate director at the Atlantic Council’s Global Business and Economics Program, believes that Trump knows he holds most of the cards over Beijing, especially as the US economy continues to show strong signs of growth.

“A deal with China before the midterms [in November] is extremely unlikely,” Kasperek said, as “it seems more likely that any deal—in order to be seen as having any sort of backing with the president—has to be negotiated by Trump himself. The Buenos Aires Group of Twenty (G-20) meeting takes place in late November after the midterms, and would provide a good opportunity in terms of timing.” Political uncertainty over the result of the November elections, as well as uncertainty in Beijing over Trump’s actual negotiating position, make it unlikely that there will be any breakthrough soon.

Kasperek noted that the “main obstacle are mixed messages from the administration, including from President Trump… and the undercutting of his own staff.”

A Wall Street Journal report suggested that US Treasury Secretary Steven Mnuchin had tried to set up talks with Chinese negotiators to head off a potential escalation in the trade war. That effort was scuttled, however, after Trump tweeted that the United States was “under no pressure to make a deal with China.” The status of potential talks remains unclear after the latest tariff announcement.

The president’s tendency to counter the opinions and promises of his officials has left many in Beijing confused about what the American position is and mistrustful of statements from Washington, according to Kasperek.

Despite the obstacles to an agreement with China, Oosterveld noted that the United States appears to be making some initial progress on its many trade priorities. “There is some form of talks on all three fronts. NAFTA talks appear to be ongoing. European Union talks are getting started based on the Trump summit with [European Commission President Jean-Claude] Juncker, and now with the Chinese there are fits and starts to these ongoing discussions,” Oosterveld said.

Rather than quick wins, however, it appears that the Trump administration is settling in for a long trade battle, hoping to achieve a real win on the other side.

We have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly.  But, so far, China has been unwilling to change its practices,” Trump said.

“As president, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself.  My administration will not remain idle when those interests are under attack,” he added.

David A. Wemer is assistant director, editorial at the Atlantic Council. Follow him on Twitter @DavidAWemer.

Related Experts: Bart Oosterveld and Marie Kasperek

Image: “As president, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself. My administration will not remain idle when those interests are under attack,” US President Donald J. Trump said in a September 17 statement announcing his decision to impose new tariffs on Chinese imports. (Reuters/Brian Snyder)