In Trump’s trade war with China, victory is elusive

With President Donald Trump announcing a new round of tariffs on China –imposing 10 percent on about $200 billion worth of goods from the country — Beijing said on Tuesday that it would retaliate with a new round of tariffs on U.S. imports.

As these tariffs roll on and cause some fear and dread in several industries, it’s worth asking: What does a victory in a trade war with China actually look like?

“If they get meaningful concessions out of the Chinese, they will consider this a success,” said Bart Oosterveld, director of the Global Business and Economics Program at the Atlantic Council.

What, exactly, is a “meaningful confession,” though? Are there any hard targets included in that definition? Although the aim of these tariffs is to lower the U.S.-China trade deficit — by either $100 billion or $200 billion by the end of 2020 — a “win” can be defined in a number of ways.

“Within the administration there are very different views about what a good outcome with China is,” said Oosterveld. Some, he pointed out, such as U.S. trade representative Robert Lighthizer, want to see complete reform, with China becoming a free-market economy.

“Then there are others who want concessions on specific trade practices,” said Oosterveld, adding, “You can claim victory pretty quickly in this environment.”

So, with some kind of (at least claim to) victory assured, we can expect more of the same in the short term — at least, until the November midterm elections.

Along with the announcement of the new tariffs on Monday night, President Trump also said that if China retaliates (which it is). then the U.S. will “immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports” — or pretty much everything the U.S. imports from China.

Feeling pretty confident with a strong stock market and high employment figures, Oosterveld said the administration is sure to push ahead with the third round of tariffs.

“The administration has no incentive, politically or economically, to back down before the midterms,” said Oosterveld. “This escalation kind of serves them well,” he added.

Will these tariffs work to change China’s behavior and help narrow the trade deficit? Well, maybe, said Oosterveld, who sees the Chinese as being “relatively willing” to make some concessions.

“But if you’re going to address the trade practices of China, long-term, I think you need to work with allies, like the E.U. and Japan, to apply pressure. I don’t think that’s happening right now,” he said.

Indeed, the president seems to view this as a bilateral issue rather than a global one, and his Tuesday morning tweets make more of a nationalistic (or emotional) case for his actions, rather than a pragmatic one pitting China against America’s “great patriots”:

China has openly stated that they are actively trying to impact and change our election by attacking our farmers, ranchers and industrial workers because of their loyalty to me. What China does not understand is that these people are great patriots and fully understand that…..

— Donald J. Trump (@realDonaldTrump) September 18, 2018

 

…..China has been taking advantage of the United States on Trade for many years. They also know that I am the one that knows how to stop it. There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!

— Donald J. Trump (@realDonaldTrump) September 18, 2018

 

But many U.S. businesses worry that the president’s tariffs will be what puts them in the line of fire: Thousands of companies and trade industries have registered their concerns with Lighthizer’s office, saying that their businesses will take a hit from which they can’t recover. Many have applied to get their products off the tariff list.

This, said Oosterveld, seems to be an acceptable price to pay for the Trump administration.

“We have very solid economic growth and this, in and of itself, won’t trigger an  economic downturn … I’m sure there’s downstream harmful effects to individuals, to certain companies, to certain industries, certainly to companies abroad and certain industries there — I don’t think that’s a major area of concern to this administration right now.”

Trump’s trade war with China is definitely not going as planned

 

Experts have been saying that this dispute is undoing some of the benefits of Trump’s much-ballyhooed tax cuts and that this trade war isn’t going anywhere until there’s a change in political leadership — either in the U.S. or in China, where President Xi Jinping has basically made himself president-for-life.

The first two rounds of tariffs — imposed by President Trump in an effort to close the trade deficit with China — have hit America’s automotive, agricultural, and electronic sectors hard, with actual tariff collections kicking off at 25 percent next week and increasing through the end of FY 2018.

The Trump administration’s third round of tariffs will hit things like smartphones — including the beloved iPhone — which will start costing more, although Commerce Secretary Wilbur Ross told CNBC on Tuesday morning that “Nobody is going to actually notice [prices hikes] at the end of the day,” because the increases will be “spread across thousands and thousands of products.”

Oosterveld, however, said that Americans will likely feel the effects of these tariffs when they do their Black Friday shopping ahead of the holiday season, though a number of other factors — China’s currency dip or stronger wages in the U.S. — might negate those tariffs for some.

But this is largely why a trade war is not considered winnable: It does economic damage domestically as well, in the form of higher prices.

Ross also told the network that owing to the trade imbalance — China exports to the U.S. roughly four times what it imports — Beijing can’t really effectively retaliate and that it is “out of bullets” in this trade war.

While it’s true that China has either imposed tariffs or has threatened them on $110 billion in U.S. imports (nearly all of what it buys from America), Ross might not be quite right to say that China is out of ammo.

“They hold a sizable portfolio of treasuries,” said Oosterveld — more than $1 trillion — making China the U.S.’s largest foreign creditor.

Analysts have noted that selling those treasuries would be a “nuclear” option that could temporarily rock the U.S. money markets. Oosterveld, though, thinks that despite this leverage, China is willing to negotiate as these tariffs are “disruptive to their economy — and that’s something that they’re very sensitive to.”

Read more: thinkprogress.org

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