In response to President Donald Trump’s approval of higher duties on Chinese steel and aluminum last month, Beijing on Sunday raised import duties on some U.S. goods by $3 billion. And by midday Monday, the Washington Post reported that the markets had taken a hit: The Dow Jones industrial average had dropped 2.4 percent (580 points), The Standard & Poor’s 500-stock index slid 2.6 percent, and the Nasdaq was down 2.9 percent.
Although China’s move is unlikely to do significant damage to its $150 billion in annual U.S. imports, it will likely affect agricultural states in the United States (whose products represent $20 billion of those imported by China and are viewed as Trump’s base), as the targeted goods include pork, apples, and sparkling wine, reports the Associated Press.
The United States does not import much steel and aluminum from China. Still on Monday, White House Spokeswoman Sarah Huckabee Sanders said that through the tariffs, President Trump wants to ensure that “we’re getting a good deal and we’re not taken advantage of anymore.”
“This is a breakdown of all sorts of dialogue. Diplomatically, this cannot but hurt the U.S.”
The Chinese Ministry of Commerce, meanwhile, called Trump’s higher tariffs “protectionist” and said they’re against Word Trade Organization rules. President Trump wants the WTO involved too — he has ordered American trade officials to file a WTO case that challenges China’s technology licensing, asking for 25 percent duties on products from those sectors. (Some think this might actually be the first step in President Trump’s attempt to withdraw the United States from the trade organization.)
ThinkProgress reached out to two experts to help explain the situation: Orville Schell, the head of the Asia Society’s Center on US-China Relations, and Bart Oosterveld, director of the Global Business & Economics Program at the Atlantic Council.
ThinkProgress: If the U.S. does not import much aluminum and steel from China, why bother targeting those goods to start with?
Schell: You’re asking this question with a logical mind, which is of course not always the way, I think, Trump’s mind works. To look at the bright side first, he is sort of signalling to the Chinese: A) Things are different now, B) We’re sick and tired of the unlevel playing field and we’re not going to take it anymore. Never mind if the signal is appropriate or well-calibrated. It is a signal. The bad side is that these signals can be tremendously destabilizing — and they can incite extreme retaliatory responses.
Oosterveld: I don’t think it ever was about aluminum and steel. It’s a minor part of U.S.-China trade. I don’t know what the strategic purpose was behind announcing tariffs that would mainly affect alleys [including Canada and Australia, which later got exemptions]… The counter-tariffs Europeans proposed and never enacted, were fairly targeted towards the base of the Republican party, and the ones that China announced similarly disproportionately affects states and regions that voted majority for Trump.
TP: Is China really being unfair in its trading practices with the United States, or is it simply doing what any pragmatic country — including the U.S. — would do: To use the weakness of its trading partner to its own advantage?
Schell: I think every country tries to use the weakness of others to their advantage in trade. Such a situation can get so far out of balance that it becomes antagonistic. And we have long since reached that with China.
Oosterveld: China is fairly closed to foreign direct investment — the OECD [Organisation for Economic Co-operation and Development] has it in a ranking of the second most-closed economy to foreign direct investment. The Europeans, the Japanese, and the U.S. have long had concerns about China’s trading practices that I think are legitimate, so [China] doesn’t level the playing field, it hasn’t been a fair and open and transparent trading partner, and the U.S., the Japanese, and the Europeans in Buenos Aires late last year issued a joint statement about working on things like intellectual property and other longer-standing concerns.
TP: Can the WTO effectively mediate this rift?
Ooseterveld: That’s what it’s set up to do…that very much remains to be seen. Yes, in theory, all effected parties are in the WTO and this is a WTO-type conflict, so let’s hope it goes that route.
Schell: The problem with the WTO is that its out of date and it’s really not up to being able to rectify all of the imbalances. Moreover, it works very slowly. If I read the situation correctly now, the U.S. and China are at state where Americans have been pushing for years and the Chinese have been yielding very little. And now here comes Trump, basically saying we’re not going to do this anymore, we’re going to blow the whole thing up if it’s not equalized.
TP: What’s the endgame here for President Trump? Or is it all about the optics of a win?
Ooseterveld: To the end that there is [an end goal] it is not visible to me. It’s a basic tenet of economics that trade wars cannot be won or lost… there is no winning. You have to hope, with these kind of retaliatory tariffs, that the latest that’s announced is where it ends, and you have to hope for a reversal at some point….In the end it sets up a vicious cycle of sorts. There may be investment decisions that are made on the margins where people open up new plants in the U.S. or revive plants in the U.S. that may give it [Trump’s trade war] the optics of win, and that may give wins in areas that are important to the Republican party.
Schell: I’m not sure Trump works that way, with a rational policy with a targeted endgame and a set of steps to attain it. I think he responds much more viscerally. And this is precisely what gets the Chinese so off balance. In this sense, it can have — and I want to underline can — a constructive role in that it puts the Chinese on notice.
TP: Does President Trump stand a chance in achieving this? If so, how, and if not, what are the consequences beyond trade?
Schell: Trump’s strange style is not limited to his management of trade issues. Its virtues are that it breaks up a kind of frozen situation. But it’s vices are that it has very little capacity to put a new situation back together again. And that’s the part we have to really pay attention to… We’re at an inflection point. We don’t know whether China will retaliate or whether it will say, ‘Our trade relation with the U.S. is too important to blow up.’… There are enormous consequences. It’s hard to know even where to begin, because [Trump] alternately pulls the keystone out of the arch and then makes testaments of all kinds of friendly relations with China. He’s almost bipolar in his response to China.
Ooseterveld: Leveling the playing field when it comes to concerns about the Chinese trading practices have mostly to do with intellectual property and protection of U.S. and European and Japanese intellectual property. You can address that through negotiations….And that was the plan late last year. So I don’t know where that plan is….I don’t know where the consensus is. This is a breakdown of all sorts of dialogue. Diplomatically, this cannot but hurt the U.S. A strategic dialogue with Beijing about economic and trade topics is dormant, the consensus that the U.S. had build with the E.U. and Japan to address these intellectual property issues is gone or dormant at least. On the topics that I think are important, there’s no progress being made.