UNDERSTANDING THE US-CHINA TRADE WAR
WHAT’S BEHIND THEM AND WHO STANDS TO LOSE?
Adock worker from the eastern port city of Ningbo said he wants China to stand unflinchingly against President Donald Trump’s demands. And a coffee shop owner in the Chinese capital said Trump’s tariffs have inspired her to retaliate at the store: She’s swapping US products for Chinese brands.
As the trade war between the world’s two largest economies unfolds, analysts say Trump’s brash approach to try to win concessions from Beijing has provoked a public fury that could ultimately thwart his efforts. By imposing tariffs on $200 billion (Dh734 billion) more in Chinese goods starting next week, Trump has triggered the likelihood of price increases for many American companies and consumers. Here’s a look at what’s happening and its likely impact:
What is the US doing?
The Trump administration will begin taxing $200 billion in Chinese goods starting from Monday. The tariffs will start at 10 per cent and rise to 25 per cent in 2019. The target list is huge, ranging from rattan mats to burglar alarms to bicycles. But the administration struck some items from the originally planned $200 billion tariff list, including bicycle helmets and other child safety products. And, in a victory for Apple Inc, smart watches and some other electronics products won’t be subject to the new tariffs, either. The administration and Beijing have already imposed import taxes on $50 billion worth of each other’s products. Beijing’s target list of US goods to penalise was heavy on agriculture. That’s hardly a coincidence. Its tariffs are meant to deliver pain to American farmers, who overwhelmingly backed Trump in the 2016 election and whose interests are represented by powerful lobbyists and members of Congress.
What’s behind the US-China trade rift?
The Trump administration has accused China of using predatory tactics in a lawless drive to overtake America’s technological supremacy. US officials point to Beijing’s long-range development plan, “Made in China 2025,” which calls for creating powerful Chinese entities in such areas as information technology, robotics, aerospace equipment, electric vehicles and biopharmaceuticals. Foreign business groups argue that “Made in China 2025” is unfairly forcing them to the sidelines in those industries. The Office of the US Trade Representative concluded after an investigation that China’s tactics range from requiring US and other foreign companies to hand over technology in return for access to the vast Chinese market to outright cyber-theft.
How has China responded?
China announced retaliatory tax increases on $60 billion worth of US imports, including coffee, honey and industrial chemicals. China’s Finance Ministry said its tariff increases are aimed at curbing “trade friction” and the “unilateralism and protectionism of the US.” There was no word on whether China would back out of trade talks it said it was invited to by the US, but a Chinese Commerce Ministry statement said the US increase “brings new uncertainty to the consultations.”
Earlier, foreign ministry spokesman Geng Shuang said the US steps have brought “new uncertainty” to talks between the two countries. “China has always emphasised that the only correct way to resolve the China-US trade issue is via talks and consultations held on an equal, sincere and mutually respectful basis.”
What’s next after China’s retaliation?
Trump warned that if China takes retaliatory action against US farmers or industries, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports.” The latest US duties spared smart watches from Apple and Fitbit and other consumer products such as baby car seats. But if the administration enacts the additional tariffs it would engulf all remaining US imports from China and Apple products like the iPhone and its competitors would not likely be spared. US Commerce Secretary Wilbur Ross said yesterday it was up to Beijing to decide the terms of any upcoming negotiations.
Isn’t US also sparring with allies?
Trump is battling in just about every direction. He has imposed tariffs on imported steel and aluminium — action that has drawn retaliatory tariffs from US allies like Canada, Mexico and the European Union. The president is also threatening to impose tariffs on imported vehicles and auto parts on the grounds that they pose a threat to America’s national security. Trump also wants to replace the North American Free Trade Agreement, which includes the US, Mexico and Canada, with a new agreement that would shift more auto production to the US. The administration has already reached a deal with Mexico that excluded Canada. Talks to keep Canada in a North American trade bloc have been ongoing, with the two longtime allies divided over such issues as Canada’s dairy market and US efforts to shield drug companies from generic competition. By brawling with America’s friends, critics say, Trump has squandered an opportunity to build a united front against China. After all, Europe, Japan and other rich countries have the same complaints about Chinese trade practices that America does.
Will Trump’s plan help find a solution?
“We are under no pressure to make a deal with China, they are under pressure to make a deal with us,” Trump tweeted last week. The change of tone effectively ties Chinese President Xi Jinping’s hands, said James Zimmerman, former chairman of the American Chamber of Commerce in China. “Getting the Chinese to the bargaining table should be all about facesaving — not a chest-thumping exercise,” Zimmerman said. “Xi has no choice but to stand firm and stand tall.” There have been periodic reports that the Trump administration was on the verge of resuming talks with Beijing.
Have there been trade wars before?
You’d have to go back to the 1930s to find anything close to the hostility between the US and its top trading partners right now. During the Great Depression, many countries, including the US, closed their markets to imports. President Ronald Reagan slapped tariffs on $300 million worth of Japanese imports in a dispute over the semi-conductor industry and strong-armed Tokyo into accepting limits on car shipments to the United States. In 2002, President George W. Bush imposed tariffs on Chinese steel. The move allowed US steel producers to increase prices. But the tariffs are thought to have cost significant US job losses.