Tariffs tip their hands
In what’s already being dubbed the “TrumpXi trade war,” the U.S. and China this week introduced competing lists of products that they say will be subject to aggressive new tariffs. Although the lists cover goods roughly equal in value, they seem to be laying the groundwork for decidedly different strategies.
U.S. President Donald Trump’s administration said it plans to impose 25-percent tariffs on more than 1,000 Chinese products, totaling about $50 billion of annual imports, in retaliation for what it alleges are unfair trade practices. Trump’s list is notable for how hard it works to minimize the pain felt by American consumers and Chinese businesses. It avoids disrupting major sectors, and seems to focus on products that can easily be substituted.
By contrast, Chinese President Xi Jinping’s administration produced a heavily concentrated list that targets politically sensitive industries such as planes, beef and soybeans. Covering only a little more than 100 products but worth about the same as the U.S. list, these tariffs seem designed to place severe pressure on key companies and constituencies.
The lists are signaling different intentions and running different risks. But taken together, they paint a pretty clear picture. Trump hopes to pressure Beijing to open up its markets while minimizing disruptions for Americans. In fact, he seems to be trying to reach a quick negotiated settlement, as the tariffs won’t take effect for at least 60 days. Xi’s list is meant to cause concentrated political and financial pain. While the U.S. is trying to soften the blow, China is sharpening the knife.
There are risks to each strategy. By being so tentative, the Trump administration could appear eager to settle and fearful of launching the hard-line attacks it has talked about. That won’t help its negotiating position. It isn’t lost on any Chinese technocrat that Trump faces much more political pressure than Xi ever will, which is why China can target its tariffs on Trump voters in soybean states. If Trump appears weak, expect China to simply wait him out until he folds.
A major risk for Beijing, meanwhile, is that it will reinforce the world’s suspicions about its trade intentions. Most other countries complain openly about the same issues that Trump is retaliating against. By inflicting pain from the start, China is confirming that it will fight tooth and nail to avoid truly opening up.
The specific products China is targeting may also create vulnerabilities. Slapping tariffs on corporate jet makers may play well on state media, for instance, but the reality is that there’s only a couple of competitors in jet markets worldwide, all of whom will likely raise prices in China. Same thing with soybeans, where the U.S. and Brazil are the dominant global suppliers. If China buys exclusively from Brazil, it can expect to start paying significantly more for the privilege.
More broadly, this dispute is laying bare a fundamental misconception on which both Republican and Democratic administrations stake their credibility: the belief that China truly wants to support a free-trade regime. China’s highly aggressive tariffs suggest no interest in negotiating a more open trade and investment environment. To the contrary, they demonstrate just how seriously China takes challenges to its centralized economic model.
Both sides have indicated they intend to negotiate. Each has shown a willingness to levy tariffs and incur costs in defense of their position. But China certainly seems willing to punch harder where it hurts.