U.S.-China trade dis­putes flare again

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - PAUL WISEMAN AND JOSH BOAK

WASH­ING­TON — Cake and con­ver­sa­tion, it seems, can go only so far to mend long­stand­ing eco­nomic rifts be­tween the United States and China.

Three months af­ter Pres­i­dent Donald Trump and his Chi­nese coun­ter­part, Xi Jin­ping, shared choco­late cake at an ami­able sum­mit in Florida, ten­sions be­tween the world’s two big­gest economies are flar­ing again.

Just as of­fi­cials of the two na­tions pre­pare to meet to­day in Wash­ing­ton, the Trump ad­min­is­tra­tion is con­sid­er­ing the ad­di­tion of tar­iffs on steel im­ports, a step that risks ig­nit­ing a trade war. The United State­sis seek­ing to ad­dress a prob­lem caused largely by China’s over­pro­duc­tion of steel.

Trump is also crit­i­ciz­ing China again for fail­ing to use its eco­nomic lever­age to rein in its neigh­bor and ally, the nu­clear rogue state North Korea.

Could this week’s U. S.China Com­pre­hen­sive Di­a­logue pro­duce a mean­ing­ful break­through in eco­nomic re­la­tions?

Most China watch­ers are skep­ti­cal.

“I’m not look­ing for any­thing worth­while,” said Derek Scis­sors, a China spe­cial­ist at the conservative Amer­i­can En­ter­prise In­sti­tute thimk tank.

For one thing, the points of dif­fer­ence be­tween the two coun­tries run deep.

For all the ten­sions be­tween the two na­tions, Trump’s words about Xi him­self have re­mained warm. He has sug­gested that the per­sonal bond he formed with Xi when the two met April 6-7 at Trump’s Mar-a-Lago re­sort can over­come fun­da­men­tal dif­fer­ences on trade and na-

tional se­cu­rity. Last week, the pres­i­dent called his Chi­nese coun­ter­part a “friend of mine,” “a ter­rific guy” and “a very spe­cial per­son.”

At a White House event Mon­day, Trump sug­gested that the re­la­tion­ship is so strong that he asked dur­ing the Florida sum­mit to start ex­port­ing U.S. beef to China and that the re­quest was quickly granted. Trump said the beef in­dus­try was so pleased to re­turn to China af­ter a 13-year ban that one ex­ec­u­tive from Ne­braska “hugged me, he wanted to kiss me so badly.”

“We wel­come this op­por­tu­nity,” Kenny Graner, a North Dakota cat­tle farmer who is pres­i­dent of the U.S. Cat­tle­men’s As­so­ci­a­tion, said of the China mar­ket. “They have a mid­dle class that’s grow­ing in in­come.”

Af­ter the meet­ing, the pres­i­dent soft­ened his ac­cu­sa­tions of abu­sive Chi­nese prac­tices, dropped his threat to la­bel China a cur­rency ma­nip­u­la­tor and ex­pressed op­ti­mism that China would pres­sure North Korea to scale back its nu­clear pro­gram.

Still, the Trump-Xi re­la­tion­ship has yet to de­liver the sub­stan­tive changes that Trump the can­di­date had promised

vot­ers — a core piece of his mantra to put “Amer­ica first.” The eco­nomic ir­ri­tants are likely to vex U.S. and Chi­nese of­fi­cials this week.

Trump had cam­paigned on a prom­ise to shrink Amer­ica’s trade deficits, which he blames for wip­ing out Amer­i­can fac­to­ries and man­u­fac­tur­ing jobs. The United States last year ran a trade deficit in goods with China of $347 bil­lion, the amount by which im­ports ex­ceeded ex­ports. It’s by far the widest gap the U.S. has with any coun­try. Trump says China un­fairly sub­si­dizes ex­ports.

Take steel. From 2000 to 2016, China ac­cel­er­ated steel pro­duc­tion, rais­ing its share of the world mar­ket from 15 per­cent to nearly 50 per­cent. As Chi­nese steel poured into the mar­ket, global prices fell, hurt­ing Amer­i­can steel­mak­ers. Scis­sors noted that China has long promised to stop sub­si­diz­ing steel and to slow pro­duc­tion but hasn’t de­liv­ered.

The Trump ad­min­is­tra­tion re­sponded by in­vok­ing a lit­tle-used weapon in Amer­i­can trade law that lets the pres­i­dent tax or re­strict im­ports if a U.S. Com­merce Depart­ment in­ves­ti­ga­tion finds that they im­peril na­tional se­cu­rity. The re­sult of Com­merce’s in­ves­ti­ga­tion of steel im­ports is ex­pected soon. The ra­tio­nale was that the Amer­i­can mil­i­tary re­lies on steel for air­planes, ships

and other equip­ment. Steel also goes into roads, bridges and other in­fra­struc­ture.

The prob­lem is that the United States al­ready blocks most Chi­nese steel im­ports. So any tar­iffs or lim­its on im­ports would in­stead hurt other coun­tries, in­clud­ing such al­lies as Canada and South Korea.

Scis­sors said the United States could try to co­or­di­nate sanc­tions against China by coun­tries that do im­port Chi­nese steel.

David Dol­lar, a for­mer World Bank and U.S. Trea­sury of­fi­cial who is now at the Brook­ings In­sti­tu­tion, thinks Xi isn’t likely to make a bold move to cut Chi­nese steel­mak­ing ca­pac­ity — or en­act other eco­nomic over­hauls — in ad­vance of the Chi­nese com­mu­nist party’s Na­tional Congress this fall. At the meet­ing, Xi will want to fur­ther tighten his grip on the party.

What’s more, the Euro­pean Union and oth­ers are likely to lash back if the U.S. im­poses sanc­tions on for­eign steel, thereby run­ning the risk of a broader trade war.

Then there’s North Korea. As a pres­i­den­tial can­di­date, Trump at­tacked China for re­fus­ing to pres­sure the dic­ta­tor­ship to back off from de­vel­op­ing nu­clear weapons. Af­ter the Mar-a-Lago sum­mit, though, Trump praised China for agree­ing to help deal with

North Korea. As a re­ward, he aban­doned his vow to ac­cuse China of ma­nip­u­lat­ing its cur­rency to ben­e­fit Chi­nese ex­porters.

This month, North Korea de­fi­antly pro­ceeded with its first launch of an in­ter­con­ti­nen­tal bal­lis­tic mis­sile. Trump tweeted his com­plaint:

“Trade be­tween China and North Korea grew al­most 40% in the first quar­ter. So much for China work­ing with us — but we had to give it a try!”

Brook­ings’ Dol­lar says the ad­min­is­tra­tion will likely con­tinue to be dis­ap­pointed.

“China is not go­ing to do any­thing dra­matic” to pres­sure North Korea, he said. “They don’t want that regime to col­lapse” and thereby desta­bi­lize the Korean penin­sula and likely send North Korean refugees into China.”

Over­all, Dol­lar ex­pects more tur­bu­lence be­tween Wash­ing­ton and Bei­jing. Pres­i­dent Barack Obama’s ad­min­is­tra­tion, he notes, had kept the re­la­tion­ship sta­ble de­spite eco­nomic dif­fer­ences by work­ing with China on such is­sues as the Paris cli­mate agree­ment and the Iran nu­clear deal, but Trump has pulled out of the Paris deal and de­nounced the Iran pact.

“We’re go­ing to see more volatil­ity in the U.S.-China re­la­tion­ship than we’ve seen in years,” Dol­lar said.

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