China shows restrained retaliation in trade spat
The public may have voted to ‘‘make America great again’’, but isolationism will not make the US stronger – or better.
China is to impose retaliatory import tariffs on 128 US products – goods that amount to US$3 billion – targeting staples that include California wines, fruits and almonds.
The move yesterday follows US President Donald Trump’s decision this week to slap tariffs on about US$50b worth of Chinese goods, triggering a potentially damaging trade confrontation with Beijing.
Chinese officials said the proposed actions were in response to the White House’s previous tariffs on steel and aluminum, which took effect yesterday. But the lopsided responses signal vastly different strategies between the world’s two largest economies in an escalating dispute that has raised fears of a trade war.
Trump wants quick action and big results. China is aiming for restrained, targeted movements – an attempt to ward off a full-on conflict, but also to show that it won’t cede too much ground.
‘‘China is playing this very smartly, doing just enough retaliation to prove it’s serious,’’ said Arthur Kroeber, managing director of Gavekal Dragonomics, a Beijing research firm. ‘‘It’s doing what it can to position itself as the global good guy, with a fair amount of success.’’
The Chinese tariffs would first hit US products such as avocados and nuts, with 15 per cent tariffs. If officials deem it worthwhile, Beijing could also place 25 per cent tariffs on American-made goods such as pork and aluminium.
Yesterday’s statement did not indicate a specific date when the tariffs would go into effect, but said that businesses had until March 31 to offer opinions. It said officials would ‘‘take legal action within the framework of the World Trade Organisation’’.
The announcement did not mention Trump’s latest tariffs, which follow an investigation into China’s intellectual property practices and its harm to American businesses. Officials found that China forced US companies to hand over their trade secrets or make unfair concessions for access to its vast market.
But in a separate statement, Chinese officials called Trump’s intellectual property investigation ‘‘typical unilateralism and trade protectionism.’’
China did not want a trade war, they said, but was ‘‘absolutely not afraid of a trade war’’.
Analysts struggled to immediately understand why items such as wine, a product from the Democratic stronghold of California, would make the list but not top US imports such as sorghum and soybeans. Chinese officials last month launched a probe into American sorghum imports, and both agricultural products come from regions more supportive of Trump.
The White House will publish the list of targeted goods within the next 15 days, and authorities may be waiting until they see the breakdown or face even heftier actions.
China’s top economic officials, a number of whom were educated in the US, are known for their savvy of the American system and its electoral cycles.
‘‘For Trump, it is easier to blame other countries for the US’s problems and garner votes in the midterm election, instead of taking the pain to restructure the country’s economy,’’ China Daily, a state-run English newspaper, said yesterday in an editorial. ‘‘He cannot force China to give in, however, because China knows the US’s demands are insatiable.’’
China is one of the world’s most protectionist countries, and American businesses have long complained about requirements to create joint ventures or sacrifice proprietary information. Alongside the new tariffs, the US Treasury Department will restrict Chinese investment in American tech firms.
Trump’s tariffs reflect beliefs that years of negotiations have failed, and that China now threatens its security and success in areas like artificial intelligence. China, under President Xi Jinping, has sought to strengthen its advanced industries and global standing.
The US was essentially demanding that China ‘‘provide as much market access to the US as the US provides to China’’, said Scott Kennedy, an expert on China’s economic policy at the Centre for Strategic and International Studies in Washington, DC. ‘‘That’s a really big list for China. Xi Jinping is a nationalist . . . and he’s not interested in giving the US or anyone else a level playing field.’’
Trump likes to prove his point by highlighting a growing trade deficit with China, which reached a record US$375 billion last year, according to the US Commerce Department. While the latest tariffs could hit certain sectors, its macro impact on China’s GDP was still minimal, said Wang Tao, head of Asia economics
Hong Kong.
Trump’s steel tariffs would affect China even less, as the nation makes up only 2.5 per cent of US steel imports due to existing regulations.
But the latest moves hint at the start of what could become a titfor-tat battle that cracks global supply chains and increases costs for consumers. Trump’s announcement came the same day he replaced national security adviser H R McMaster with John Bolton, a former United Nations ambassador who advocates a more aggressive response to China.
The ramifications could extend well beyond trade in goods. About 350,000 Chinese students study in the US, and Chinese tourists spend more money there than those from any other country, according to Wang Huiyao, president of the Centre for China and Globalisation, Beijing-based think tank.
‘‘Rather than just look at goods trade, we should look at services, infrastructure, e-commerce,’’ he said. ‘‘We should expand those things as well, rather than just focus on the goods movement. The calculation is out of date, the theory is out of date, and the mentality is out of date.’’ at a UBS bank in
American protectionism loomed large again this week with the announcement of a US$60 billion (NZ$83b) tariff package against China.
Although the details are still forthcoming, the tariffs have been presented to America and the world as retaliation for years of intellectual property theft and generalised trade skulduggery by the world’s second-largest economy and America’s secondlargest trading partner after the European Union. The Dow plunged 700 points, and talk of unwinnable trade wars filled cable news and talk radio.
America has been here before. As the emerging superpower was descending into the Great Depression (along with the rest of the world), the Smoot-Hawley tariffs were signed into law by President Herbert Hoover.
The 1930 legislation included some 900 import duties, duked out over months in the House and the Senate. Just before it became law, over 1000 economists submitted a petition to the Administration, urging Hoover not to sign the bill. He ignored their counsel, and the tariffs – which had a worse effect thanks to America’s declining economic situation – caused America to look sharply inward. Its trading partners did the same, and a wave of economic depression and fervent nationalism swept the world, paving the road to World War II.
In the war’s aftermath, modern international institutions, including the United Nations and Nato, rose up to tie the political and economic fates of nations together, lest they turn on each other again. The American view of those international institutions – in terms of their legitimacy and value – has waxed and waned in the modern era, depending largely on who is in the White House. Republicans tend to be more sceptical of supranational organisations and treaties that infringe on US law and sovereignty. Democrats tend to be more accepting of multilateralism.
Another development late this week signals that Trump’s America may turn even further away from the international order: the appointment of John Bolton as Trump’s national security adviser.
Bolton is well known for his support of the Iraq War, his opposition to the Iran nuclear deal, and his aggressive stance on North Korea. Less than a month ago he wrote an op-ed in The Wall Street Journal where he made the legal case for a first strike against Kim Jong-un’s regime. His appointment may be a calculated move to strengthen the US posture on Kim’s nuclear programme ahead of a US-North Korea summit in May.
What is perhaps less well known about Bolton is his strong distrust of international institutions. He has argued that liberals have long used them to argue for positions and policies they could not successfully enact at the national level. As US ambassador to the UN under President George W Bush, he decried what he characterised as the anti-sovereignty tactics of NGOs, including Greenpeace and Human Rights Watch, as they pushed their agenda on global warming and the formation of the International Criminal Court (ICC).
As undersecretary for arms control in the same Administration, Bolton led the campaign to conclude ‘‘Article 98’’ agreements with dozens of countries (though notably not New Zealand or Australia). The agreements legally prohibited those nations from ever surrendering a US citizen to the jurisdiction of the ICC. Bolton also famously un-signed the Treaty of Rome – the founding document of the ICC – at the behest of George W Bush. He said it was his ‘‘happiest moment’’ at the Department of State.
There is an indelible, universal tension between sovereignty and international cooperation. It is felt by every nation state. This week’s developments show clearly that the Trump Administration is looking back to a time when America was more isolated, in both trade and international relations. Americans voted for this: the Trump campaign slogan was, after all, ‘‘Make America Great Again’’.
One would be hard pressed, however, to make the argument that an America isolated from trading partners and geopolitical friends – and foes – is a stronger, better America, or that the complex web of treaties, rules, norms and organisations that binds countries together in the post-World War II era has not created an era of relative peace and security.
Winston Churchill called them ‘‘derogations … from national sovereignty for the sake of the larger synthesis’’.
If America forgets this history, it is doomed to repeat it.