Tit-for-tat becomes norm as US, China dig in for trade war
SIGNS OF TENSION CREEP INTO ECONOMIC DATA AND INVESTMENT MAY NOT REMAIN IMMUNE
The trade war between the world’s two biggest economies is taking on a life of its own. When US President Donald Trump first threatened to slap tariffs on Chinese goods in March to punish Beijing for stealing American intellectual property, trade experts warned the two nations risked slipping into a downward spiral of tit-for-tat trade actions. The global economy now appears to be living that reality, with the trade war settling into a regular rhythm of counterblows.
The latest shot came on Friday, when China released a list of $60 billion (Dh220.38 billion) in US goods that Beijing intends to hit with tariffs in retaliation for Trump’s plan to impose duties on $200 billion in Chinese imports. While the Chinese threat isn’t proportional in absolute dollars, it’s actually an escalation on a relative basis, given that China buys less from the US.
Within hours, White House economic adviser Larry Kudlow promised Trump wouldn’t back down until China changed its trade practices. “Don’t underestimate President Trump’s determination to follow through,” he told Bloomberg Television.
On Saturday, Trump repeated his assertion that the strategy is succeeding.
“Tariffs are working far better than anyone ever anticipated,” Trump in a series of four Twitter messages. “China, which is for the first time doing poorly against us, is spending a fortune on ads and P.R. trying to convince and scare our politicians to fight me on Tariffs — because they are really hurting their economy.”
“We are Winning, but must be strong!” Trump added.
William Reinsch, a trade expert at the Centre for Strategic and International Studies who worked at the Commerce Department during the Clinton administration, said the Trump administration keeps “digging the hole deeper, violating the first rule of holes, which is when you’re in one, stop digging.”
Amid the more heated rhetoric, US stocks ended the week up about 0.8 per cent, the fifth straight week of advances. The Chinese equity market last week slumped 5.9 per cent, the steepest drop since February. Trump suggested that the market decline is getting China’s leaders back to the table for talks.
Hopes had been rising that Trump might drop his trade-war campaign after the president announced a deal last week with European Commission President Jean-Claude Juncker that would see the US and EU cut tariffs and other barriers.
Beijing defiant
There are also signs the Trump administration is trying to revive formal negotiations with Beijing. There’s “some hint” the Chinese may be warming to the idea, and recently there’s been some communications at the highest levels of both governments, Kudlow said. A White House spokeswoman said the administration remains open to further talks.
China so far has shown little sign of backing down. At a regional security forum in Singapore on Saturday, Foreign Minister Wang Yi said free trade had been dealt a “heavy blow,” and defended his country’s actions.
Finding common cause with Europe is one thing. America’s differences with China, which has promised to open its markets gradually, run deeper. US Trade Representative Robert Lighthizer last week called trade tensions a “chronic problem” that would likely take years to resolve.
The question is what other tools the two countries may use, once they have no more goods upon which to impose tariffs. The US imported $506 billion in goods from China last year, and Trump has threatened to slap duties on effectively all imports from China. China imported $130 billion in goods from the US in 2017, according to US figures.
Currencies would be one option. Kudlow suggested on Friday that China is letting its currency fall to offset losses from the trade war, though he added that the decline is partly due to weak economic fundamentals. The People’s Bank of China stepped in to support the yuan on Friday after the currency slid to the lowest in more than year.
Major miscalculation
In the meantime, signs of the trade war are creeping into the economic data. US manufacturers are considering expanding outside the country to avoid the widening trade conflict, according to the Institute for Supply Management’s July survey. Such sentiment may weigh on business investment, which contributed last quarter to the fastest pace of growth in four years.
The Trump administration may be overestimating its ability to pressure Beijing into changing its economic behaviour, said Stefan Selig, managing partner at BridgePark Advisors LLC and former trade undersecretary at the Commerce Department under President Barack Obama. “It’s such a fundamental miscalculation that the Chinese are going to buckle,” he said.