Did the United States Just Blink on a Possible Trade War With China?
May 24, 2018
During the 2016 Presidential campaign, then-candidate Donald Trump was scathing in his comments about the existing U.S.-China trade relationship. In a speech made at a campaign rally in Indiana held in May 2016, he asserted that past U.S. officials had allowed “China to rape our country”, adding that it is the ‘greatest theft in the history of the world.” This comment was an apparent reference to the significant trade deficit that the United States has with that nation. That figure was estimated to be $347 billion in 2016 in terms of trade in goods according to the U.S. Census Bureau, and rose to $375 billion in 2017. That figure declines by about 11 percent when trade in services is also considered.
Since taking office, President Trump has continued his harsh rhetoric on the topic, even while urging the government of China to be more proactive in using its leverage to rein in the nuclear and ballistic missile testing of North Korea as well as seeking their cooperation on a range of other important issues.
In March 2018, President Trump announced that the U.S. government would be imposing tariffs on U.S. imports of steel and aluminum under the authority provided by Section 232 of the Trade Expansion Act of 1962, citing the need to do so in the interest of safeguarding national security. Even though China only provided 2 percent of U.S. steel imports in 2017 (compared to Canada at 17 percent, Brazil at 14 percent, and South Korea at 10 percent), the Trump administration issued temporary exemptions to many of the other countries that would have otherwise been targeted. This decision left China as one of the few steel and aluminum exporters actually facing the tariffs. In response to the tariffs, China imposed their own set of retaliatory tariffs on a range of U.S. products, including pork (at 25 percent) and a variety of fruits, nuts, wine, and ethanol (at a 15 percent rate) as well as instituting a dispute settlement case against the U.S. government’s action under WTO rules. It was also reported in early May that Chinese port officials are now opening and inspecting every box of U.S. pork entering the country, rather than the random inspections utilized previously, thus delaying every shipment by a week or more.
In early April, the government of China announced a list of products that it intended to subject to a 25 percent retaliatory tariff if the Trump administration followed through with its threat to impose tariffs to punish China for its frequent requirement that U.S. companies wishing to operate in their country must hand over valuable intellectual property rights (IPR) and similar abusive practices. The U.S. tariffs would be applied under the authority of Section 301 of the Trade Act of 1974. Agricultural products were prominent on China’s list, including soybeans, corn, cotton, frozen beef, durum wheat, cranberries, and orange juice. Angered by China’s announcement, President Trump indicated that he wanted to double the threatened tariffs on Chinese imports.
A few weeks later, China imposed a 179 percent countervailing duty on imports of U.S. sorghum as a result of a separate, ongoing investigation, although the timing of the announcement fit well into the escalating tension between the two countries. Reuters reported on April 19th that several ships carrying U.S. sorghum literally turned around on the high seas, with the Chinese buyers no longer will to accept the shipments since the tariffs would be applied upon arrival.
The U.S. government sent a delegation to Beijing in early May to present a list of demands, including that China commit to reducing its trade deficit by $200 billion within two years, stop supporting its high-tech industrial sectors such as robotics, and to not oppose any U.S. actions on IPR. Chinese officials had their own list of demands for the U.S. government. No agreements resulted from this set of negotiations, during which it was reported that some members of the U.S. delegation openly argued with each other during discussions.
Follow-up discussions ensued in Washington last week, at the same time that the Office of the U.S. Trade Representative was holding public hearings about the threatened Section 301 tariffs. On Saturday, May 19th, the White House announced that it was putting those tariffs on hold, with China having agreed to ‘substantially reduce’ its trade deficit with the United States, but no specific target figure was announced. U.S. officials asserted that China had also agreed to increase its imports of U.S. agricultural and energy products, at again-unspecified levels. There were no announcements about the other trade-related matters under discussion, including IPR enforcement.
While U.S. crop farmers are rightfully relieved that their products no longer face the imminent prospect of punitive tariffs on their exports to China, the tariffs imposed on pork, fruit, nuts and other products in retaliation for the U.S. steel and aluminum tariffs remain in place. Chinese buyers of soybeans have turned to other sources (like Brazil and Russia) in recent weeks, and it will take some time for trade flows from the United States to resume. In addition, all the other underlying trade tensions between the U.S. and China still remain, and the U.S. government has now shown that it is sensitive to threatened retaliation to U.S. agriculture in trade disputes.
The reversal of the Trump administration’s attitude on this matter can be shown in two messages posted to the President’s verified Twitter account over this period. On March 2nd, he opined that ‘trade wars are good, and easy to win.’ In less than three months, he tweeted on May 22nd that getting a trade deal with China under the current structure “will be too hard to get done and to verify the results after completion.”