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WASHINGTON – While the White House is moving ahead with trade deals with allies like Canada, Mexico, Korea, and Europe, its dispute with China seems increasingly insoluble.
In other trade disputes, President Trump used tariffs as leverage to enter into agreements. The threat of auto tariffs convinced Canada and Mexico to yield to US demands for a new North American Free Trade Agreement, the president said. "Without tariffs, we would not talk about an agreement," he said on Oct. 1 in the Rose Garden.
China is different. Rates are not just a bargaining tactic for the United States, but a way to change economic incentives.
Trump's sales team believes that US companies need the protection of a predatory Chinese state, forcing US companies to offer technology and subsidize their international expansion.
By using tariffs to make Chinese exports more expensive, Trump traders believe that foreign firms will encourage foreign companies to withdraw their know-how from the country.
It's not a short-term strategy.
Tariff invoice
Consumer goods are hit harder by US taxes on more Chinese imports.
Share of customs duties on Chinese imports
Total imports
(billions of dollars)
"We've changed paradigms," said US Trade Representative Robert Lighthizer last month. "We have tariffs in place, and the president will not let that happen if you have forced the transfer of intellectual property."
Until now, the United States has imposed tariffs on about half of the $ 505 billion that the country imported from China in 2017. Mr. Trump threatened to hit the other half equally with samples.
For the first half of this year, Treasury Secretary Steven Mnuchin and his allies have attempted to make deals with the Chinese, mainly focused on buying more American goods. This camp could thus respond to Mr. Trump's complaints about the $ 375 billion trade deficit with China. The president rejected Chinese offers, undermining Mnuchin with the Chinese and reinforcing Lighthizer's hard line in the White House's trade disputes.
Now the US team is more unified, but only because it insists on the kind of changes Lighthizer wants.
These include reducing the role of state-owned enterprises in the Chinese economy by allowing US firms to gain majority ownership in Chinese companies and releasing pressure on US tech companies to They reveal their secrets. These are the types of change that China finds most difficult to accept.
China is a "socialist market economy," said Zhang Xiangchen, China's representative to the World Trade Organization, in July. "For those who speculated that China would change and take a different route … it was their wishful thinking."
President Trump plans to meet Chinese leader Xi Jinping at the top of the Group of 20 leaders in Buenos Aires at the end of November. According to Myron Brilliant, Executive Vice President of the US Chamber of Commerce, a failure means the US is moving ahead with plans to raise tariffs on $ 200 billion worth of Chinese goods from 10% to 25%. It could also cause Trump to hold his tariff threat on imports from China worth an additional $ 250 billion, if he has not imposed them before.
Some Wall Street analysts have said that the trade fight would not have much economic impact. Jesse Edgerton, a
JP Morgan
analyst, compares rates to a tax. A tariff of 25% on Chinese goods worth 500 billion dollars generates costs of 125 billion dollars. Some of these costs will be absorbed by Chinese exporters, while others will be borne by US importers and consumers.
JPMorgan believes it should be manageable in a US $ 20 trillion economy. It predicts that tariffs would reduce US output growth by only 0.1 percentage point in 2019 and by 0.3 percentage point in China. JPM expects the Chinese to react by stimulating their national economy and lowering their currency.
Others argue that the impact could be deeper. Seth Carpenter, an analyst at UBS, said that tariffs hit the manufacturing sector in the United States hard, especially the new companies that depend on China for its components and as an export destination. A long trade war could turn the United States into a recession, he said.
A longer trade war would also force foreign companies to reconsider their global supply arrangements, which would reduce their profits.
International Business Machines
Corp.
In August, China's vice trade minister warned China's deputy trade minister that IBM may need to relocate production if the trade dispute is not resolved in the coming months, said the meeting in Washington. Other companies are planning to reconfigure their operations in China so that their work in China is exported to countries other than the United States, which adds to costs.
Tao Wang, UBS China analyst, said that for China, the loss of potential investment is "the more serious impact of the trade war." This is also the type of impact sought by the White House. Trump administration officials took the 16-percent fall in the Shanghai Stock Exchange as a sign of victory since the beginning of the year.
The rates have a kind of inertia, says Derek Scissors, an expert from the American Enterprise Institute China. Once in place, companies and countries adapt to it by changing investments and policies. By removing tariffs, the trading system is used again. Even if Mr. Trump were to lose the 2020 elections, he believes the tariffs could stay in place.
"Both parties are opposed to China and this is the way protectionism works," he said.
Write to Bob Davis at [email protected]
