Trajectory of US-China Trade Dispute Hard to Predict, Experts Say
While some think the threat of an additional 10 percent tariff on $200 billion in Chinese goods (see 1806180058) could come to fruition as soon as August, China economic scholars disagree on whether a trade war is really beginning, or whether China will agree to buy more U.S. goods before these tariffs ever bite. Edward Alden, a trade expert at the Council on Foreign Relations, said the fact that the administration set the tariff at 10 percent, not a prohibitive level, means that importers will largely keep their Chinese suppliers. "It's quite clear its purpose is to be imposed rather than being used as market leverage," he said. "At the moment, I don't see any way out of this. Anyone who thinks it stops here isn't paying attention."
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"The previous threats have not cowed the Chinese," said Scott Kennedy, a China expert at the Center for Strategic and International Studies. "The administration needs to get more and more extreme." Kennedy thinks it's more likely than not that the U.S. will put tariffs on $34 billion in Chinese goods on July 6, but he doesn't expect tariffs on $250 billion worth of goods to take effect. Right now, he said, "there are no formal negotiations, no behind-the-scenes negotiations." He said he does expect people like former Treasury Secretary Hank Paulson to try "to get back into the conversation in the next couple of weeks to try to derail the path we're on."
Derek Scissors, a China expert at the American Enterprise Institute, said Trump is on the way to winning his goal of reducing the bilateral trade deficit with China, though he doesn't know how long it will take, nor if it will happen before this latest round of escalation comes to pass. "Eventually they'll be made to say yes," Scissors said of the Chinese. But, he said, accepting a deal is hard for Trump. The Chinese cannot buy enough this year to make a dent in the deficit, and accepting a deal in exchange for the promise of future purchases of grains, natural gas and airplanes makes him vulnerable to Democrats' accusations that he is wrong to trust the Chinese.
Still, Scissors thinks the two sides may reach an agreement in two months, even though the first agreement collapsed. "They want to have some clarity on what they're doing in September," he said, so that Trump can campaign that he got concessions, or that he slapped big tariffs on China. "They want to be able to say, 'We won against China,'" he said. The reason he thinks they'll settle rather than implement more tariffs is because it would take years for tariffs to shift purchases away from China, and Trump wants results now. That's also why he thinks the settlement will have nothing to do with Made in China 2025. "Just look at it! It's in 2025," he said. U.S. Trade Representative Robert "Lighthizer cares, but for [Trump], it's a smokescreen."
Trump's chief trade adviser Peter Navarro, on a call with reporters June 19, said that if China succeeds at its goal in dominating artificial intelligence, robotics and other high tech fields, "America will have no economic future." He also said repeatedly, "China has much more to lose," because they sold $505 billion in goods to the U.S. last year, and the U.S. only exported $130 billion.
Kennedy said Navarro's position ignores the ways China can interfere with U.S. companies outside of tariffs, such as holding imports at port for lengthy inspections, or inspecting U.S. factories in China and closing them for safety violations. China has vowed to respond to what it called the trade war being waged by the U.S., with both tariffs and non-tariff measures. It released two lists of products subject to tariffs, one taking effect on July 6 and the other at a date to be announced. "Such practice of imposing extreme pressure and blackmailing is contrary to the consensus the two sides have reached through rounds off consultations, and disappoints the international community," a Chinese Ministry of Commerce spokesperson said June 19, according to the official news agency Xinhua.
"If you're going to play the protectionist game, I don't think you should underestimate the Chinese. They don't do this for a hobby," Kennedy said. "These threats, no matter how outlandish or extreme, will not bring the Chinese to their knees."
Navarro said that if the Chinese government mistreats American companies doing business in China, that will be another reason to escalate to tariffs on $400 billion in goods, and, he said, "We have your back." But Scissors said the administration will not be worried about that, since they are more concerned about American manufacturing jobs, not American companies' overseas operations. He said their attitude will be: "Go ahead, retaliate against U.S. companies operating in China. We don't care."
Both Kennedy and Scissors said that China would likely devalue its currency to blunt the effect of 10 percent tariffs, so that the cost to U.S. importers might rise by only 2 percent or 3 percent. Even so, Alden said, he expects clothing, footwear and television importers to shift their purchases out of China to the extent they can, to places like Bangladesh, Malaysia and Thailand. "I don't think Foxconn is going to move," he said, referring to the mobile phone assembly giant.
"Ten percent is a negotiable obstacle," Kennedy said, but he said he thinks if it comes to the $200 billion in goods point, the president will set the tariff higher than 10 percent. "I was in favor of launching a trade war if we did it smart," Kennedy said. But he said he doesn't know how this ends. "It's hard to fully gauge what [Trump's] calculations are, and what his red lines are. Is he being a trade hawk? Is he trying to sway the mid-term elections by showing he's tougher than anybody? Is it just he likes being at the center of attention?"