Trump ups the pressure on China

So here it comes after all: Donald Trump is really tightening the thumb-screws in the trade conflict and has announced further, extensive punitive tariffs on products that America primarily imports from China. They entail restrictions on Chinese imports worth USD 60 billion, which is more than 10 percent of all US imports from China and therefore certainly no longer just “peanuts”. By contrast, the customs duties on steel and aluminium in force from today onwards only marginally hurt the Chinese economy. China may be the world’s largest producer of steel, but Chinese steel exports to the USA have long since been significantly depressed by anti-dumping measures. Together with exports of washing machines and solar panels, on which the US government imposed punitive tariffs many weeks back, they only add up to about one percent of all Chinese exports to the USA or less than 0.1 percent of Chinese GDP. The tariffs now threatened actually affect goods on the scale of almost 0.5 percent of Chinese GDP, which is quite a different kettle of fish.

The US administration plans over the next two weeks to define which products will have tariffs slapped on them. China primarily exports consumer goods to the United States. Punitive customs tariffs on them would initially function somewhat like a consumer spending tax in the US. It would thus be primarily US consumers who suffer the consequences, having for many years now benefited from cheap Chinese products (not least among them Trump’s voting base, who as a rule are less-well-off), and US retailers. America would, in other words, initially harm itself. The US President, however, seems to be prepared to pay that price as he is presumably first and foremost interested in dragging the trade partner to the negotiating table and forcing it to make concessions. This is probably the intention of the most recent measures, mainly imposed on China. Also in focus there: the compulsory technology transfer that (not only) US companies are forced to accept it if they want to operate in China. On this point, criticism of China’s trade practices is no doubt more than in order. If Trump manages to get decisive concessions out of the Chinese in this respect then he will presumably drop the punitive tariffs.

In fact, China holds pretty strong cards in its hand in this conflict. Beijing could not only emphatically hurt the Americans by reprisals in the form of tariffs on the main US exports of soybeans, cars and aircraft, but could also make business life really tough for US corporations in China – by initiating boycotts against US products or tourist travel to the USA, for example, or simply by cutting back the orders placed by the government airlines. Nevertheless, we believe that Beijing will essentially tend to sidestep trading blows with the US and will use the coming weeks to achieve a solution at the negotiating table – even if this is possibly considered “bowing down” before Trump, which actually goes against the grain of the new Chinese self-confidence in the field of foreign policy.

After all, Beijing has a lot to lose if its domestic economy is exposed to the dangers of a trade war: The Communist Party draws the political legitimation for its sole rule not least from giving the country economic stability – something the Chinese leadership had to work very hard in recent years to restore in the wake of the turbulences of 2015. At the latest a glance at the very high debt levels (and an economic downturn could leave them dangerously teetering on the brink) looks set to make certain Beijing will not want to accept any major risks to growth.

Rate this article


Thank you for your rating. Your vote:
There is no rating yet. Be the first! Current average rating: 0

Leave an answer

Your e-mail address will not be published. Required fields are marked *