Washington: US President Donald Trump’s decision to elevate his trade war with China to new heights sets the stage for a more prolonged battle between the world’s two largest economies. With a 10% tax on over 5,000 more products from China now taking effect next week, Trump changed the character of his campaign with Beijing in three ways, all of which suggest the dispute will not end soon.
The Trump administration is for the first time publicly planning for a trade spat that drags into 2019 and possibly beyond.
That means US businesses and consumers may have to learn to live with higher import costs as a new normal rather than a temporary phenomenon.
Until now the president argued he was using tariffs as a tool to force US trading partners to the negotiating table. Tariffs, the argument went, are all about securing a “better deal" for American businesses and workers on the global stage.
In announcing the latest levies on Monday, Trump hinted at that argument again, pointing to his “great respect and affection" for Xi Jinping, his Chinese counterpart, and raising the possibility of a negotiation.
But he also signalled that he was digging in for the long haul. The 10% tariff that takes hold on 24 September will rise to 25% on the first day of 2019. Moreover, if Beijing retaliates, Trump vowed to impose duties on a further $267 billion in Chinese imports.
If the administration follows the same procedures and time-line it used so far those tariffs would at the earliest hit either late this year or early next year.
The tariffs also threaten to undermine the prospect of any further talks any time soon with Beijing.
That raises another long-term possibility. For all of Trump’s talk of a deal he also makes clear he loves tariffs and the power he wields to impose them. Hawks in his administration have been open about their goal of forcing a repatriation of American companies’ supply chains. Trump, too, has hailed tariffs as a way to force businesses to shift more production to the US.
So tariffs may be here to stay.
“The president is enamoured of tariffs," says Philip Levy, who served on President George W. Bush’s Council of Economic Advisers. “He realizes a full-on trade war might shock farmers and markets, so he makes claims that these are part of a negotiation. But he kills all attempts to negotiate.’’
Vulnerable at home
Trump is signalling he may be vulnerable to domestic pressure and business complaints about his tariffs, a wobble which could encourage the Chinese to hold firm and delay any solution.
Over the summer Trump made much of his decision to more than double his original threatened tariffs on $200 billion in Chinese imports from 10% to 25%. But that drew loud opposition from farmers and U.S. companies.
The tariffs also are not polling well with a Gallup survey in July finding that more Americans believed the they would hurt the US economy than help it.
And then there is the opposition within the president’s Republican party. The message from Orrin Hatch, the Utah Republican who chairs the Senate Finance Committee, was direct on Monday: “Tariffs are not the solution to every trade problem."
The complaints yielded some concessions with the administration introducing the tariffs in steps and taking almost 300 product categories off its original list, including certain Apple Inc. products.
Such moves suggest Trump blinked in the face of domestic concern.
With polls showing Democrats regaining control of at least one chamber of Congress in November’s mid-term elections some in Beijing may, rightly or wrongly, see a chance to take advantage of Trump’s growing weakness at home.
The U.S. and China are talking past each other and efforts to mediate are going nowhere.
Even as Trump was expressing his continuing affection for Xi on Monday his aides were making their frustration with Beijing clear.
In a call with reporters, two senior administration officials complained that China had retaliated to U.S. tariffs rather than bent to Washington’s demands.
Officials in Beijing, meanwhile, complain to visitors that a third or more of US demands are unrealistic, such as the calling for dismantling key areas of Xi’s “Made in China 2025’’ policy to lead the world in areas such as artificial intelligence.
They may have a point. Some American observers have started calling the demands the Trump administration presented in May the “surrender or die" document.
The moves also come as Beijing has been trying to reach out to potential intermediaries in the U.S. business community to try and convince Trump to talk. But those efforts are going nowhere.
A week ago the news was that Treasury Secretary Steven Mnuchin had invited Chinese officials to meet again. A week later the news is that Trump is again trying to back Xi into a corner.