In a similar manner to virtually every news story these days, the media buzz surrounding Trump’s impending trade war with China has recently subsided in the midst of the the ongoing Michael Cohen saga.
While the story may have found its way out of many headlines, insiders’ concerns regarding the dangers of a possible trade war have hardly dissipated. Just this afternoon, the chairman of J.P. Morgan Chase International expressed his concerns about the damage to global markets that could ensue if America and China were to escalate their actions against one another. MIT Technology Review also recently posted an article discussing the dangers to the tech industry that could arise from heightened American and Chinese trade tensions.
For those of you who have no clue how we got to this precipice of dangerous protectionist policy, let’s re-trace our steps. For full details, and an interactive timeline, check out the Peterson Institute for International Economics’ recent report on this very topic. Their report discusses three “battles” with China that the US has engaged in, and a summary of each skirmish is provided below.
Warring With Washers
Back in October and November of 2017, the United States International Trade Commission (USITC) publicly released reports to the president. These reports provided recommendations for imposing safeguards for solar panels and washing machines, and they were generated after the two below mentioned industries petitioned the government to investigate how existing imports were affecting their business capabilities.
The USITC’s October report found that the materials used to produce solar panels were “being imported into the United States in such increased quantities as to be a substantial cause of serious injury to the domestic industry producing” the same materials.
The November report was created in response to an earlier determination by the USITC that “large residential washers are being imported into the United States in such increased quantities as to be a substantial cause of serious injury to the domestic industry producing” such products. In more direct language than the October report, the latter explicitly stated that the president should impose a “tariff-rate quota (TRQ) on imports of large residential washers [and their covered parts] for a duration of three years.”
In response to these recommendations, President Trump executed his powers under Title II, Section 201 of the US Trade Act of 1974. In plain English, he imposed “safeguard” tariffs respectively totaling $8.5 billion and $1.8 billion for solar panels and washing machines.
At the time, experts forewarned that this move could lead to “a tsunami of demands for protection against imports of hundreds of other products.”
They were quickly proven right (more on that below).
Within several weeks, China opened its own investigation into the key US export of sorghum; and three days ago, China announced retaliatory tariffs against US sorghum, which raised duties on imports of the good from America by nearly 180%.
Security & Steel
In April 2017, President Trump announced that “he was directing the commerce secretary to investigate whether imports of steel [and aluminum] were a threat to US national security.” In accordance with the rarely used Section 232 of the Trade Expansion Act of 1962, the Department of Commerce conducted its investigation and, in February 2018, it released a report declaring that “the quantities and circumstances of steel and aluminum imports threaten to impair the national security” of the country.
At the beginning of March, President Trump publicly signaled his intentions to implement tariffs of 25% on steel imports and 10% on aluminum imports. This decision was particularly puzzling given the fact that only 6% of such imports could be attributed to China, and the primary burdens of such tariffs, if implemented as initially announced, would be placed on many of America’s Western allies. As a result, within several days, the EU threatened its own tariffs and a possible World Trade Organization (WTO) complaint if Trump were to act on his announcement.
Heeding these warnings, Trump initiated his steel and aluminum tariffs on March 8th, but provided explicit exemptions and a petition process for certain goods to receive their exemptions as well. By the end of March, two-thirds of the imports that Trump included in his announcement at the beginning of the month had been excluded.
Once again, it only took China several weeks to respond to America’s tariffs at the beginning of this month with retaliatory tariffs of their own which covered over 125 US imports worth over $2.4 billion.
Tech Tariff Threats
A major part of the escalating tensions between America and China involves intellectual property and the tech industry.
In August 2014, operating in accordance with a memorandum written by President Trump four days earlier, US Trade Representative Robert Lighthizer announced that he had launched an investigation “to determine whether acts, policies, and practices of the Government of China related to technology transfer, intellectual property, and innovation are unreasonable or discriminatory and burden or restrict U.S. commerce.”
By the end of this past March, the Trump administration released its findings, which determined that China was conducting “unfair trade practices,” and, in public remarks, the president indicated that a WTO case would be filed and further tariffs against China were being considered.
In early April, Trump reiterated his threat of additional tariffs by releasing a list of over 1,300 Chinese products, exceeding $46 billion of US imports, that were under consideration for 25% tariffs. The targeted products were primarily from the machinery, mechanical appliance, and electrical equipment sectors.
If you’ve gotten all the way to this part of the article, I’d imagine that you wont be surprised to read that, within one day, China released its own list of US products, worth $49.8 billion of China’s imports, that were being considered for 25% tariffs in retaliation. These products mostly targeted the transportation and agricultural sectors. In response, 24 hours later, Trump announced that he would again consider placing even more tariffs on another $100 billion worth of US imports from China.
As with a lot of international decision-making, many of the Trump administration’s actions on these matters have been a combination of political posturing and policy formulation. But, as the opening paragraphs suggest, the president is playing a dangerous game with powerful stakes.
Only time will tell how many of each country’s threats will transform into tariffs. However, one fact appears quite clear: the policies that have been initiated thus far have signaled early shots. While a full blown trade war has not entirely escalated, trade battles are clearly brewing.