March, 2018

Trump mulls pressing China harder on trade

Original article: Vox

The Trump administration is considering slapping heavier tariffs on steel and aluminium imports, a move that could ignite smouldering trade tensions with Beijing. China is not the only country that would be affected: The tariffs would slash imports from many foreign producers in a bid to stimulate domestic production. "Imports threaten our national security," Commerce Secretary Wilber Ross told reporters in February. 


Some China watchers are warning once again of an impending trade war between the U.S. and PRC. To that end, we think that the words "trade war," "China" and "Trump" are beneficial for search engine optimization and clicks. Even top think tanks are getting in on the act. In a February 28 post, the Brookings Institution offers advice on "How to avert a trade war with China." 

To be sure, Beijing is concerned about Washington's ascendant protectionism. No Chinese rulers in modern times have dealt with an openly protectionist U.S. government. Protectionism hasn't been a cornerstone of American policy since the Herbert Hoover administration (1928-1932). That's why Chinese President Xi Jinping dispatched Wang Qishan on a journey to the United States. A long-time Xi confidante, Wang has a reputation for putting fires out. 

Assuaging the Trump administration will be hard. Firstly, Trump himself is keen to bolster domestic manufacturing. He and Secretary Ross think that tariffs will help them accomplish that task. As the world's No. 1 steel exporter, China is an obvious target, especially since Washington has chafed at its exporting practices for years. In May 2016 the pro free-trade Obama administration imposed duties of 500% on Chinese cold-rolled flat steel. Long before that - in March 2002 - the George W. Bush administration slapped tariffs of up to 30% on most types of steel imports from Europe, South America and Asia. 

Bush's tariffs did not revive the domestic steel industry. In a September 2003 story, The Washington Post said that the duties may have cost more jobs than they saved, as costs soared for firms using steel in their manufacturing processes. 

Of course, a trade war did not ensue between the U.S. and China either. Why might new tariffs change the equation then? 

New duties probably won't, unless they're extreme. Meanwhile, from their perspective, Trump and his team are acting in U.S. interests by taking a firm stance with China on trade. Without assertiveness from Washington, the deep-seeded problems in the bilateral trade relationship are likely to fester, they say.  

Most importantly, Beijing and Washington should work together to develop a system that guarantees the protection of American intellectual property in China. Beijing insists that U.S. companies are not forced to transfer technology to local partners. But many U.S. firms, speaking anonymously to protect themselves from reprisals, have said otherwise. Chinese firms are not subject to such pressure when they do business in the U.S. It's only fair that their American counterparts enjoy the same rights in the PRC. 

Perceived Chinese obstinacy on this issue, together with concerns about allowing the sale of assets deemed important for America's national security, have fueled a backlash: a crackdown on Chinese investment in U.S. technology firms. New legislation under consideration could further restrict Chinese investment in that area. 

Washington and Beijing should talk to each other candidly, with an eye towards addressing the U.S.'s long-running concerns about intellectual property protection. The alternative is tit-for-tat trade sanctions that won't benefit either country.