Sieren's China
June 20, 2018
It could be that US President Donald Trump thinks he's on a roll: After snubbing the US' partners at the G7 summit and closing a deal with Kim Jong Un over disarmament of North Korea, the White House has now announced that the US will quit the UN Human Rights Council.
At the same time, the trade dispute with China is heating up: last Friday, the Trump administration announced a 25 percent tariff on up to $50 billion of Chinese products, prompting Beijing to respond with a 25 percent levy of its own on 659 US products, amounting to $34 billion worth of American goods.
On Monday, Trump upped the ante even more with an unprecedented threat to levy a 10 percent tariff on $200 billion in Chinese products — a move that would put a large share of the $505 billion in products that the United States imports from China under tariffs. It's the most radical step Trump has taken so far in his efforts to redress the US trade deficit with China.
Trump wants to maim China
Beijing's retaliatory tariffson products including soybeans, tobacco and seafood could have a significant impact on states such as Iowa, Wisconsin, Alaska and Minnesota, where there are high numbers of Trump supporters. But Trump wants to prevent China's rise to a tech super power, which he thinks is only thanks to the US. "You know, we have the great brain power of Silicon Valley, and China and others steal those secrets and we're going to protect those secrets. Those are crown jewels for this country," he said in a recent interview on "Fox & Friends." Many of the new tariffs target Chinese tech products used in the car industry and robotics.
The first batch of tariffs is due to come into force on July 6 and there is not much time to change course now. There had been some indication that negotiations were heading for calmer waters when high-level delegations from both countries met in May and June. Beijing had agreed to buy goods worth $70 billion and to invest more in US infrastructure if Washington agreed to withdraw its tariffs. But one week later, Trump set a different course. Perhaps he is hoping that by being so erratic, he can gain more for the US. And he could be right – but only in the short term.
Read more: Donald Trump's trade spats with Europe, China and NAFTA
The US tariffs could cost China 0.05 percent of its GDP this year and 0.1 percent next year. China's countermeasures could hurt its own economy. The price of soybeans and other US products would rise in China and raise the price index by 0.1 to 0.2 percent. This would not be terrible for China, but it would be annoying for Beijing nonetheless. The Chinese government is becoming increasingly impatient, speaking of "extreme pressure and blackmail." "If the US becomes irrational and issues this list, China will have no choice but to adopt strong countermeasures of the same amount and quality," a Chinese commerce ministry statement said.
Trump will become more vulnerable
It's not just additional tariffs that can be expected, but also measures taken by both sides to restrict access to certain firms. Recently, the Chinese telecommunications giant ZTE was banned from buying US components for seven years and had to shut down certain areas as a result.
Tension is high. The two biggest economies in the world are testing each other's strengths and weaknesses. Beijing has an advantage. There are no elections coming up for President Xi Jinping. The population feels attacked by the US and, on this issue, stands behind its government. In the US, however, mid-term elections are coming up in November and Donald Trump needs to win. His supporters tend to be protest voters. They don't like it when their pocketbooks become targets. So Beijing only has to impose retaliatory tariffs to hurt Trump's potential voters – and wait. This is about more than losing face: Trump can afford to play up a bit before the summer break and see how far he can go. But soon, his room to maneuver will become increasingly narrow.