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One of Donald Trump’s major campaign promises was to levy extremely high tariffs against countries he feels are taking advantage of us, like China. In the past, president-elect Trump has floated the idea of setting what he called “defensive” tariffs of up to 45% on Chinese goods, while simultaneously labeling China a currency manipulator. In a scathing op/ed, China’s Global Times has fought back against the idea — and while no Chinese publication is going to treat the idea of massive tariffs kindly, the quote is worth reproducing in full.
Trump’s accusations against China for currency manipulation cannot hold water. If he does list China as a currency manipulator and slap steep tariffs on Chinese imports, China will take countermeasures.
Declaring China a “currency manipulator” will increase the pressure on appreciation of the yuan. It runs counter to the trend of shorting the yuan in the international financial market. However, China’s reputation will be affected, and the trade atmosphere between China and the US will become more tense…
China will take a tit-for-tat approach then. A batch of Boeing orders will be replaced by Airbus. US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the US.
The Global Times also notes that when Barack Obama imposed a 35% tariff on Chinese tires, the Chinese responded by imposing tariffs on American chicken imports and automotive products. This is factually true, and it underscores the difficulty of attempting to force any return to older days, when high tariffs and limited trade were more the norm. The World Trade Organization, of which the United States is a member, allows for tariffs only under specific circumstances (the WTO replaced GATT, the General Agreement on Tariffs and Trade, which was in operation from 1948 to 1994). It does not allow for the kind of blanket tariffs Trump has proposed.
In theory, President-elect Trump can withdraw the United States from the WTO, but this would be entering uncharted waters — virtually the entire planet belongs to the WTO, including every single major US trading partner. The WTO’s overall structure is meant to ensure that all participating countries are required to give up certain blanket protectionist measures. WTO members can impose trade limitations to achieve non-economic goals, to ensure fair competition (environmental protectionism is not an excuse for imposing tariffs designed to prevent free trade, for example), and to intervene to protect a nation’s economy in a time of crisis. If the US economy was in active crisis due to an influx of foreign goods, certain emergency measures are permitted. Active crisis, in this case, refers to sudden depression or cataclysmic inflation, not the slow loss of manufacturing jobs and long-term trade imbalances that Trump has promised to address.
While it’s true we import considerably more from China than we export to China, that country is still a major market for multiple US products. In 2015, the United States exported $113 billion worth of goods to China, making it our third-largest partner behind Canada ($280 billion) and Mexico ($236 billion). Trump has also promised to renegotiate our arrangements with Mexico as well, but hasn’t floated a specific blanket tariff level (he did mention a 35% tariff on Ford cars made in Mexico).
The difficulty of evaluating Trump’s claims is that they could either be cover for a more nuanced negotiation process or the tipping point in an all-out trade war. While the economic benefits of globalism have often been sharply concentrated in the hands of a relative few, sudden unilateral withdrawal from trade agreements could be equally cataclysmic, and in a much shorter period of time.
Imagine, for example, if you run a US business that depends on steel manufactured in China. If China sharply cuts steel shipments to the US, you can’t manufacture goods. Buying from a US-based company might sound like a solution, but the United States manufacturers far less steel today than it did at its height in the early 1970s. The problem is that a 45% tariff on Chinese steel, were such a tariff enacted, couldn’t be met by an immediate expansion in US steel production. My family is from northwest Indiana, the heart of steel production in America, and several of my relatives worked in those mills. If you’ve never seen a steel mill or foundry, they’re colossal on a scale that has to be seen to be believed. There’s no legion of idling mills in the region just waiting to be turned back on again (at least, not in the scale that would be required). It takes time to build foundries, train (or recall) workers, and ramp up production. In the short term, that means dramatically higher prices and longer lead times, both of which would be passed on to American consumers.
From 2000, the number of employees in the steel industry fell from 135,600 to 86,900 — but efficiency improvements mean the net drop in domestic steel production was much smaller. High tariffs will not bring back jobs lost to improved efficiency.
Therein lies the rub: We have a massive trade imbalance with China, but American consumers are used to a constant influx of cheap Chinese goods and raw materials. China’s single-party control also means its own government takes a far more direct role in controlling trade. Its people are culturally sensitive to how they are treated on the global stage (we saw some of this play out with Samsung’s Galaxy Note 7 recall). A trade war with China could be devastating for both our economies. If the US simultaneously withdraws from or is kicked out of the WTO due to a refusal to abide by its principles, China might well have an easier time finding markets for its surplus goods than we would. The US would be faced with renegotiating new trade agreements from outside the global market. While that’s not impossible, it would deepen uncertainty and could extend any negative impacts.
China’s argument that it would swap Boeing for Airbus and US iPhones and autos for other manufacturers isn’t an idle threat. Soybeans, our current number one export to China, could also be affected. China buys $15 billion worth of soybeans and $8.4 billion in civilian aircraft from the US every year, alongside $3.4 billion in cotton, $3 billion in copper, $5.2B in passenger vehicles, $2.4 billion in aluminum, and $1.7 billion in integrated circuits. If both our nations start playing hardball, the economic impacts won’t be confined to Wall Street or Silicon Valley — they’ll hit virtually every state in America. Any withdrawal from previously negotiated agreements must be handled slowly. When GATT and the WTO eliminated tariffs, it was a gradual process that played out over 50 years, not a sudden or unilateral slashing of all tariff rates across any single industrialized nation.
