President Donald Trump has unveiled a plan to slap tariffs on $60 billion worth of Chinese exports to the US — an audacious strike at Beijing that could spark a costly trade war with the world’s second-largest economy.
Trump’s hardline approach was on full display Thursday, when he signed a presidential memorandum ordering US officials to draw up a list of Chinese goods that should be targeted with tariffs.
Trump has been talking about cracking down on China since the campaign, but until the very moment of the announcement, the White House struggled to explain the new policies.
Just hours before Trump signed the order, senior White House officials said the tariffs would hit $50 billion of Chinese imports. Trump, by contrast, said at the signing of the memo at the White House that it “could be about $60 billion” — nearly $10 billion higher than the officials had said. That figure is also twice as much as the $30 billion in imports that the president’s top trade official originally recommended he target in early March.
The new tariffs are intended to punish Beijing for what the administration describes as unfair trade practices that punish American firms. The White House points to regulations that force many US businesses to hand over their technology to Chinese companies as a condition for being able to do business in China. China’s state-owned companies then have the ability to use that tech to develop their own products — and beat the American businesses at their own game.
A senior White House official told reporters in a press briefing on Thursday that the US is “simply strategically defending itself” with the new tariffs.
The tariff import list will be drawn up within 15 days, and then it will be subject to a 30-day “notice and comment” period, during which domestic industries will have the opportunity to air their positions on the tariffs. Analysts say that during this time it’s possible that Trump could walk back the scale of the tariffs considerably.
Trump’s memo also directs Treasury Secretary Steven Mnuchin to look into restricting China’s ability to invest in the US. It doesn’t stop there: The memo says US officials will be filing complaints against China at the World Trade Organization that accuse Beijing of discriminating against American businesses.
Beijing has warned that it’s ready to strike back at the US. “China will certainly take all necessary measures to resolutely defend its legitimate rights and interests,” China’s Ministry of Commerce said in a statement Thursday before Trump signed the memo.
Fears of a trade war breaking out rocked the financial markets on Thursday afternoon, with the Dow falling 724 points, the fifth-largest point decline in history.
The big question now is whether those fears are warranted. If a full-fledged cycle of tit-for-tat tariffs between Washington and Beijing breaks out, US businesses — and US consumers — could pay a heavy price.
Trump’s move could backfire
The White House plans to impose the new tariffs using Section 301 of the Trade Act of 1974. It’s a statute that the US has historically used to force countries that thwart American exporters to open up their markets.
This law also allows the US to unilaterally impose tariffs on a foreign country’s exports or restrict its access to the US market.
Washington has had great success using Section 301 in the past, like when it pried open Japan’s impenetrable semiconductor market in the 1980s. Since the creation of the WTO in 1995, however, countries have usually taken their problems to its legal dispute system instead of trying to resolve them on their own.
Analysts say a US decision to ignore the WTO’s system could inspire other countries to do so as well — and set off a wave of trade wars.
But a more immediate concern for the US is China’s reaction. “The Chinese will retaliate,” William Reinsch, a trade expert at the Stimson Center, a nonpartisan think tank, told me in an interview in January. “They have a lot of experience with this game — and they are very, very good at coming up with things that will cost them nothing and cost us a lot.”
To take two examples, China could retaliate with tariffs of its own or try to punish American businesses by meddling with US companies’ factories in China.
Take Boeing, which says that one out of every four of its jetliners is bought by the Chinese. It could pay a heavy price if Beijing cancels existing orders or says it won’t buy any new ones in the future.
Reinsch said Beijing could also decide to halt huge US agricultural exports to China like soybeans or slow or shut down the assembly of Apple iPhones, which are manufactured in China.
That’s part of the reason US companies spent the past few weeks lobbying against the proposed tariffs, arguing that they’d raise costs for their businesses and make Chinese-made goods, like iPhones, more expensive for US customers.
On Monday, a group of 25 retail giants including Walmart and Costco sent a letter to the White House on arguing that “higher tariffs will mean higher costs to businesses and in turn higher prices for American families.” At least for now, it looks like Trump is planning to ignore their concerns and press ahead with the tariffs anyway.
There are some signs that Trump’s tariffs could persuade China to at least consider changing its behavior. At a news conference on Tuesday, Chinese Premier Li Keqiang admitted that “there is still broad room for us to further open up.” Li also acknowledged that the $375 billion US-Chinese trade deficit is not “sustainable.”
Todd Tucker, a trade scholar at the Roosevelt Institute, told me in the run-up to the tariffs announcement that “with exports taking up a fifth of its economy, China has a keen interest in a prompt solution.” Beijing could try to offer some kind of concrete trade concession to the US to avoid tariffs or shorten their duration.
All of which means Trump is facing a dilemma. On one hand, threatening to use tariffs might be the only way persuade China to come to the negotiating table. On the other hand, implementing the tariffs sets the stage for some potentially big clashes in the future.