It was just last week that US Treasury Secretary Steve Mnuchin said the Trump administration was going to hold off on hitting China with punishing new tariffs as part of an effort to put “the trade war on hold.”
Flash forward to Tuesday and it seems like President Trump may be gearing up to launch a trade war between the world’s two largest economies after all.
On Tuesday morning, the White House announced that it will proceed with plans to impose 25 percent tariffs on $50 billion worth of Chinese exports to the US. The tariffs, or border taxes, are in response to China’s practice of forcing American businesses to hand over their signature intellectual property to Chinese companies if they want to do business in the world’s most populous country.
The administration also announced that it will restrict Chinese investment in US companies and limit the number of goods that US companies can sell to China.
The White House said the final list of Chinese goods that will be subject to tariffs will be announced on June 15, and that the measures will go into effect “shortly thereafter.”
Trump has been bashing China since before his successful presidential run, so the tariffs don’t come as a total surprise. Still, the timing of the move is raising eyebrows on both sides of the Pacific given that Mnuchin’s comments had suggested the US was trying to lower tensions, not increase them further.
Washington and Beijing are set to continue trade talks this week, and experts say that China could be confused by the apparent White House reversal. That, in turn, could lead Beijing to take a harder line during negotiations.
Chad Bown, a senior fellow at the pro-trade Peterson Institute for International Economics, told me the new moves could loom over Commerce Secretary Wilbur Ross’s upcoming trip to Beijing, where he’s working on getting China to buy more American energy and agricultural products.
“China might no longer be so willing to go along,” Bown said.
Trump’s possible trade war with China has been a long time coming
In April, the administration said it was weighing whether to levy tariffs on more than 1,300 Chinese exports, which included flat-screen televisions, aircraft parts, and medical devices. That would make them more expensive for American consumers and manufacturers.
The Trump administration’s goal is to hit China’s more high-tech exports and damage Beijing’s “Made in China 2025” program, a huge state-sponsored initiative to make China a world-class manufacturer of goods like robotics and high-end electronics.
When Trump initially unveiled the tariff plan in April, China quickly threatened to respond in kind with tariffs on $50 billion worth of US exports to China, including cars, airplanes, and soybeans. The last one could deal a particularly serious political blow to Trump and his fellow Republicans: The biggest soybean producers in the US include Ohio, Iowa, Missouri, and Indiana — states in the heart of Trump country where neither the president nor his party wants to see economic instability or job losses during the 2018 or 2020 elections.
On Wednesday, Beijing didn’t issue that exact same threat, but suggested that a retaliation was on the table. “We want to reiterate that we don’t want a trade war, but we aren’t afraid of fighting one,” Chinese Foreign Ministry spokeswoman Hua Chunying told reporters. “If the US insists on acting arbitrarily and recklessly, China will take firm and powerful measures to safeguard its own legitimate rights.”
Edward Alden, a trade expert at the Council on Foreign Relations, says it’s worth noting that Trump has declined to announce an exact date for when the tariffs would go into effect — it seems there’s still a question of whether he’ll actually go through with them.
“This appears to be the same tactic of using threats to gain leverage,” Alden told me. “But so far, that approach has produced almost no tangible victories for Trump.”
Trump’s surprise announcement on tariffs is in a way the opposite of another recent reversal: his bid to save the Chinese telecom giant ZTE.
Here’s the backstory. In April, the Commerce Department banned US companies from selling parts or providing services to ZTE, which makes inexpensive smartphones, because it shipped equipment to Iran and North Korea in defiance of US sanctions. ZTE relies so much on components shipped from the US that the company immediately looked like it might go out of business.
But a couple of weeks ago, Trump said he was looking into saving the company from collapsing, and on Friday he indicated that he had in fact reached a deal with the Chinese that will allow ZTE to stay alive by buying US parts again.
Lawmakers in both parties have criticized Trump for trying to save ZTE, which they see as a huge concession to Beijing. They think his about-face on ZTE could hurt the US’s credibility in negotiations, and they’re worried that ZTE could pose an espionage risk to the US by covertly using its cellphones for surveillance.
Both Democratic and Republican lawmakers are in fact crafting legislation that could block Trump’s plan to save ZTE.
Some analysts think that Trump’s tariff announcement on Monday might be an attempt to persuade Congress that he’s not getting soft on China and to encourage lawmakers to drop efforts to put together blocking legislation on ZTE. Whether they’ll be convinced remains to be seen.