Thomas Gallatin / Apr. 4, 2018

China Tariffs: More Moves and Counter Moves

Beijing aims to hurt Trump politically as it seeks to force him to back off his demand for fair trade.

On Tuesday, President Donald Trump announced $50 billion in tariffs on Chinese goods, specifically targeting electronics, aerospace and machinery products. These new 25% import tariffs are designed to penalize China for its policies that force American companies to surrender their proprietary technology to the Chinese government. In calling for these tariffs, Trump noted again that China has long engaged in unfair trade tactics with the U.S., including stealing American trade secrets and technologies via cyber theft.

As Trump foresaw, Beijing was quick to hit back, announcing that it will level $50 billion in tariffs against U.S. goods, specifically agricultural products, such as soybeans and beef, as well as the auto industry. The Wall Street Journal notes that China focused on “goods that were chosen to hit U.S. states that supported President Donald Trump.” News of the tariffs sparked fears of an escalating trade war, which sent stocks plummeting again. However, it’s important to note that none of these tariffs have been enacted, and there is likely a lot of wheeling and dealing that will occur before any are imposed.

Trump responded to fears of a trade war, tweeting, “We are not in a trade war with China, that war was lost many years ago by foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”

One interesting factor here is the clear motivational differences behind the tariff threats between Trump and Beijing. Trump is right about the unfair trade imbalance and Chinese theft of U.S. company intellectual technologies, and his intent is to rectify the situation. Beijing on the other hand is seeking to keep the gig going and has reacted with tariffs specifically designed to hurt Trump politically. China isn’t interested in fair trade; rather the totalitarian government is aiming to weaken Trump politically so that he is forced to capitulate to its abusive trade practices.

It is the twisted “advantage” a totalitarian government has over that of a representative democracy. The Chinese governing elites are free to force their will on their populace with little political blowback. In a representative democracy, however, the president is ultimately beholden to the will of the people, and therefore Trump’s options are limited. That said, while politically speaking Beijing may have an advantage, China is still behind the eight ball on this issue economically — it has much more at stake than does the U.S. Jianguang Shen, an economist at Mizuho Securities, notes, “Beijing is facing a difficult time now as it has resorted to its core weapons, such as soybeans and cars. If the disputes escalate, what else can Beijing use?” In other words, in the geopolitical chess match, Beijing is countering with a big move in the hopes of creating enough political blowback in the U.S. to force Trump to back off his tariff threats. Will it work?

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