New Trump import fees: How will China fight back?

Farmer Don Cairns tastes soybeans at his Parkesburg, Chester County farm at the start of the 2017 harvest. Planned tariffs could slow U.S. exports to China, driving down prices.

The Trump administration’s trade office on Wednesday posted an expanded list of chemical, textile, electronic, meat, fish, grain, and other Chinese products it plans to hit with 10 percent tariff import fees, pending a review and hearings next month.

These new import expenses follow Trump’s 25 percent tariffs on China-built cars, computers, and industrial parts (which are still under U.S. government review), and retaliatory tariff threats from China. Trump has also slapped tariffs on metals from Europe, Canada, and Mexico, and they have retaliated with higher fees on U.S. food and factory exports.

Trade groups, importers, and corporate-friendly Republican and Democratic U.S. senators have reacted with alarm to Trump’s tariffs, which they say will inflate prices for U.S. companies and consumers. But some Americans who work in protected industries have applauded what they say is a long-overdue fight against frequently unfair competition against American manufacturers.

The plan will add tariffs on $200 billion worth of Chinese imports to the United States on top of the previously planned tariffs, which targeted $50 billion worth of imports, notes Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, which is based in London and has a staff of economists in Center City. If all are approved, that would boost costs for about half of U.S. imports from China, Biswas said. By comparison, China has proposed tariffs to hit around $34 billion, or about one-quarter, of its U.S. imports.

What will China do about it?

More tariffs

China’s government has threatened to add more U.S. tariffs. But the U.S. buys a lot more from China than China buys from the U.S. — so doesn’t China have a lot more to lose?

“Since total Chinese merchandise imports from the U.S. in 2017 were $130 billion, and U.S. merchandise imports from China were $505 billion, this means that China will not be able to match the proposed U.S. tariffs,” Biswas wrote.

“The additional U.S. measures will hit the Chinese export sector hard, particularly for key Chinese manufacturing export industries such as textiles, metal products, auto parts, glass products, as well as electrical and electronic equipment,” he added. “Chinese exports of electrical and electronic products such as refrigerators, vacuum cleaners, electrical lighting equipment, and telephone equipment are among the key Chinese products targeted.” So are cotton and wool fabrics, steel, copper, nickel, and aluminum.

“For China, the U.S. is its largest export market, accounting for 19 percent of total Chinese exports,” and half of those exports now face U.S. tariffs, Biswas wrote. But investors have noted that China’s exports don’t matter to the country as much as they used to, given the rapid growth of China’s economy and internal demand.

Cut export costs

China has already cushioned the blow: Its currency, the yuan, has dropped more than 5 percent of its value compared to the dollar since mid-February. That makes Chinese goods 5 percent cheaper to U.S. importers than they were last winter, cutting the impact of Trump’s tariffs in half, while also making it more expensive for China industries to buy more U.S. goods, Biswas noted.

Harass U.S. firms

Besides “jacking up” its own tariffs on U.S. products, China has the power to do lots more to make U.S. companies like Walmart, General Motors, and DuPont miserable, writes Bloomberg’s Enda Curran.

For example: In 2012, Curran notes, Japanese auto sales in China took a dive after the countries squared off over control of the East China Sea and undersea mineral rights. In 2017, China stalled South Korean tourism by ending package visits in a dispute over Korean missile defenses. And as candidate Trump used to complain, China has been accused of “manipulating” its currency to make its exports more attractive.

Mess with U.S. finance

Financial observers have for years speculated that China, if it wishes to pressure the U.S., is in a position to force U.S. interest rates higher by dumping some of the more than $1 trillion in U.S. Treasury debt China controls onto world markets, making it harder for the Trump administration to keep borrowing money to fund its huge and widening budget deficit, which has expanded since last year’s tax cuts.

Surrender

According to the U.S. tariff statement, the goal of the new Trump fees is the same as the long-standing U.S. trade policy: “to obtain elimination of China’s harmful acts, policies, and practices.” Is that now more likely? U.S. stocks were down less than 1 percent on news of the new tariffs, with exporters like DowDuPont down slightly more; China stocks have dropped a lot more than American ones since the spring, as if investors don’t expect the U.S. will be the country most hurt by a trade war.

Elsewhere

If the U.S. imposes all its planned tariffs, China will “suffer a significant deterioration in export competitiveness to the U.S. compared to other emerging markets’ manufacturing exporters, such as Vietnam, South Korea, Thailand, Bangladesh, Mexico, and Brazil,” notes IHS’s Biswas.

That sounds like good news for China’s manufacturing competitors. But at the same time, a trade war between China and the U.S. will hurt South Korea, Singapore, Taiwan, and other Asian economies because those companies supply Chinese factories that export to the U.S. And it will hurt the Japanese and European firms that own many of China’s factories.

Elsewhere, a China-U.S. trade war looks like good news for rival soybean, dairy, and meat exporters in neutral Australia, Brazil, and Argentina.

Overall, the “global trade wars” are likely to slow world economic growth this year and next, Biswas concludes.