WASHINGTON – President Donald Trump threatened on Sunday (May 5) to raise tariffs on billions of dollars worth of Chinese goods and slap new taxes on billions more in a high-stakes move calculated to pressure China to reach an agreement, but may put this week’s trade talks in jeopardy instead.
The new tariffs, which would cover almost all Chinese exports to the
United States, come days ahead of the Beijing trade delegation’s arrival
in Washington and has reportedly prompted the Chinese to consider
pulling out of this week’s trade talks altogether.
Said Mr Trump on Twitter: “The trade deal with China continues, but too slowly, as they attempt to renegotiate. No!”
But trade watchers said that the President’s pressure tactic might
end up alienating Beijing, leaving him with little choice but to follow
through on his tariff threat and escalate the trade war between the
world’s two biggest economies, instead of concluding it.
Former acting deputy US Trade Representative Wendy Cutler told The
Straits Times: “President Trump’s latest tariff gambit against China is
high stakes. It could easily backfire if China decides not to send
(Chinese vice-premier and lead negotiator) Liu He to the US this week
and refuse to re-engage until the tariff threat is removed.”
“If this were to occur, we would find ourselves in a serious stalemate with neither side willing to back down and President Trump having no option but to make the threat a reality, with harmful consequences not just for China, but for the United States too and the global economy,” added Ms Cutler, who is the vice-president of the Asia Society Policy Institute.
Mr Trump said that the 10 per cent tariff currently in place on
US$200 billion (S$272 billion) of Chinese goods will go up to 25 per
cent on Friday. This revives a hike that had originally been scheduled
to take effect on March 1, but which he had postponed indefinitely in
late February.
Fresh tariffs will also be imposed “shortly” on another US$325 billion of previously untaxed Chinese goods, said Mr Trump.
His threatened tariffs will together cover almost all Chinese goods
exported to the US, which totalled US$539.5 billion last year, according
to the Office of the US Trade Representative.
Chinese industrial machinery and electronics parts, among
other products, have so far been exempt from the Trump administration’s
tariffs.
Trade talks so far have been stalled by unresolved key disagreements between Washington and Beijing, including how a trade deal will be enforced and when tariffs will be lifted.
While China wants tariffs dialled back as soon as the deal is signed,
the US is keen to keep them in place for a while to ensure that China
complies with the terms of the agreement, and to be able to reimpose
tariffs without retaliation if China does not.
Reports emerged from last week’s negotiations in Beijing that the US
watered down a key demand that China reduce its subsidies to state-owned
enterprises, a central tenet of the Chinese economy.
Mr Trump’s announcement was an abrupt departure from previous
optimistic statements from White House officials that talks were going
well.
Bloomberg reported that China had backpedalled on some earlier
commitments, emboldening trade hawks within the Trump administration to
push for a harder line.
Ms Cutler told ST: “When endgame issues hit a major roadblock in
trade talks in which I was involved, typically we would postpone the
talks until we had greater confidence that we were headed towards
closure. The Trump administration has resorted to one tactic – threat of
tariff increases – to break the logjam.”
“While this tactic has met with some success to date, the latest
threat is high stakes and one that could lead to greater harm to the US
than China if we lose the Chinese market opening in the table and face
high tariffs on lots of consumer products,” she added.
Wilson Centre senior associate for North-east Asia Shihoko Goto told
ST: “The latest Trump tweet supposedly is to put pressure on China
before this week’s negotiations, so that Beijing will be confronted by
Washington’s willingness to squeeze China further and not back down. The
logic is that this will force Beijing to capitulate.”
But the pressure tactic shows that the White House is more concerned
about reducing its trade deficit with China than with addressing any
fundamental change in China’s trade practices, she said.
“When it comes to the latter, the United States has a great deal of
support, including other Asian countries. By threatening to increase and
expand tariffs, there is concern that this tactic will be used not just
against China, but against other countries that are currently
negotiating deals or may look to have a deal with China in the future,”
Ms Goto added.
Mr Hu Xijin, editor-in-chief of China’s nationalist paper Global
Times, said on Twitter: “President Trump threatens China while he
seemingly doesn’t understand how tariffs work. Not sure whether US
public doesn’t understand either. China has long ago prepared for the
worst. We won’t buy this trick. Moreover, he didn’t even scare North
Korea.”
It remained to be seen whether the President – known for his
unpredictable negotiating style and willingness to walk away from talks –
was being serious.
“With President Trump, it is impossible to know which of his threats
are real and which are idle. But it is noteworthy that he is dropping
this ‘bombshell’ on a Sunday, when financial markets are closed,” wrote
Peterson Institute for International Economics senior fellow Chad Bown
on Twitter.
The President also said that the tariffs so far had little impact on
costs in the US, and were mostly borne by China, statements which
economists disputed.
The Trump administration’s tariffs were almost completely passed on
to consumers as importers raised the prices of imported goods, according
to a study by researchers from the Federal Reserve Bank of New York,
Princeton University and Columbia University in March this year.
Their study found that by the end of last year, tariffs cost American
consumers and import companies US$3 billion per month in added tax
costs, and reduced income by US$1.4 billion per month.
The Tariffs Hurt the Heartland campaign, comprising more than 150
retail, technology, manufacturing and agriculture trade organisations,
condemned the tariff hikes in a statement hours after Mr Trump’s tweets
on Sunday.
“For 10 months, Americans have been paying the full cost of the trade
war, not China. To be clear, tariffs are taxes that Americans pay, and
this sudden increase with little notice will only punish US farmers,
businesses and consumers,” said the group.
It added: “Raising tariffs to 25 per cent could cost nearly one
million American jobs, according to recent estimates. This decision will
also roil financial markets and increase the likelihood of retaliation
on American farmers who are facing the lowest income levels in years.”
Said Ms Goto: “For the US consumer, the best case scenario is that
this pressure tactic will work out. Otherwise, the impact on domestic
prices will be considerable.”
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