As part of his protectionist strategy, President Trump has repeatedly threatened to impose heavy import tariffs on Chinese goods entering the United States. This, of course, has elicited backlash from Chinese officials as well as threats to impose similar tariffs on US goods entering China. Now, despite delays and multiple back-and-forth negotiations, a trade war between the US and China seems to imminent. On Tuesday, May 29th, following another round of trade negotiations in Washington, the White House made a surprise announcement that it would move ahead with imposing 25% tariffs on $50 billion worth of Chinese goods. It plans to publish its master list of imports covered by tariffs by June 15. The new protectionist measures would also include a reduction of Chinese investment into the United States, to be implemented after June 30.
China enjoys a hefty $275 billion (as of 2017) trade surplus with the US due to what some may call unfair trading practices. Officials such as US Treasury Secretary Steven Mnuchin and US Commerce Secretary Wilbur Ross have said that China must increase its purchase of US goods such as agricultural and energy commodities to reduce this surplus.
Yet technology became the real heart of the US-China trade matter when the US launched an investigation into intellectual property issues in China last year. Later, in March 2018, the US brought a case against China before the World Trade Organization (WTO), the main international body that regulates trade. It claimed that China was carrying out discriminatory technology licensing practices by denying foreign patent holders, namely US companies conducting business in China, the basic rights to prevent Chinese businesses from using the same technology upon the expiration of a licensing agreement.
The US is now pushing the world’s second largest economy to reduce its taxes on imports and curb intellectual property theft such as by lifting requirements that foreign firms must share ownership with local Chinese firms. In April 2018, the Office of the United States Trade Representative (USTR) released a first draft of about 1,300 products from China targeted for import tariffs. These included products from sectors such as the aerospace, information technology, robotics, and the machinery industries. The USTR asserts that the total worth of imports subject to the tariff increase, calculated in an economic analysis, is equivalent to the amount of US dollars lost due to China’s unreasonable technology transfer practices.
Anxiety about a pending US-China trade war has already decreased two-way investment between the two nations. Upon tightened US restrictions on Chinese investment, Chinese businesses would most likely direct their funds to emerging markets in developing countries such as India or those in Southeast Asia. Chinese officials have also announced plans to retaliate against the US through their own tariffs on US products such as soybeans. Finally, in preparation for the looming trade war, China is now reportedly attempting to “line up countries” such as those in Europe and Asia, that would benefit from Chinese investment, against the United States.
Discussions between the US and China on limitations to trade will continue. But the renewed trade offensive by the White House may fuel nationalist and protectionist sentiment on the Chinese side, threatening the effectiveness of future negotiations. Wilbur Ross is scheduled to arrive in Beijing on Saturday, June 2. Although only time will tell as to whether or not a trade war will actually ensue in the near future, it is becoming clear that United States officials are taking a more hardline stance and making less room for compromise. Any future negotiations on this matter therefore do not seem so promising.
Featured Image via Flickr/Gage Skidmore
