“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
TRADE IS A TWO WAY STREET
“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”
PRESIDENT RONALD REAGAN, JUNE 28, 1986
US CHINA TRADE WAR UPDATE APRIL 10, 2018
This is an update to the first blog post, which gave an overview of the Trump Trade War.
President Trump’s tweets on April 8th and 10th and most importantly President Xi’s April 10th speech did a lot to calm the nerves of investors in the US and China that no trade war was imminent. President Xi in his April 10, 2018 speech at the BOAN Conference in Hainan pledged to open China further to imports and to investment and to protect the intellectual property rights (“IPR”) of foreign companies.
Now in response to the Section 301 case, we can expect a round of intense negotiations between the US and China until November 18, 2018 to see if President Xi’s promises can be put into writing and the threats of a trade war averted. Although President Xi pledged to move the reform process expeditiously, the Section 301 case has external deadlines. After the May 15th hearing and final comments on May 22nd, there are still 180 days, 6 months, or until November 18, 2018 before the US takes action under Section 301.
Section 301 are usually settled with trade agreements so the question is what will China agree to and what will be in the Agreement.
Most importantly, the hope is that this Section 301 action can also help solve the Steel and Aluminum crisis in the Section 232 case as part of these negotiations so that China will lift its $3 billion in retaliation on US imports, which has already been put in place. That is a hope of many US farmers.
My next update will describe the exclusion process in detail in the Section 232 Steel and Aluminum cases, the Section 201 Solar case and the procedures going forward in the Section 301 IP China case.
If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address [email protected]
- If anyone wants to unsubscribe to the newsletter, please let me know and I will remove them from the list.
PRESIDENT XI’S SPEECH AND PRESIDENT TRUMP’S TWEETS HELP CALM THE TRADE WATERS AND HOPEFULLY AVERT A TRADE WAR
As the potential for a US China full blown trade war appeared to escalate last week with increasing rhetoric from both sides, cooler heads appeared to prevail as both sides stepped back from the brink.
On April 8, 2018, over the weekend and before the President Xi April 10th speech, President Trump appeared to step back and tone down his rhetoric with regards to China. Trump specifically tweeted:
“4/8/18, 5:12 AM
President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property. Great future for both countries!”
Very smartly, President Trump decided not to attack China or the Chinese people and that did a lot to calm the waters and provoke a positive reaction from China. As President Xi stated in his April 10th speech, “With the future in mind, we need to treat each other with respect and as equals.”
After President Xi’s speech, President Trump tweeted on April 10th:
“4/10/18, 10:51 AM
Very thankful for President Xi of China’s kind words on tariffs and automobile barriers…also, his enlightenment on intellectual property and technology transfers. We will make great progress together!”
In effect, all the US anti-trade rhetoric had created a crisis atmosphere and the question is how China would react. President Xi’s speech helped the US walk back the rhetoric in preparation for negotiations. Although Trump maybe a good negotiator, the other side still has to come to the table.
Thus, Chinese President Xi Jinping’s speech on April 10th speech at the Boao forum in Hainan, China was extremely important to clear the rhetoric away in preparation for negotiations. The Boao forum is an annual forum of Asian government and business leaders in Hainan. In that speech, although not referring to Trump trade action by name, President Xi responded by pledging to open China more to foreign investment and imports and to substantially increase protection for intellectual property held by foreign companies.
One can see the entire April 10th President Xi speech at https://www.youtube.com/watch?v=KgUcL4rdpI0.
President Xi’ made clear in the speech his support for global development cooperation and peace. He stated that only peaceful development and cooperation can bring a win-win situation. He also stated that China has no choice but to pursue development and connectivity, and that reform and innovation are keys to human development. President Xi emphasized that countries have to treat each other with respect and as equals.
President Xi described China as a socialist country with Chinese characteristics, not a Communist country. President Xi stated that China will not threaten anyone else or the international system. It is determined to build World Peace and global prosperity.
President Xi also stated that China is committed to its strategy of opening up China, and China will stay open and will open up even further. President Xi stated that greater openness will move economic globalization further so as to benefit people.
President Xi also pledged to take concrete action and measures to significantly broaden market access in the financial area, insurance, and other areas. Xi specifically mentioned easing equity restrictions in the automobiles area.
President Xi pledged stronger IP protection and to protect IPR of foreign companies and to expand imports. He also stated that China does not seek a trade surplus but a balance of payments and that China will significantly lower imports tariffs for autos and other products. Xi specifically stated:
“With regard to all those major initiatives I have just announced, we have every intention to translate them into reality sooner rather than later. We want the outcomes of our opening up efforts to deliver benefits as soon as possible to all enterprises and people in China and around the world.”
President Xi also stated:
“Openness versus isolation and progress versus retrogression, humanity has a major choice to make. In a world aspiring for peace and development, the Cold War mentality and zero‐sum mentality look even more out of place.”
Xi called for “a new approach to state‐to‐state relations, featuring dialogue rather than confrontation and partnership instead of alliance.”
Xi further stated that China will create “a more attractive investment environment. Investment is like air and only fresh air attracts more investment from the outside.”
With regards to intellectual property, President Xi stated:
“Stronger IPR protection is the requirement of foreign enterprises, and even more so of Chinese enterprises. We encourage normal technological exchanges and cooperation between Chinese and foreign enterprises, and protect the lawful IPR owned by foreign enterprises in China.”
The real question now will be implementation, and China will no longer have the luxury of taking as much time as it wants to make these reforms because the Section 301 clock is ticking. After the May 22nd final comments at USTR, pursuant to the Section 301 statute, the Trump Administration has another 180 days or six months or until November 18, 2018 before it takes action and imposes tariffs on the $50 billion in imports.
Most Section 301 cases end up with a negotiated settlement so we should expect the same end game in this case with intense negotiations by both sides.
If anyone has any questions about these cases or about the Trump Trade Crisis, Section 301 IP Case against China, Section 201 Solar Case, Section 232 case on Steel, Aluminum or Uranium or US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.
US CHINA TRADE WAR APRIL 7, 2018
This is the first of two blog posts. The first blog post gives an overview of the Trump Trade War/Crisis with the World and specifically with China. The second blog post will get into the details and the complexities of the Section 232 Steel and Aluminum cases, the Section 301 China Intellectual Property (“IP”) case and the Section 201 Solar Cells case. But this trade war is getting bigger and bigger.
Having just returned from a month in Europe on March 26th, I wanted to put together another blog post, but every day there has been another significant trade development. While in Europe, I was thinking that my next blog post would be entitled “Trump’s World Trade War”. Had the Trump Administration taken a World Trade War too lightly?
But after I returned from Europe, the narrative changed as country after country negotiated country exemptions out of the Section 232 Steel and Aluminum Tariffs.
But then on April 1st the Chinese government issued a $3 billion retaliation list aimed at US imports in response to the Section 232 tariffs, much of it agricultural products. On April 3rd. the Trump Administration announced $50 billion in potential tariffs on Chinese imports in the Section 301 case. See attached Presidential Proclamation and 301 Fed Reg Notice with US retaliation list, FED REG NOTICE 301 PLUS PROPOSED US RETALIATION LIST FED REG PRESIDENTIAL DETERMINATION 301 CHINA The Chinese government immediately reacted with its own attached list of $50 billion in tariffs on US imports into China. China-301-Retaliation-List-Chinese-and-English. Both lists will be described in more detail in my second blog post. Both lists cover many, many different products from agricultural products to machinery, automobiles and airplanes.
On April 5th, in response to China’s $50 billion in retaliation, President Trump proposed and USTR Lighthizer agreed on another $100 billion in tariffs on Chinese imports. $150 billion in tariffs on Chinese imports completely offsets the $130 billion in US exports to China. The US and China are now involved in a game of trade war chicken. Who will blink first?
So the new title of the newsletter below is “Trump’s World Trade War?? Maybe Not. Now Definitely Yes” But as Shakespeare stated in Hamlet, maybe there is a method to Trump’s madness. Trump appeared to be ready to start a World Trade War at the beginning of March, but at the end of March, Trump appeared much more interested in using the threat of high tariffs to get a better trade deal to open up foreign markets. Tariffs give Trump leverage in trade deals.
But then the trade war started to escalate with China as both sides created retaliation lists. The only shining light in this trade conflict is that the $150 billion tariffs will not take place right away. There will be a hearing in May to determine which imports to target and then the actual decision implementing the US tariffs will be months away.
The Chinese government will also not implement the $50 billion in threatened tariffs until it sees what the Trump Administration does. Meanwhile there will be intense negotiations between the US and Chinese governments.
Two readers have criticized me for not focusing enough in past blog posts on the trade deficits with China and high tariffs China puts on US exports. US exports in 2017 were $2.4 trillion, $1.6 trillion in goods and the impact of a trade war on US companies and jobs is becoming very clear. With regards to China, the United States exported $130.369 billion to China in 2017, imported $505.597 billion in 2017 leaving a trade deficit of $375.227 billion. Concentrating only on trade deficits, however, ignores the very large amounts exported by the United States to the World and China.
But the real question is strategy. Trump’s strategy apparently is to use the threat of high tariffs on imports from China and other countries to extract better trade deals which lower duties on and barriers to US exports. As indicated below, USTR Lighthizer’s strategy, in part, is based on the belief that China has not kept its promises. The Chinese government negotiates, but does not live up to its deal so only a true threat of big trade retaliation will force China to change its practices when it comes to intellectual property and mercantilism. if the strategy works, more power to President Trump.
But, sovereign countries may not react the same way as private businesses. Sovereign countries are very aware of face and whether the US Government respects the other country. If President Trump pushes too hard, he risks so angering the other country, that no trade deal can be negotiated. See the movie the Gathering Storm when Winston Churchill asked his British constituents on a subway train whether his government should negotiate a peace treaty with Hitler. The answer was never!!
More importantly, because of the real negative economic impact Trump’s trade policy has already had on farm states, which is a core constituency and part of Donald Trump s base, Trump should know that he truly has bet the House/his Presidency on his trade deals. If his trade strategy does not work, the economic damage his policy will do on his constituency will badly damage Republicans in the mid-terms and he probably will be a one term President. Going into the midterms, Republican Senator Grassley from Iowa, which has been hit hard by Trump’s trade policy, has stated that Trump will own any harm caused by his trade strategy and any retaliation caused by it. Senator Grassley should know because Iowa is changing from a state that was firmly in the Republican camp and pro-Trump to a now battleground state.
The objective of this blog has been to warn about the perils of protectionism. I do not want to exaggerate the situation. If Trump’s strategy works and he gets better trade deals, he will be in a very good situation. But if the trade deals go south, especially with China, Trump’s core constituents will be badly hurt in a trade war by retaliation and there will be election hell to pay. Trade is becoming Trump’s Obamacare lightening rod.
If anyone has any questions or wants additional information, please feel free to contact me at my e-mail address [email protected]
- If anyone wants to unsubscribe to the newsletter, please let me know and I will remove them from the list.
TRUMP’S WORLD TRADE WAR?? MAYBE NOT. NOW DEFINITELY YES.
On February 27th, USTR Robert Lighthizer on the Laura Ingraham show on Fox News stated that it was ridiculous to think that the United States was going to get into a trade war with China. On April 6th, in light of Trump’s decision to impose another $100 billion in tariffs on China’s imports in response to China’s threatened $50 billion on US exports, Lighthizer’s statement is simply ridiculous. The United States has a full-blown trade war with China. Lighthizer’s original statement, however, indicates that he may have underestimated the response of other countries to his trade demands.
At the start of March, it certainly appeared that the Trump Administration had started a trade war not only with China, but with the entire world. In effect, the United States apparently had created a World Trade War. With tough trade NAFTA negotiations with Mexico and Canada, Europe issuing its own retaliation list in response to the Section 232 Aluminum and Steel Tariffs along with very tough tariffs for China and long retaliation lists aimed at US exports, it certainly looked like a World Trade War.
As I visited many cities in Germany, including Berlin, my fear was that the Trump Administration, like Germany, was taking a trade “war” too lightly. On March 2, 2017, President Trump tweeted:
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!”
President Trump apparently was referring to a $100 billion bilateral trade deﬁcit with a certain country, but it was not clear which one. In 2017, the U.S. ran a global goods deﬁcit of $810 billion. The largest bilateral trade deﬁcit was $375 billion with China. But in 2017 total US exports were $2.4 trillion with $1.6 trillion being goods. Agricultural products amounted to only $137 billion, the rest were manufactured goods.
This tweet followed the announcement to impose broad tariffs of 25% on steel imports, and 10% on aluminum imports pursuant to the Section 232 cases. On March 16th, the EC issued its own attached retaliation list, TWO EU RETALIATION LISTS.
In response, on March 2, 2018, the Wall Street Journal (“WSJ”) in an article entitled, “Trade Wars Are Good, Trump Tweets,” immediately criticized Trump’s trade action along with many economists and others, stating:
That is what most economists would call a classic “trade war,” which Investopedia deﬁnes as “a negative side eﬀect of protectionism that occurs when Country A raises tariﬀs on Country B’s imports in retaliation for Country B raising tariﬀs on Country A’s imports.”
Most economists and policy makers consider trade wars unpredictable, destabilizing and damaging, the most notorious example being the cycle of tit-for-tat retaliation intensiﬁed by the 1930 American Smoot-Hawley law that aggravated the Great Depression.
At a March 21st hearing in the House of Representatives Ways and Means Committee, USTR Lighthizer gave a measured step by step argument on the Section 232 Tariffs and the Section 301 China IP Case against China to explain Trump’s trade strategy. To see the two hour plus hearing before Ways and Means, see https://www.youtube.com/watch?v=MxqNWw5PObk.
On March 22nd, Commerce Secretary Wilbur Ross appeared before the House Ways and Means Committee to defend the Section 232 Steel and Aluminum tariffs. Many Representatives expressed substantial concern about the retaliation against different US exports products, such as agricultural products, and the impact on downstream steel users. To see this long hearing with Wilbur Ross, click on the following link https://www.youtube.com/watch?v=vylt-NTsT8I.
Upon my return from Europe, on March 26th, the situation appeared to change with a number of countries, including Canada, Mexico, South Korea, the EC, Argentina and Brazil, negotiating final or temporary trade agreements with the US in the Section 232 cases to get country wide exemptions. See attached Section 232 Fed Reg notice outling exemptions for countries and for products, which can be filed by US end user companies. EXCLUSION FED REG STEEL AND ALUMINUM. The exemptions for Canada and Mexico are only good depending upon the results of the NAFTA negotiations. The EC, Brazil and Argentina exemptions are only good until early May when hopefully final agreements will be negotiated. This was apparently part of USTR Lighthizer’s strategy before tackling China. See below.
With regards to South Korea, in the final agreement, in exchange for a country wide exemption from the Section 232 Steel and Aluminum tariffs, it agreed to limit its steel exports to 70% of the average steel exports over the last three years and also open up its own market slightly to more auto imports from the US. Since South Korea is the third largest steel exporter to the US, that reduction does mean that there will be less steel in the US market.
But then the trade war started to escalate again, especially with China. On April 1st, China announced it was levying tariffs on 128 different US imports into China totaling $3 billion in response to the Section 232 tariffs on Steel and Aluminum. China also took its case to the WTO and stated that since there are no negotiations, it can levy those tariffs now. See the attached $3 billion Chinese retaliation list, SECTION 232 CHINA LIST RETALIATION TARGETS, which has already been imposed on US imports into China.
On April 3rd, pursuant to the Section 301 case on Intellectual Property, the Trump Administration announced its threatened $50 billion-dollar tariff list to offset the intellectual property allegedly stolen by China every year. See attached list and Presidential Proclamation, FED REG PRESIDENTIAL DETERMINATION 301 CHINA FED REG NOTICE 301 PLUS PROPOSED US RETALIATION LIST. Immediately, China announced its own attached $50 billion retaliation list on tariffs to be imposed on US imports, China-301-Retaliation-List-Chinese-and-English, if Trump follows through on his threat.
On April 5th, in response to the Chinese $50 billlion retaliation list, President Trump asked the USTR to add another $100 billion on the $50 billion already proposed against China. The April 5th exchange between the President and USTR Lighthizer are attached. TRUMP STATEMENT 100 BILLION LIGHTHIZER RESPONSE. On April 6th, China said it would respond, but $150 billion is more than total US exports to China of $130 billion.
US proposes, China retaliates, the US raises the anti. China responds. This is a true trade war and exactly what the Wall Street Journal and others have predicted.
The only good point is that neither list has been implemented yet and as described below in more detail, the actual implementation of the tariffs is probably months away.
TRUMP HAS BET THE HOUSE/HIS PRESIDENCY ON BETTER TRADE DEALS
In his book, the Art of the Deal, Donald Trump states at page 222:
“USE YOUR LEVERAGE
The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you’re dead. The best thing you can do is deal from strength, and leverage is the biggest strength you can have. Leverage is having something the other guy wants. Or better yet, needs. Or best of all, simply can’t do without.”
Trump has made it clear that he wants tariffs. Through the Section 232 process and the Section 301 IP Case against China, Trump got his tariffs and his leverage. Now the question is what is Trump’s trade strategy.
On March 10th, in a Pennsylvania speech after the announcement of the Section 232 tariffs on steel and aluminum, President Trump stated with regards to trade:
European Union. . . They kill us on trade… They have trade barriers. We can’t even sell our farming goods. . . . Then they say we want those tariffs [aluminum and steel] taken off. We are going to tax Mercedes Benz, BMW. . . .You want money to come into our country. . . . We are like $100 billion down with the European Union. We had stupid politicians doing stupid things. Think of $100 billion. I’ve already had $71 billion Mexico, $130 billion. That is a real number. The deal was bad the day they made it. Mexico charges a 16% tax nobody talks about. I talk about it. We are either going to renegotiate NAFTA – and I say we won’t put the tariffs on Mexico and Canada. Canada is brutal. We have a deficit with Canada. They send in timber, steel a lot of things. Our farmers in Wisconsin are not treated well when we want to send things to them.
I don’t blame them. Why should I blame them? They outsmarted our politicians for decades. I don’t mean Obama. I mean all of them since Bush the first. That includes a lot of territory. Ronald Regan. . . Not great on trade.
We used to be a nation of tariffs. Countries had to pay for the privilege of taking our product, our jobs. They had to pay. They want to sell their products. They had to pay. Today in China. They sell a car to the US they pay 2.5%. We sell a car in China, which is almost impossible to do, it is probably . … 25%. That is why we have a trade deficit with China. It is not good. We are changing it. It takes a while. . .
We have a trade deficit with countries of the world…of almost $800 billion. Who makes these deals? . . . It is more than Obama. Plenty of Presidents allow that to happen. We are going to get a lot of things straightened out. NAFTA is under work right now.
Now they are going to be very good. . .If you make a decent deal for the American people, we will have no problem with tariffs. I said .. something to the European Union. Look you are killing us. We are losing $100 billion a year…You are not accepting our product. I want to help the farmers . . .
You hear the European Union. It sounds innocent. It is not innocent. They are very tough and smart. They sell stuff into us and we … charge them practically nothing. We sell things into them, you can’t get through the barriers. They have artificial barriers. It is not monetary, environmental. They come up with things you would not believe. We can’t get our product in there. I said open up your barriers. Get rid of your tariffs and we will do this. . . We have a lot of work to do.
That is the Trump strategy. Raise tariffs and if necessary raise tariffs again and then use those tariffs as leverage to get a better trade deal. But what if the other country does not cooperate and puts out its own retaliation list? That is the risk of Trump’s trade policy; the economic situation in Trump country, especially in the agriculture states, turns down.
To see a more optimistic prediction of the Trump trade strategy, see this April 4th interchange between Neil Cavuto on Fox Business with Larry Kudlow, now Trump’s new economic advisor, stating that deals will be worked out. See https://www.mediaite.com/tv/cavuto-battles-kudlow-in-tense-standoff-you-dont-sound-like-the-larry-kudlow-i-respected-and-admired/.
Meanwhile, on April 5th the Commerce Department reported that in February 2018, the US trade deficit rose to $57.6 billion, 9½%, to its highest level in almost 10 years, although the trade deficit with China narrowed sharply falling 18.6% to $29.3 billion. In February US exports of goods increased 2.3% to $137.2 billion, but goods imports jumped 1.6% to $214.2 billion.
On April 4th, Mark Zandl, chief economist at Moody’s Analytics, predicted that Trump’s trade policy to date has cost 190,000 jobs.
THE DOWNSIDE OF TRUMP’S TRADE WAR STRATEGY–AGRICULTURE
But in the agriculture states, a hard rain is going to fall and is falling. Just from the initial attached $3 billion-dollar list, which has gone into effect, agriculture has been the top target. SECTION 232 CHINA LIST RETALIATION TARGETS. Agriculture experts expect that the soybeans, sorghum, beef, pork, wheat, corn and cotton are all on the target lists for both cases. For most of these farm products, US farmers export billions to China.
Attached is list from Washington State indicating the potential indirect impact to the state of the $50 billion in tariffs, which may go into effect. China 301 retaliation by Value US China-301-Retaliation-List-Chinese-and-English. Attached is another spreadsheet of the actual impact on Washington State of the $3 billion in tariffs in effect now in response to the steel and aluminum tariffs, WASHINGTON STATE China 232 FINAL retaliatin list and Washington exports. The total is over $150 million in Washington State exports, including cherries ($100 million), Aluminum Scrap ($49 million), Apples ($17.6 million) and wine ($1.4 million).
On April 5, 2018, in an article entitled “What a Trade Fight Would Mean For Trump Country”, the Washington Examiner looked at the downside of the Trump trade war and attacks on other countries. Farmers are getting smashed and they are a core Trump constituency. As the Washington Examiner states:
President Trump’s hardball tactics to extract trade concessions from China could crush communities that fuel his political support, with Republicans in Congress paying the price in November.
A Brookings Institution analysis revealed that a U.S.-China trade war would impact agriculture and manufacturing and could disproportionately cost working class jobs in counties Trump carried in the 2016 election. Of the 2,783 counties affected, the president won 2,279; compared to just 449 that went for Democrat Hillary Clinton.
Nearly 1.1 million jobs in Trump country are tied to trade with China, according to the Brookings study. Voters there, supportive of the president’s agenda and long eager for the U.S. to combat Beijing’s unfair trade practices, might give the administration latitude to negotiate better terms.
But if the confrontation escalates and the economy suffers, congressional Republicans could shoulder the blame. Already facing a challenging re-election environment, they count a growing economy among their few advantages. They have minimal time to weather any storm and, unlike Trump, can’t rely on the loyalty of the GOP base.
“This could have a huge, negative impact in the midterms — and beyond — if the trade tit for tat continues,” Dave Carney, a veteran Republican strategist based in New Hampshire, said. Although, he added: “If the president gets concessions and jobs continue to grow and most importantly voters give him credit for that victory, then things will improve for his party.”
The Brookings Institution, a centrist think tank in Washington, examined industries and jobs that would be affected by a trade war with China based on the threats being lobbed back and forth since Trump began moving in March to crack down on Beijing. . . .
Nothing concrete has actually happened, yet. Wall Street, and top executives at corporations who stand to lose business, are operating under the assumption that a deal will be reached before the saber-rattling evolves into an extended showdown. . . .
The agriculture industry, the economic backbone of many rural communities in the heartland, is less sanguine and isn’t waiting for negotiations between Washington and Beijing to falter to sound the alarm. In a press release, the American Soybean Association said “Chinese Retaliation is No Longer a ‘What If’ for Soybean Farmers.”
Soybean farmers export 60 percent of their crop, about $14 billion worth annually, to China. ASA Vice President Davie Stephens, a soybean farmer in Clinton, Ky., said he awoke Wednesday morning to a 30-40 cent per bushel drop in the price of soybeans, which appeared related to the increased specter of a trade war.
“Farmers are worried,” Stephens said in a telephone conversation. “My local community would feel the impact.”
Trump at times has been bellicose in his rhetoric, vowing that he would do whatever is necessary to force China to treat U.S. imports fairly. “When you’re already $500 Billion DOWN, you can’t lose,” he tweeted. But the administration in general sought to calm nerves, with top officials insisting that Trump is intent on avoiding a major spat with Beijing.
“You know, there are carrots and sticks in life, but he is ultimately a free trader. He’s said that to me, he’s said it publicly. So he wants to solve this with the least amount of pain,” Larry Kudlow, the president’s chief economic adviser and an ardent free trader, told reporters.
Republicans worried about the midterm elections don’t sound reassured. Hoping to run on a $1.3 trillion tax overhaul that accelerated economic growth in the first quarter of the year and delivered massive tax cuts, Republicans have seen their economic message usurped by Trump’s proposed tariffs.
Worse, Republicans fear that an unintended trade war might erase the economic gains they’re depending on to buttress the party against political headwinds that threaten to wipe out their majorities in the House and Senate. As Brookings discovered, more than 2.1 million jobs could be adversely affected by a confrontation with China, including almost 1 million in the 449 Clinton counties.
That’s because China’s potential retaliatory targets include white-collar industries such as pharmaceuticals and aerospace. House Republicans are defending 23 districts won by Clinton 17 months ago, and trade war aftershocks that rumble through Clinton counties could add to GOP woes in the affected red seats.
Working-class voters might not fret too much about stock market volatility attributed to Trump’s trade policies. But it could push the white collar set right into the arms of the Democrats, especially in educated, upscale suburbs that typically vote Republican but are drifting, because of dissatisfaction with the president’s polarizing leadership.
“If I were a Democrat, what I would be running up Trump’s ass is how these shenanigans are DESTROYING values in 401ks and college savings plans,” a GOP strategist said. “Most people don’t know a cashew farmer or whiskey distiller but do worry about their own retirement account and paying for college.”
The problem for President Trump is that according to an April 5th article by Newsmax, as reported by Morning Consult, Trump’s approval rating across the 50 states has fallen to 41%. The Rasmussen Poll shows Trump rising to 51%, but when polling is done at a state level, it is not that pretty. In contrast to West Virginia, which shows a huge bump for Trump, Iowa dropped by 9 points, Idaho dropped by 6 points, Montana by 5 points and Oklahoma by 5 points. These states have several things in common. First, they are strong Republican red states and second they are agriculture states. Iowa has been a very reliable Republican state, but is now considered a battleground state.
In addition, on February 8, 2018, the Wall Street Journal reported that in contrast to the rest of the economy, farm Incomes are falling, “Farm incomes are forecast to decline 7% to $60 billion in 2018.”
To win the midterms, these states have to stay in the Republican column. For Trump to win the Presidency in 2020, he has to carry the farm belt. If he loses the farm states, he loses the Presidency.
On April 5, 2018, the Wall Street Journal in article entitled “Tariff Showdown Shifts to Intense Negotiation Period,” stated:
Congress has been reluctant to do anything beyond warn the Trump administration that it risks a full-blown trade war, although behind the scenes some lawmakers, especially Republicans, want the government to ﬁnd a quick solution to the tension.
“Every town hall I go to, trade or tariﬀs is one of the big questions. That’s what’s on their mind,” said Sen. Joni Ernst (R., Iowa) . . . . “They are starting to question the president and where we’re going with this,” she said, adding that she was going to express her concerns directly to Mr. Trump on Wednesday. “I need for him to understand that we’re hurting in the Midwest and this is not helping.”
Iowa is among the largest soybean- producing states, and the state’s other senator, Republican Sen. Chuck Grassley, noted on Wednesday that he had cautioned Mr. Trump his administration would own any harm caused by Chinese retaliation.
THE REAL PROBLEM OF A TRADE WAR WITH CHINA—THE AVERAGE AMERICAN SUPPORTS TRUMP ON THIS ACTION—CHINA STARTED IT
On the day, China announced its $50 billion retaliation list, much of which was aimed at constituents of Donald Trump, including US farmers in rural states, Rasmussen reported that Donald Trump’s popularity for the first time in its daily polling had shot to 51%.
The People’s Daily recently asked me to comment on the Section 232 and 301 trade actions against China. As I stated in my comments, the majority of Americans, 70% in recent polls, believe that it is time to stand up to China’s trade practices. Many Americans see Chinese trade practices as being unfair. So the perception of trade disputes with China is very different than the perception of trade disputes with other countries, such as the EC, Mexico and Canada. In fact, after the Chinese Government proposed $50 billion in tariffs in response to the US tariffs and Trump countered with another $100 billion in proposed tariffs, many Americans indicated strong support for President Trump.
The Chinese press indicates that many Chinese are very angry at the US and Trump, but the US Press indicates that many Americans believe that China has taken too much advantage of the US China trade relationship and strongly support President Trump. With both the Chinese and US populations riled up, this makes it much more difficult for the Governments to step back and negotiate a settlement.
In the March 22nd Editorial, “Trump’s China Tariﬀs”, the Wall Street Journal, in effect, stated that China started the trade war. Although the Wall Street Journal states that Trump’s trade policy with China is the wrong economic strategy to get it to change, the WSJ also states:
“No one should be surprised by the $60 billion in border taxes on China, given that Mr. Trump campaigned on worse. He is also responding to the genuine problem of Chinese mercantilism. China’s government steals the intellectual property of U.S. companies or forces them to turn it over, and Beijing uses regulation to discriminate against foreign ﬁrms.
This might have been tolerable when China was a smaller economy trying to reform, and the U.S. made a reasonable bet in 2001 when it let China enter the World Trade Organization. The gamble was that China would continue to reform, adapt to global trade norms, and eventually become a genuine market economy.
That hope showed early promise but has become forlorn as President Xi Jinping has pushed “national champions” like Huawei and Tencent. Facebook still can’t operate in China, and Tesla is punished with a 25% tariﬀ on imported electric cars. The U.S. tariﬀ on cars from China is 2.5%. China’s predatory behavior has eroded political support in the West for the very free-trade rules that have lifted hundreds of millions of Chinese out of poverty.”
But the Wall Street Journal (“WSJ”) in the same editorial warned:
“The President’s trade hawks, led by White House aide Peter Navarro, want to punish China more than they want to change its behavior. Mr. Navarro really does believe that China today is the equivalent of Germany a century ago. Mr. Trump said Thursday that this tariﬀ action would be “the ﬁrst of many.” This is the mentality that could lead to a trade war and economic damage for everyone. . . .”
When it comes to free trade and economics, the Wall Street Journal is the voice of reason, which many free trade Republicans in Congress listen to.
On April 6, 2018, after Trump’s announcement of another $100 billion in tariffs, the WSJ in an article entitled “The Architect of Trump’s Tough-on-China Policy” described in detail USTR Lighthizer’s strategy with regards to China:
WASHINGTON—President Donald Trump’s tough policy on China trade took shape in a White House meeting last August—and at the center was an often-overlooked man.
Decades of quiet negotiations had gotten nowhere, U.S. Trade Representative Robert Lighthizer told senior White House advisers and cabinet oﬃcials gathered in the Roosevelt Room.
“China is tap, tap, tapping us along,” he said, meaning it regularly promised policy changes but didn’t deliver. He punctuated his talk with charts showing how the trade deﬁcit with Beijing had widened. . . .
U.S. Ambassador to China Terry Branstad, linked by videophone, asked for a chance to conduct another round of talks based on a rapport he was developing with the Chinese. He found little support. It was time to act, starting with a formal investigation of China for unfair trade practices, Mr. Lighthizer argued.
A few days later, Mr. Trump announced an investigation of alleged Chinese violations of U.S. intellectual-property rights—headed by Mr. Lighthizer. It marked the start of the most dramatic and high-risk eﬀort in decades to force the world’s second largest economy to change its behavior, which culminated this week in an order threatening to slap tariﬀs on $50 billion of Chinese imports, a move that also had Mr. Lighthizer’s imprint on it.
After China threatened tariﬀs on an equal amount of imports from the U.S., Mr. Trump on Thursday called that “unfair retaliation” and said he might put tariﬀs on a further $100 billion of Chinese imports, tripling the amount subject to them. A Chinese Commerce Ministry spokesman said on Friday Beijing ”is fully prepared to hit back forcefully and without hesitation.”
Mr. Lighthizer’s role became clear to the Chinese when the Trump economic team landed in Beijing in November for a round of discussions. Mr. Trump made sure the U.S. trade representative met with top Chinese leaders while some others waited outside.
In a session with President Xi Jinping, Mr. Lighthizer laid out how fruitless the U.S. considered past negotiations and how the president was concerned the U.S. trade deﬁcit continued to expand. While US oﬃcials saw Mr. Lighthizer’s comments as a lawyerly argument, Chinese oﬃcials described their reaction as shocked.
Today, Mr. Lighthizer is exchanging letters with China’s senior economic envoy on measures Beijing could take to head oﬀ a trade war. Negotiations are likely to stretch over many months— an ambiguity that could rattle ﬁnancial markets and lift prices on goods earmarked for tariﬀs. . . .
Many U.S. businesses say they are fed up with what they view as unfair Chinese subsidies to local companies, and strong-arm tactics that make them hand over technology to Chinese partners. Still, they worry U.S. threats of tariﬀs could backﬁre and leave them vulnerable to retaliation. . . .
Early in the Trump administration, Commerce Secretary Wilbur Ross, a longtime Trump ally who had done business in China, was expected to lead China economic policy. He privately referred to Mr. Lighthizer, a former trade attorney, as his lawyer, say business executives, who took it as a slight. A Commerce oﬃcial said Mr. Ross meant only that the two had worked together previously on steel issues.
Mr. Ross’s star dimmed when the president dismissed an early package of deals the commerce secretary negotiated with Beijing as little more than a repackaging of past oﬀers, say senior White House oﬃcials. “Shut it down,” Mr. Trump told Mr. Ross in July when he stripped Mr. Ross of his China role and closed down the talks, according to senior administration oﬃcials.
Mr. Ross continues to work on China issues, including advising Mr. Lighthizer on which Chinese imports to target for tariﬀs, a Commerce oﬃcial said.
Mr. Lighthizer, by contrast, managed to bridge a sharp divide over trade among Mr. Trump’s warring factions.
To so-called nationalists like trade aide Peter Navarro, who was itching to take on China, Mr. Lighthizer was a China hawk. Mr. Navarro is mainly an idea man, who has seen his role as making sure the White House carries out the president’s campaign pledge to stop China from “ripping us left and right.” Mr. Lighthizer runs a trade agency, plots strategy and carries it out. The two have worked together to develop on China policy, though they sometimes disagree on tactics.
To the so-called globalists such as former National Economic Council Director Gary Cohn, who worried about the impact of trade ﬁghts on markets, Mr. Lighthizer was the skilled attorney and former congressional aide who understood how Washington worked.
To Mr. Trump, Mr. Lighthizer was a kindred spirit on trade—and one who shuns the limelight. The two men, who have a similar chip-on-the-shoulder sense of humor, bonded. Mr. Lighthizer caught rides to his Florida home on Air Force One. Mr. Trump summons Mr. Lighthizer regularly to the Oval Oﬃce to discuss trade matters, administration oﬃcials say.
“Lighthizer has everyone’s trust, regardless of their views on trade,” said Kevin Hassett, the White House chief economist. . . .
Mr. Lighthizer, on the other hand, is a skilled international trade litigator, more in the mold of former U.S. Trade Representative Charlene Barshefsky, who negotiated China’s entry into the WTO. The Trump team thinks China experts have been too quick to back oﬀ in negotiations with Beijing.
By the time he took oﬃce in May, the administration was ﬁghting internally over whether to impose tariﬀs on steel and aluminum imports globally. China policy was on the back burner.
While Mr. Lighthizer believed the metal glut was due to Chinese excess production, say administration oﬃcials, he thought a ﬁght at that point would be self-defeating because the focus would be on U.S. tariﬀs, not Chinese trade and investment practices. Assessing tariﬀs on all steel exporters, many of which are U.S. allies, would paint the U.S. as a villain instead of China.
Rather than risk the ire of Mr. Trump, who considered steel tariﬀs a campaign promise, Mr. Lighthizer worked quietly with Mr. Cohn and others to get the issue set aside in favor of other priorities.
U.S. trade representatives often regard themselves as lawyers for U.S. exporters, trying to open up new markets. Mr. Lighthizer saw things diﬀerently, viewing big U.S. companies as job outsourcers that sometimes had to be reined in.
At a September meeting with about 100 CEOs organized by the Business Roundtable, he said he understood they had to maximize proﬁts, which sometimes meant exporting jobs. “My job is diﬀerent,” he told the group, according to participants. “My job is to represent the American workers. We’re going to disagree.” It was a position some in the audience found arrogant. . . .
As with his boss, bluntness is his calling card. In the mid-1980s, as a U.S. Trade Representative oﬃcial who negotiated with Japan, he once grew so frustrated he took a Japanese proposal, turned it into a paper airplane and ﬂoated it back at the Japanese negotiators as a joke. In Japan, he became known as “the missile man.”
In a Senate hearing last month, when Democratic Sen. Maria Cantwell of Washington said his China plans could hurt U.S. aircraft makers, he dismissed her concerns as “nonsense.”
As the U.S. moved toward confrontation with China last fall, after the August Roosevelt Room session, Mr. Lighthizer worked to make sure the administration was united. Previously, the U.S. had often balked at confronting China out of fear a ﬁght would tank the global economy and make China less willing to help on national-security issues.
Defense chief Jim Mattis, though, backed a tough approach because he was concerned China was illicitly obtaining U.S. technology and could gain a military edge, say individuals familiar with his thinking. Others in the national-security agencies were tired of what they felt were unmet Chinese promises on Korea and other security issues.
Mr. Cohn, then the economy chief, was as fed up with Beijing as Mr. Lighthizer, say oﬃcials. As a longtime president of Goldman Sachs, Mr. Cohn had lobbied to do business unimpeded in China and didn’t get the approvals he sought.
At the end of February, China sent its chief economic envoy, Liu He, to Washington to try to restart negotiations. Mr. Liu was ready to pledge that Beijing would open its ﬁnancial market.
He found a frosty welcome. The Chinese embassy had requested 40 visas so Mr. Liu could bring a full entourage. The State Department granted just a handful.
Mr. Liu couldn’t get any time with President Trump. Instead, he met with Mr. Lighthizer, Mr. Cohn and Treasury Secretary Steven Mnuchin. The three delivered a simple message, say oﬃcials familiar with the talks: The U.S. isn’t going to get “tapped around” like prior administrations.
The U.S. wanted substantial changes in trade practices and barriers, which Mr. Lighthizer detailed. They included cutting the tariﬀ China imposes on auto imports from 25% to something closer to the U.S. tariﬀ of 2.5%. The U.S. also wanted a $100 billion reduction of its $375 billion annual merchandise trade deﬁcit with China. To punctuate those demands, the administration planned to threaten tariﬀs.
One more obstacle needed to be cleared away. President Trump, frustrated that the steel- tariﬀ matter had been indeﬁnitely delayed, was sympathetic to pitches by Messrs. Navarro and Ross that he should ﬁnally move on the issue. In early March, Mr. Trump said he would impose 25% tariﬀs on steel and 10% tariﬀs on aluminum from any exporting nation.
The international response threatened to drown out the China initiative as U.S. allies complained they were unfairly targeted.
On Tuesday evening, March 20, senior oﬃcials gathered again in the Roosevelt Room to decide how to proceed with the tariﬀs scheduled to go into eﬀect in three days. Mr. Navarro, the trade adviser, argued tariﬀs should be imposed across the board as the president threatened, say oﬃcials. That would increase U.S. leverage with steel-exporting nations, which could be expected to oﬀer concessions to avoid tariﬀs, he argued.
Mr. Lighthizer, aligned this time with Mr. Ross, pressed for an alternative course. Grant nearly all nations except China temporary exclusions from the tariﬀs, they proposed, according to participants, but then limit their exports through quotas. That would make the U.S. seem more reasonable in steel negotiations and help form a coalition against China.
The group produced a memo in which the diﬀerent views were articulated. Mr. Trump backed Mr. Lighthizer’s side.
With the steel issue defused, at least temporarily, Mr. Trump announced on March 22 the U.S. would threaten tariﬀs on Chinese imports. He thanked Mr. Lighthizer for his help and invited him to say a few words.
“This is an extremely important action,” Mr. Lighthizer said, “very signiﬁcant and very important for the future of the country, really, across industries.”
Over coming months, the ability of the U.S. to maintain pressure on China will depend on factors including the reaction of markets, opposition by U.S. industries and farmers, and retaliation by China against U.S. companies. Chinese leaders say they are conﬁdent they would prevail in a trade war, say U.S. individuals who have met with them recently, and chalk up U.S. threats to Mr. Trump’s midterm congressional electioneering.
Jorge Guajardo, a former Mexican ambassador to China and now a Washington consultant, has seen up close how Beijing can pressure companies and wear down governments. “The big question is, ‘Will the U.S. blink?’” he said. “Or will they stay the course so China is forced to understand there is a new way of doing business.”
As I predicted in past newsletters when Robert Lighthizer originally obtained the USTR job, he would be a very tough negotiator especially with China.
To also see the raw emotion about China’s trade policies, see the videos mentioned above at the following two links. The first link is for Robert Lighthizer’s testimony at House Ways and Means on March 21st with the focus on the Section 301 against China at https://www.youtube.com/watch?v=MxqNWw5PObk. The second link is to the testimony of Wilbur Ross at the House Ways and Means on March 22nd at https://www.youtube.com/watch?v=vylt-NTsT8I. Throughout the hearings, all the Congressmen and Ross himself put tremendous emphasis on China’s overcapacity in the Steel and Aluminum industries. Many Congressmen agreed that substantial pressure had to be put on China because of its trade policy and the perception that for too long China has taken advantage of the US in trade negotiations. The videos are long, but the US emotions and political feeling about trade with China are very real.
On March 25th in another editorial entitled “Donald Trump’s China tariffs make sense”, USA Today came out in favor of the Trump trade policy with regards to China:
“The Chinese should know that business as usual isn’t fair trade: Our view
President Trump has done many counterproductive things on trade. His recently announced (and later scaled back) steel tariffs, for example, will punish car makers and other industrial users of steel. And his decision to pick fights with nations in Europe and North America needlessly angers important allies.
But with his announcement to impose penalties on up to $60 billion in Chinese imports, Trump has finally hit on a trade action that makes a certain amount of sense.
China’s numerous state-owned companies limit access to Chinese markets, while exports to the United States continue at a robust level. Its practice of requiring foreign companies to share trade secrets in return for market access is nothing short of a shakedown. And its tolerance for (perhaps even encouragement of) theft of intellectual property makes it a lawless frontier for international companies trying to do business
Trump’s threatened tariffs are meant to effect change in China, not — as is often the case with tariffs — to protect U.S. industries that know how to throw their weight around politically.
Many free-traders will see these tariffs as yet another in a long line of counterproductive moves by the president. There could be some truth to that reasoning. But the tariffs also reflect a growing belief among U.S. business leaders that a laissez-faire approach simply isn’t working.
Such an approach relies on the power of markets, free enterprise and the survival of the fittest companies. In China, however, a gargantuan, single-party state holds the leverage to dictate terms to private companies.
Whether these tariffs work is an open question. China will naturally respond with its own tariffs, focused on U.S. agricultural products, and perhaps with a more truculent foreign policy. . . .
To truly be effective, these threatened tariffs should be combined with the U.S. re-entry into the Trans-Pacific Partnership…, a proposed trading zone linking 11 nations (not including China) in Asia and the Americas. In fact, if the United States were to take only one action to put pressure on China, joining the TPP would be the better approach.
TPP would turn the dispute with China into a multilateral affair. In virtually all efforts to pressure a nation to change its ways, a concerted effort by multiple nations is more successful than one nation going it alone.
The road ahead won’t be easy. Trump has not done himself any favors by alienating many U.S. allies in Canada, Mexico and Europe. Or with his rash decision, at the beginning of his presidency, to take the United States out of TPP.
Even so, there’s nothing wrong with sending a message to China that business as usual isn’t sustainable.”
On March 25th, on New York Radio, the “The Cats Roundtable,” John Bolton, President Donald Trump’s newly appointed national security adviser, stated:
“[T]he president was trying to communicate to signal to China is for far too long China has taken advantage of its place in the world; trade organizations and trade arrangements. The Chinese have stolen intellectual property, patent information copyrights and trademarks, business secrets. They take the information and they don’t honor the patent rights as it might be or the copyright rights — they just copy it and build their own. It’s theft. There’s no other description for it, so when you steal somebody else’s property and make money off of it yourself, it really magnifies the consequences for American industry in a very negative way.”
I think this could be a little shock therapy.”
On April 6, 2018 in an opinion piece in the Washington Post entitled, “Trump is right: China’s a trade cheat”, Fareed Zakaria, a known Trump critic and commentator on CNN, a very anti-Trump TV network, stated his agreement on Trump’s trade China trade policy:
Ever since the resignation of top advisers Gary Cohn and H.R. McMaster, it does seem as if the Trump White House has gotten more chaotic, if that is possible. But amid the noise and tumult, including the alarming tweets about Amazon and Mexico, let’s be honest — on one big, fundamental point, President Trump is right: China is a trade cheat.
Many of the Trump administration’s economic documents have been laughably sketchy and amateurish. But the Office of the U.S. Trade Representative’s report to Congress on China’s compliance with global trading rules [see attached report China 2017 WTO Report] is an exception worth reading. In measured prose and great detail, it lays out the many ways that China has failed to enact promised economic reforms and backtracked on others, and uses formal and informal means to block foreign firms from competing in China’s market. It points out correctly that in recent years, the Chinese government has increased its intervention in the economy, particularly taking aim at foreign companies. All of this directly contradicts Beijing’s commitments when it joined the World Trade Organization in 2001.
Whether one accepts the trade representative’s conclusion that “the United States erred in supporting China’s entry into the WTO,” it is clear that the expectation that China would continue to liberalize its markets after its entry has proved to be mistaken. . ..
Look at the Chinese economy today. It has managed to block or curb the world’s most advanced and successful technology companies, from Google to Facebook to Amazon. Foreign banks often have to operate with local partners who add zero value — essentially a tax on foreign companies. Foreign manufacturers are forced to share their technology with local partners who then systematically reverse engineer some of the same products and compete against their partners. And then there is cybertheft. The most extensive cyberwarfare waged by a foreign power against the United States is done not by Russia but by China. The targets are American companies, whose secrets and intellectual property are then shared with Chinese competitors.
China is not alone. Countries such as India and Brazil are also trade cheats. In fact, the last series of world trade talks, the Doha Round, was killed by obstructionism from Brazil and India, in tandem with China. Today the greatest threat to the open world economy comes from these large countries that have chosen to maintain mixed economies, refuse to liberalize much more and have enough power to hold firm.
The Trump administration may not have chosen the wisest course forward — focusing on steel, slapping on tariffs, alienating key allies, working outside the WTO — but its frustration is understandable. Previous administrations exerted pressure privately, worked within the system and tried to get allies on board, with limited results. Getting tough on China is a case where I am willing to give Trump’s unconventional methods a try. Nothing else has worked.
TRADE WAR CHICKEN GAME—WHO WILL BLINK FIRST?
The United States and China have now entered a game of chicken, two governments going directly at each other over trade. The question is which government will blink first: China or the United States. I firmly believe that both countries—China and the United States need to stand down and negotiate a deal, but a deal which is enforceable. We do not want this trade war to expand further.
To Chinese friends, I would say do not escalate the rhetoric. Of course, China will retaliate if the $150 billion in tariffs are imposed, but as Trump has stated many times, he is a counterpuncher. Threatening Trump is waving a red flag in front of a bull. With the very real damage to Trump’s agricultural base, he knows how very serious these US China trade negotiations will be.
As mentioned in my blog posts just after the Presidential election in 2016, Trump’s victory was a seismic tipping point. Trump won the election because he promised to be tough on trade. Trade was never a major issue in a US election. Trade and specifically trade with China has now become one of the most important political issues in the US. China is a major reason for this sea change in US politics.
As indicated above, the WSJ articulates the position of the many Americans and the US Congress perfectly. When China entered the WTO, Premier Zhu Ronji was China’s economic genius. He wanted to get China into the WTO not to appease the US, but to help China internally and push it to become a more market oriented country and to lessen the impact of the State-Owned Companies. I heard Premier Zhu make this statement in New York City in the early 2000s.
But now China appears to be moving away from a market oriented country and putting much more emphasis on State-Oriented capitalism. The Chines State uses its economic might to target technologies and increase its economic might so as to achieve a dominant economic position in the World.
The rise in China is to be expected as China achieves the very high historical position it held in the World. But if China wants to use its economic might to achieve political dominance, the World will react to that strategy and counter it.
The perception is that the WTO has done nothing to deal with Chinese mercantilism and the rise of China’s state-oriented capitalism. The WTO is to quote Mao a “paper tiger”.
The American perception of China’s mercantilism and its state-oriented capitalism means that there is little sympathy for China and that does not bode well for the future of US China trade relations.
As Trump has made clear in many political statements, his new trade policy will be reciprocity. The United States will not open its border to Chinese imports if China shuts down its own border to US exports in the same sector. The United States will not let Chinese companies invest in certain sectors of the US economy if China prohibits investment by US companies.
That is where the Trump trade policy is headed. With trade being the main political issue at the present time, I suspect that the Trump trade policy will become the US trade policy not only during the Trump Presidency but the US trade policy for many years in the future.
To my US friends, I would make the point that the Chinese have a different World view. We have the American dream, but China has its own dream. Thus, it would be a big mistake to make a personal attack on the Chinese government and the Chinese people.
On April 5th, in an article entitled “Mexican president to Trump: ‘Nothing and no one stands above the dignity of Mexico”, Politico reported:
President Enrique Peña Nieto of Mexico blasted Donald Trump in a video message on Thursday, vowing that “nothing and no one stands above the dignity of Mexico” and adding that the U.S. president’s main gripes were Congress’ problem, not Mexico’s. . . .
“As Mexicans, we may disagree among ourselves, especially during election periods, but we will always be united when it comes to defending our country’s dignity and sovereignty,” Peña Nieto said.
The same point stands with regards to China. On April 5th I heard a Fox News reporter state we want the US to be the hegemon, the major power in the World. China wants the same thing. They want to be the hegemon, just like the United States, the major power in the World. Does that mean that inevitably there will be a military conflict between the United States and China? Hopefully not.
One reader blasted me because I did not describe China as Communist China. Sorry, I do not want to go back to the period before Richard Nixon and Henry Kissinger opened China to the outside world. I do not want to go to war with China, but “hegemon” talk fuels nationalist/jingoist talk that we the United States are so powerful everyone must bow down to us.
That is what Adolf Hitler believed with regard to Germany and his memorial in Berlin is a parking lot over his old World War 2 bunker as Germany has done everything in its power to educate the average person about the real danger of the Nazi creed and, in effect, to expunge Hitler and Nazism from its history. World War 2 left Germany destroyed and caused the deaths of 20 million people. That is where puffed up nationalism leads.
Recently, in a video called the Value of Travel, Rick Steves, a well-known travel writer and producer on PBS, stated that he spends on average 4 months every year out of the United States. Steves stated that one of the major benefits of his travel experience is that he has learned that although we in the US have the American dream, people in other countries have their own national dreams. See https://www.youtube.com/watch?v=kYXiegTXsEs.
The point is that I view China as a friendly economic competitor and would rather trade with China than go to war with it. President Xi Jinping has pledged to the peaceful rise of China, and I hope that is what China truly believes or millions of lives will be lost in another World War, something to be avoided at all costs.
The bottom line is that Trump’s trade war with China is very risky and it will be a very bumpy ride in the next few months with developments on a day by day basis. But my firm hope is trade agreements that will be win win, not only for the United States, but for our trading partners, including China. We all need good trade deals, which are enforceable.
In my second blog post, I will outline from a technical point of view, the developments in the Section 232 Steel and Aluminum cases, the Section 301 IP Case against China, NAFTA negotiations and new trade cases against China.
If anyone has any questions about the Trump Trade Crisis, including the Section 232 case on Steel, Aluminum or Uranium or US trade policy, Section 301 intellectual property case against China, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.