Economic Déjà Vu in White House's Trade Dispute With China
"We are pretty much back to where we were in the first Trump administration," says Lowy Institute's John Edwards
What is next in the US trade conflict with the rest of the world? At 25%, US tariffs on most auto imports will see US car prices rising unless those tariffs, too, are paused. Otherwise, with the suspension of “reciprocal” tariff increases on other countries, the dispute has essentially mutated to one between China and the United States.
In good times, a million containers from China land every month in US ports, each packed with furniture, toys, home and garden appliances, computers, phones, games consoles, batteries and memory chips. Unless and until there are more tariff exemptions, much of that trade will soon stop. Though Trump and his officials say they are looking at later, separate tariffs on technology imports, for now smart phones, computers and similar products will be tariffed at 20%. Imports of those goods from China will continue. Most of the remaining three quarters of China goods exports will face US tariffs over 100%, a level designed to extinguish trade.
The price of the average American household shopping basket will rise as cheap Chinese goods disappear from Walmart, Home Depot, Costco, and thousands of other US stores, and from online platforms. But the overall economic impact is likely to be quite limited. Prohibitive tariffs will apply to around $300 billion in Chinese exports to the United States, or less than 2% of China’s GDP. That is significant for China but if something like half of these exports find destinations elsewhere, the direct impact on China will be less than 1% of GDP.
On the same assumption, world goods trade will be down around half of one percent. That is about one quarter of the growth of world goods trade last year. US-China trade will be down, at some inconvenience and disruption to both economies, but the rest of the world won’t notice. Unless he finds an excuse to pause the penalty tariffs on China, it is Trump who will feel the most pressure as the mid-term congressional elections draw closer.
The script for the US China trade dispute is already written. With the change of the dispute to one predominantly between the US and China, we are pretty much back to where we were in the first Trump administration. In January 2018, the White House initiated a trade conflict with China by placing high tariffs (though less than today) on an increasing range of China imports. Then, too, smart phones and computers were exempted.
Following the same playbook, there will now be a couple of months of harsh rhetorical exchanges between the two economic giants while each probes the other for the outlines of their forthcoming negotiation. The US complaints are indicated in the recent US Trade Representative’s 2025 National Trade Estimate Report on Foreign Trade Barriers. The US goals are likely to include commitments to buy more American goods such as gas, oil and soybeans, to facilitate the entry of more US financial firms to China’s domestic financial market, and so forth. These would be incremental changes, if conceded. Most were part of the last negotiation.
China’s main aim will be to get the penalty tariffs down. Like last time, there will not actually be much focus on tariffs other than the penalty tariffs on each other. In a year or so – he would hope well before November next year – Trump will declare a great victory with a new US-China trade agreement. He will brush aside the observation that after the 2020 agreement, and once the global Covid epidemic was over, China exports to the US reached a new record.
The uncomfortable truth for the United States is that a conflict over cheap consumer goods from China is no longer pertinent to the changing nature of the economic competition between the two. The US has effectively banned the import of electric vehicles from Chinese manufacturers. That is unlikely to be up for discussion. It has banned the export to China (from anywhere) of advanced chips and advanced chip making machinery. That won’t be on the table, either. Nor will the huge increase in industrial subsidies under the Biden administration, though the United States will continue to grumble about China industrial subsidies.
This new competition is not about toys or furniture or even game consoles, laptops and smartphones. It is essentially about the deployment of new technologies in industrial production, and will likely be beyond the reach of the forthcoming negotiation.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.