Trade War Ramps Back Up
After a five-month hiatus, Trump increases tariffs on Chinese goods to 25%.
For the last 18 months, the entire world has been watching the U.S.-Chinese geopolitical soap opera. There’s been a lot of whiplash as the trade war rapidly ratcheted up, then a truce was signed over an Argentine dinner, and now with less than a week’s notice, a new wave of tariffs was being imposed, ending the truce. This abrupt action happened as negotiations were supposedly edging toward a conclusion after months of trade teams crisscrossing the globe for alternating weekly meetings in Beijing and Washington. It’s hard to guess what will happen next. Sometimes it’s difficult to make sense of what’s already happened.
Looking back, it’s hard to say for sure what motivated the United States to impose tariffs on $260 billion of Chinese imports, an action that would provoke China. In return, China imposed counter-tariffs on nearly $110 billion of U.S. products headed for China. These new taxes have had a major impact on Americans and Chinese alike. The tariffs were a strong action to take against China, especially when debatably less severe actions had not yet been exhausted.
Looking for the catalyst behind the tariffs does not shed a lot of light on the situation. Was Trump’s motivation purely economic? Did he want better market access, stronger intellectual property production and a stronger footing in Asia for American companies? Most experts argue that the Trans-Pacific Partnership (TPP) agreement was a better tool for achieving this goal.
Was the impetus political? Was TPP out because it was too closely associated with President Obama and Secretary of State Clinton? Bilateral talks were started under President Bush and expanded under Obama. But they never worked. Did Trump decide to take a different approach? Or maybe it was the perceived threat to the United States’ hegemony posed by China’s increasing economic, military, and technological power. In this case, tariffs are meant to weaken China. Understanding the motivations would help map out possible conclusions.
Outside of motivation, time is another critical factor in these negotiations. Trump wants this situation settled as quickly as possible. But again it’s unclear why speed is so important. Traditionally, agreements between aligned countries can take years to work out, not months like Trump was hoping for.
Maybe Trump wanted a quick win. If that is the case, he underestimated China’s long game. With 5,000 years of history, China rarely thinks in terms of years like many other countries. China thinks in terms of decades or even centuries. Maybe the impact of the trade war’s taxes and indirect costs are larger than Trump expected. Looking back, the trade war ramped up during a period of stronger economic data, but the trade truce was signed when the stock market was falling.
As you can tell, this is a complex topic with many moving pieces. Public opinion, economic data, military drills, and major domestic corporations (like Boeing and Huawei) all factor into the direction the talks are taking each day. These other topics influence how much each side is willing to give and for that matter, what concession each side is willing to make. With the natural ebb and flow of normal negotiations, it’s difficult to come to an agreement on the details. Then cultural differences and domestic opposition to agreements must be factored in.
For all of these reasons, trade agreements are difficult to write. They are not high-level documents that lay out the framework for an agreement between two countries, rather they are the details. Their text becomes the lines and lines of legal jargon that defines trade between the two countries. Which, hopefully, explains why it’s crazy to think that the United States and China could reach an agreement in a few months. But maybe Trumps’ non-traditional methods can achieve real progress where previous leaders failed. Maybe his version of diplomacy will be effective and creating quick and rapid changes in the U.S.-China relationship. But with the trade truce ending, and no discussion of tariff removal, it seems the current tariff environment could be a new normal.
Originally published at https://gns.pub