US President Donald Trump went ahead with his trade war despite China’s advice to abandon the move. However, Donald Trump turned a deaf ear to the Chinese government and imposed tariffs of $60 billion on Chinese imports to serve as punishment for what US President considers to be “unfair” appropriation of American intellectual property. A move that will surely add more tension on an already ‘not-very-friendly’ trade relations between the two biggest economies of the world.
The Cause of Conflict
Trump advised the US trade representative to set up the tariffs to almost $60 billion worth of Chinese imports after a probe of seven months into the intellectual property theft, which has been a sensitive issue in the US-China trade relations.
“We have a tremendous intellectual property theft problem. It’s going to make us a much stronger, much richer nation,” Trump said
Donald Trump took action only a day after US Trade Representative (USTR) delivered its report about its Special 301 investigation against China.
The USTR report determined that China makes use of foreign ownership restrictions, such as joint venture requirements, equity limitations and additional investment restrictions to acquire know-how of American technologies and transfer them to Chinese companies for production use.
“This requires taking effective action to confront China over its state-led efforts to force, strong-arm, and even steal US technology and intellectual property,” said US Trade Representative Robert Lighthizer.
He added, “Years of talking about these problems with China has not worked. The US is committed to using all available tools to respond to China’s unfair, market-distorting behavior. China’s unprecedented and unfair trade practices are a serious challenge not just to the United States, but to our allies and partners around the world.”
“According to some estimates, it is USD 375 billion. But any way you look at it, it is the largest deficit of any country in the history of our world. It’s out of control,” he said.
Trump also added that it was unfair for US companies to pay 25% of tax for selling cars in China while the latter only spends 2% on tax for selling their cars in the US.
“That’s how China rebuilt itself. The tremendous money that we’ve paid since the founding of the World Trade Organization, which has actually been a disaster for us. Its been very unfair to us. The arbitrations are very unfair. The judging has been very unfair. And knowingly, we always have a minority, and its not fair,” US President Donald Trump said.
What Experts think
Despite sounding very confident, Trump is still unable to convince business groups and Republican lawmakers who fear retaliation from the Chinese government and are worried that the imposed tariffs could undermine all their efforts of Trump’s first year in administration.
“The vast majority of our members are very concerned that these trade actions will at a minimum undermine the strong business confidence that has been created by the tax and regulatory process,” said Josh Bolten, president, and CEO of the Business Roundtable. “And if it’s taken to an extreme, it will reverse that progress.”
A group consisting of dozens of industries sent a letter to Trump counseling him “the imposition of sweeping tariffs would trigger a chain reaction of negative consequences for the U.S. economy, provoking retaliation, stifling U.S. agriculture, goods, and services exports, and raising costs for businesses and consumers.”
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Mixed Reactions
Indeed, Trump’s move met mixed reactions in the American community as numerous labor unions and Democrats justified their President stating that his imposed tariffs are an instant blow to China which benefitted of years of lax response from America.
“Chinese cheating has cost American jobs and I applaud the administration for standing firm in its commitment to crack down on China’s continued violations,” said Sen. Sherrod Brown of Ohio.
Trump’s actions marked the end of the secret tactics deployed by China to appropriate U.S technology, by – according to the investigation carried out – posting hackers to steal commercial secrets and forcing U.S. companies to submit trade secrets in return for the Chinese government to grant access in their market. Consequently, business groups, for the most part, agree that actions must be taken to counter China’s unfair practices, but they are still worried about China’s counter-attack. Among the options available to China, the superpower could target U.S. exports of aircraft, soybeans and other products and begin a revengeful trade war, which would see escalating sanctions between the two countries.
“China has been trying to cool things down for weeks. They have offered concessions,” said Mary Lovely, a Syracuse University economist and senior fellow at the Peterson Institute for International Economics. “I fear they will take a hard line now that their efforts have been rebuffed. … China cannot appear subservient to the U.S.”
What about China’s response?
China announced that it would not be moved by the prospect of a trade war with the US and announced reciprocal actions such as imposing tariffs on $3 billion of imports from the US.
The Chinese Government also proposed tariffs on imports of US pork, recycled aluminum, steel pipes, fruit, and wine according to a statement from the Commerce Ministry issued this morning.
China also stated that it intends to take legal actions against the US at the World Trade Organization concerning the tariffs on steel and aluminum imports planned by the USA. China, however, called to open discussion to resolve the conflict.
“The US declared a trade war, but China is acting quite restrained. The list that China has announced appears to be a retaliation, but still, it is very measured,” said Li Yong, senior fellow of China Association of International Trade. “The move sends a message that China is able to fight back, but we still want a trade peace instead of a trade war.”
While the initial response might not be as fearful as most expected, many believe the issue could escalate very quickly in the coming days/weeks