Trump administration officials think they have the upper hand in the latest round of trade negotiations with China, set to end by March, because Beijing doesn’t have the ability to levy much more in tariffs on imports from the U.S. China, they believe, has already hit the U.S. as hard as it could.
While China could retaliate against the U.S. in other ways, Trump officials seem to place an emphasis on the threat of tariffs. The administration was originally set to increase tariffs on $200 billion worth of Chinese goods to 25 percent at the beginning of 2019, up from their current level of 10 percent. Following a meeting with Chinese leader Xi Jinping at the G20 summit in Argentina, President Trump agreed to hold off on that for 90 days to allow more time for negotiations.
Treasury Secretary Steve Mnuchin said in a television interview a few days later that not only would the U.S. resume raising tariffs if no deal is reached, but that they would do so “without reciprocal tariffs, you know, attacking us.”
Mnuchin did not elaborate, but an administration official said that China was unlikely to respond to further U.S. tariffs with any of its own.
A long-standing complaint of administrations from both parties is that China doesn’t live up to promises made while under threat.
But administration officials have also said that they don’t think China can do much to respond in any event. Beijing’s existing tariffs on $113 billion of U.S. goods already cover almost all of its imports.
“China doesn’t have enough imports from us to make a reciprocal tax,” Commerce Secretary Wilbur Ross said in a CNBC interview in the fall. “We sell them less than $150 billion a year. So in that sense, they are out of bullets.”
When China announced $60 billion in retaliatory tariffs in August, administration officials noted that was far below the $200 billion the White House was pursuing at the time and suggested it was all China could do. “Their economy’s weak, their currency is weak, people are leaving the country,” White House economic adviser Larry Kudlow told Bloomberg. Ross told CNBC “Nobody is going to actually notice it at the end of the day.”
The administration, on the other hand, believes it still has a lot of bullets. In addition to the threat to hike the tariffs on $200 billion worth of goods to 25 percent, Trump has previously threatened further tariffs on another $267 billion worth of Chinese goods. That would be enough to cover all remaining imports from China. The White House has not mentioned that threat since the Dec. 1 summit, but a Trump administration official said it was still a possibility if a deal cannot be reached.
Jeff Weiss, former deputy director for policy and strategic planning at the Commerce Department, said that it’s true that China cannot match the U.S. dollar-for-dollar in the tariff battle, but that that is the wrong way to look at it.
“Whatever is left, if there is anything left, isn’t going to be very much in terms of transparent retaliation,” he told the Washington Examiner. “What I worry about is the non-transparent retaliation.”
Non-transparent retaliation could include things like quashing mergers between U.S. and Chinese companies. Over the summer China’s antitrust regulator blocked San Diego-based Qualcomm, which sells most of its products in China, from acquiring Dutch company NXP Semiconductors. The move was widely seen as a response to Trump’s policies.
Beijing could also adjust how it calculates countervailing or anti-dumping duties or simply ignore the U.S. Trade Representative’s Office when it makes requests on matters like market access issues.
The uncertainty caused by the trade fight is its own problem for the business community, Weiss notes. Ports on the West Coast are full with products shipped to beat the 25 percent tariff that was to go into effect next year. Importers were given a 60-day reprieve by the administration’s delay of the tariff, but cannot take advantage of it because they don’t have space left over.
The problem with trade fights is that they lead countries to come up with new, innovative ways to push back, noted Bryan Riley, trade policy analyst for the National Taxpayer’s Foundation. “The EU started going after U.S. companies like Google with proposed digital taxes — that could have been an indirect response to U.S. tariffs on steel and aluminum,” he said. “So China and other countries have more tools at their disposal than just tariffs.”