US tariffs UU In China they are not a short-term strategy
US tariffs UU In China they are not a short-term strategy
WASHINGTON. While the White House is advancing trade agreements with allies such as Canada, Mexico, Korea and Europe, its dispute with China seems increasingly difficult to handle, and tariffs between the two largest economies in the world are likely to consolidate in place during years.
In other commercial fights, President Trump used the tariffs like lever to reach agreements. Threats to car rates helped convince Canada and Mexico to grant the United States the demands of a new North American Free Trade Agreement, the president said. "Without tariffs, we would not be talking about an agreement," he said on October 1 at the Rose Garden.
China is different. Rates are not simply a negotiating tactic for the United States, but a way to change economic incentives.
Trump's commercial team believes that US companies need protection against a Chinese predator state, which Mr. Trump says forces American companies to cede technology and subsidizes Chinese companies to expand globally.
Using tariffs to make it more expensive for companies to export from China, Trump's commercial warriors estimate that foreign firms will take their knowledge of the country.
This is not a short-term strategy.
Tariff bill
Consumer goods are more affected when the United States imposes tariffs on more Chinese imports.
Proportion of tariffs on Chinese imports
Total imports
($ billions)
"We have changed the paradigm," said United States Trade Representative Robert Lighthizer last month. "We have current rates, and the president is not going to let this happen when he has forced the transfer of intellectual property."
So far, the US UU They have imposed tariffs on about half of the $ 505 billion that the nation imported from China in 2017. Mr. Trump has threatened to hit the other half with taxes.
During the first half of this year, Treasury Secretary Steven Mnuchin and his allies tried to make deals with the Chinese, which mainly focused on China buying more products from the United States. By doing so, he argued this field, he could address Mr. Trump's complaints about the trade deficit of $ 375 billion with China. The president rejected the Chinese offers, undermining Mr. Mnuchin with the Chinese and strengthening Mr. Lighthizer's hard-line position in the White House commercial fights.
Now, the United States team is more unified, but only because it is pushing for the kinds of changes Mr. Lighthizer is looking for.
They include reducing the role of state-owned companies in China's economy, allowing US companies to gain majority ownership in companies in China and lessening the pressure on US technology companies to reveal their secrets. These are the types of changes that China finds most difficult to accept.
China is a "socialist market economy," said Zhang Xiangchen, China's representative to the World Trade Organization, in July. "For those who speculated that China would change and move on a different path ... that was their illusion."
President Trump plans to meet with Chinese leader Xi Jinping at the summit of the Group of 20 leaders in Buenos Aires at the end of November. A failure there, says Myron Brilliant, the executive vice president of the United States Chamber of Commerce, means that the United States will move forward with plans to increase rates in a $ 200 billion tranche of Chinese products from 10% to 25%. %. It could also make Trump comply with his threat of tariffs on another $ 250 billion in imports from China, if he has not imposed them in advance.
Some Wall Street analysts have argued that the trade struggle will not have much economic impact. Jesse Edgerton, a
Analyst, compare the rates with a tax. A tariff of 25% on $ 500 billion of Chinese products produces $ 125 billion in costs. Some of these costs will be absorbed by Chinese exporters, while others will be borne by US importers. UU And consumers in the US UU
In a US $ 20 billion economy, JPMorgan believes it should be manageable. It predicts that tariffs would reduce the growth of US production by only 0.1 percentage points in 2019 and 0.3 percentage points in China. The Chinese, according to JPM, will respond by stimulating their domestic economy and lowering their currency.
Others argue that the impact could be deeper. Seth Carpenter, an analyst at UBS, says that tariffs hit US manufactures heavily, especially the newer companies that depend on China for the components and as an export destination. A prolonged trade war could lead the United States into recession, he said.
A longer trade war would also force foreign companies to reconsider their global supply agreements, which would be eaten with profits.
International business machines
Corp.
He warned China's deputy trade minister in August that IBM might have to withdraw production from China if the trade dispute was not resolved in the next few months, participants at the meeting in Washington say. Other companies are thinking of redoing their operations in China, so the work they do in China is exported to other countries that are not the United States, which again increases costs.
Tao Wang, an analyst at UBS China, says that for China, the possible loss of investment is the "most serious impact of the trade war." This is also the kind of impact that the White House aims for. Trump administration officials have taken the 16% decline in the Shanghai Stock Exchange since the beginning of the year as a sign that they are winning.
Rates have a kind of inertia, says Derek Scissors, an expert with the American Enterprise Institute in China. Once they are launched, companies and countries finally adjust to them by changing investment and policies. Eliminate rates re-activate the trading system. Even if Mr. Trump lost the 2020 election, according to him, the rates could remain in place.
"Both parties are anti-China, and that's how protectionism works," he said.
Write to Bob Davis in bob.davis@wsj.com
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