Too little too late

China said on Wednesday that it would retaliate against a US move to impose a 10% tariff on $200bn worth of Chinese goods, but did not provide details. Chinese Foreign Ministry spokeswoman Hua Chunying described the situation as a “fight between unilateralism and multilateralism, protectionism and free trade, might and rules.”

The US Trade Representative yesterday released a list of proposed Chinese products that could face the new levy. Robert Lighthizer said the action was in response to retaliatory tariffs imposed by China on July 6, when a 25% US tariff on $34bn worth of Chinese imports also went into effect.

Congressman Kevin Brady called for US President Donald Trump and Chinese President Xi Jinping to meet to resolve the tensions. Brady is chairman of the Ways and Means Committee in the US House of Representatives. His counterpart in the Senate, Orrin Hatch, called the latest tariffs a “reckless” move.

The National Retail Federation was among the business groups that also criticised the new tariffs, saying the new levies will cause an increase in prices for consumers.

US levies on another $200bn in Chinese goods are causing Republican lawmakers and companies to sound the alarm. They could have done so sooner – but were drunk on the President’s tax-cut plan. The timing will make it hard to stop what’s already gone too far.

Trump has long signalled that he favoured tariffs to rein in unfair trade practices. During his Presidential campaign in 2016, he threatened levies on China, Mexico and global automakers moving production out of the United States. The new list of Chinese products subject to a 10% tariff brings the total value of Chinese goods facing proposed or imposed tariffs to $250bn.

But Republican lawmakers and American companies have been distracted by legislation to cut the corporate tax rate. Throughout last year, as Trump was commissioning investigations into steel and aluminium imports and intellectual property theft by China, the Republican-controlled Congress and businesses were focused on getting the tax package passed.

The effects of that tax cut, passed in December, might explain why they stayed fairly quiet while Trump kicked off 2018 with tariffs on solar panels and washing machines. In March, the administration imposed tariffs on steel and aluminium imports, and exemptions for US allies were lifted in June. In April, the first tariffs targeting China were announced. In the meantime, talks to renegotiate the North American Free Trade Agreement have floundered.

Republican lawmakers began holding hearings on Trump’s trade policy in the Spring and more recently, Senator Bob Corker has pushed a bill that would require congressional approval for tariffs based on national security concerns. But the plan has not made progress. Businesses have also stepped up. The US Chamber of Commerce, which heavily lobbied for the tax cuts, earlier this month launched a campaign showing US exports threatened in each state because of retaliatory tariffs. Trade organisations representing retail and others have also expressed concerns.

Yet the trade war is in full swing and there is no sign of backing down by any sides. Trump says more tariffs will be imposed if China retaliates further. And with mid-term elections coming in November, Republicans may be too busy presenting a united front to try and undo what’s already gone too far.

Alan McQuaid (11/7/18)
Economist