American manufacturers and farmers victimized by China’s mercantilism and retaliatory tariffs had better settle in for a long trade war. Beijing is not likely to cave quickly to President Donald Trump’s demands.
At issue are China’s notorious barriers to competitive foreign products – high tariffs and a maze of administrative obstacles and industrial policies that promote indigenous technology-intensive activities through subsidies, requirements that foreign companies form joint ventures and transfer technology to access its markets and rampant theft of foreign intellectual property through state-assisted industrial espionage and counterfeit goods.
Frustrated that negotiations – such as the Mar-a-Lago process – failed to yield meaningful offers from China, Trump levied 25% tariffs on $50 billion of imports from China this summer. In September, he added 10% on another $200 billion and in January, those are expected to escalate to 25%.
China responded by cancelling high-level bilateral talks and appears to be content to ride out Trump. Beijing sees him struggling with Democratic obstructionism in Congress and is likely banking on a big setback for Republicans in the midterms and Trump’s eventual defeat in 2020.
It sees Mexico and South Korea accomplishing deals with Trump that will hardly move the needle on their trade balances with the United States, Canadians and Europeans resisting his pressure and American economists predicting grave harm to the U.S. economy from Trump’s aggressive policies.
Since June 1, the yuan is down more than 7% -potentially obviating most of the effects of the 10% tariff on $200 billion. China’s provincial governments and state banks can ladle on subsidies and no-payback loans to keep businesses afloat and exporting. And Beijing can undertake selective liberalization to attract foreign investors.
At stake is not merely the $350-billion bilateral trade imbalance but who achieves global leadership in fields like artificial intelligence, robotics, super-computing and human brain-computer interface.
