If U.S. President Donald Trump followed through with promises he’s made about retaliating against China’s trade policies it would wreck the American economy, experts said as Trump met with China’s President Xi Jinping.
In January Trump threatened a whopping 45 percent tax on Chinese imports. Then, on March 30, the president tweeted that “the meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits and job losses,” suggesting he would do something about it.
While the president would have to go through Congress to raise tariffs on Chinese goods, he has the authority to trigger “emergency” tariffs of up to 15 percent for 150 days. Right now there is a $300 billion trade deficit between the two countries and Trump has said he will go to great lengths to close it.
However “causing a trade war with China would actually backfire and have serious consequences for the U.S. economy,” according to Marianne Petsinger, a geoeconomics fellow at think tank Chatham House, who studies trade and economic cooperation.
“If the Americans do impose tariffs, then there's certain measures the Chinese could take to countervail that,” Petsinger says. “They could, for example, cancel orders of airplanes, or stop imports of American soya beans, and that would have implications for the economy.” China is America’s biggest trading partner with $497.8 billion worth of goods coming in and $161.6 billion worth of goods going out each year.
President Xi is under pressure to walk a fine line, Petsinger pointed out to, impress his Communist Party colleagues at a general government meeting coming up this fall.
“On the one hand, he needs to show that he can stand up to Donald Trump,” she said, “[and] not give into any of the demands.” At the same time he needs to show that he can build a strong relationship with the U.S. president and show they can work together.
"We have a thousand reasons to get China-U.S. relations right, and not one reason to spoil the China-U.S. relationship," Xi told Trump when they met, according to China's Foreign Ministry website.
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Trump is likely to ditch his rhetoric and negotiate, said Michael Plouffe, an expert in foreign economic policy at University College London. “I think it's in the best interest of both parties to have this come off as looking…to reduce the distance between the two sides. That would be seen as a win.” The tough talk, he added, is “a nice sound bite to gain support for a particular bargaining position.”
With the setback of Trump’s healthcare reforms, and investigations into Russian influence on the 2016 election, “there's a fairly strong incentive to push for small incremental gains” in the Trump administration, Plouffe said.
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The American president’s rhetoric wouldn’t “make for good economic policy” Plouffe added. An informal agreement between the two leaders to make things easier for American producers competing with Chinese imports is more likely, he said.
If the U.S. actually brought in a high import tax China would challenge it at the World Trade Organization, which regulates international trade, Plouffe explained. “When everything comes down to it,” he said, “the Chinese economy depends on the U.S. export market, and the U.S. depends on Chinese imports tremendously. It's the sort of thing where it's not to anyone's benefit.”
But the Chinese market is closed, and Trump will need to push Xi if he wants to open it up. Right now the U.S. taxes Chinese goods sold in the United States at 2.5 percent for agricultural and 2.9 percent on non-agricultural products. The Chinese, on the other hand, tax U.S. goods at 9.7 percent and 5 percent respectively.
“The Chinese market is very much closed,” says Petsinger. By getting some concessions on, say, U.S. cars and trucks or agricultural products, she says,“Trump would be able to to show domestically he's gotten some wins.”
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