President Trump to follow through on promise to implement more trade regulations.
An impending U.S. China trade war seems more likely than ever in the wake of President Donald Trump revealing the planned 25 percent tariff on steel imports and the 10 percent tariff on aluminum imports last week during a meeting with U.S. steel industry executives. According to William Perry, International Trade Attorney, the decision to impose the tariff on steel could trigger a trade war reaching beyond China.
Nonetheless, President Trump holds strong to his goal of protecting the national security and economic interest of the U.S. by way of tariff implementation. Additionally, in response to the trade deficit between these two countries rising 16.7 percent to $36 billion in January, President Trump has requested that China formulate a plan to decrease the U.S. deficit by $1 billion—a goal that would represent less than one percent of the total annual deficit.
The President also recently announced during his annual report to Congress on his trade policy that the U.S would do everything in their power to prevent China from weakening global competition with its economic model.
Caught in The Middle
While China was scarcely broached upon during President Trump’s announcement of the steel and aluminum import tariffs, it was undoubtedly a major cause. However, in attempts to impact China—the world’s largest steel maker—the U.S. is more than likely to damage the economy of trusted allies. South Korea, for example, is a major exporter to the U.S. and relies heavily on China for its imports. Canada is another example of a country that would find itself stuck in the middle of the U.S. China trade war as it imports steel from both China and South Korea and exports steel to the U.S.
The looming U.S. China trade war has other countries preparing for the worst when dealing with U.S. trade and the Trump Administration.
“The EU has stated that they are drawing up retaliation targets, such as imports from the U.S. of Harley Davidson motorcycles and Jack Daniels bourbon,” said Perry.
The impact the U.S. China trade war could have on the allies of the U.S. is a risk the Trump Administration is willing to take considering China’s recent focus on the tech industry. In August 2017, the Trump Administration launched an investigation into Chinese technology transfers, intellectual property rights, and innovation practices under section 301 of the Trade Act of 1974, wrote Sourabh Gupta of South China Morning Post.
National Security and Intellectual Property Concerns
Apart from the promise to bring jobs back, the Trump Administration’s concern over the possibility of Singapore-based Broadcom acquiring the American tech giant Qualcomm merited their launch of a full investigation on it. During a time when technology is so closely linked to economic power and national security, it’s of high priority of the administration to monitor potential mergers such as this.
It’s because of this that the Committee on Foreign Investment in the United States (Cfius) has been assigned to monitor this deal in attempts to resist Chinese investment. Cfius has a history of blocking acquisitions linked to Chinese buyers and has done so in recent years. Lawmakers are now pushing for the powers of Cfius to broaden to reflect China’s developing interests.
“There is now a recognition in government that foreign investors, particularly from China, are getting more and more sophisticated on how they get access to technology in the U.S.” said Anthony Balloon, Partner at Alston & Bird LLP.
While the U.S. government fights to protect intellectual property, the technology companies find themselves stuck in the middle. For those in the tech industry, making an entry to China—the world’s second largest economy—is such a major feat that selling intellectual property to them is a deal worth making. The business ties that Silicon Valley companies have with China are so complex that increasing the power Cfius has to monitor deals would do them more harm than good.
Similarly, the U.S. China trade war would impact multiple industries as well.
Boeing would face the risk of losing its deal to provide China with 7,240 new planes—which would take nearly two decades to complete and is valued at nearly $1.1 trillion. Starbucks—who just opened a 30,000 square foot location in Shanghai—could face the backlash through its Chinese consumers, wrote Bruce Einhorn of Bloomberg. Tesla’s unfinished deal with the Shanghai government to explore local manufacturing in China could face added complications. But likely the most relevant threat that could impact a wide range of consumers in the U.S. is the risk that tech companies are facing. More specifically Apple, a company whose manufacturing is done in China, relies on the Asian country to produce its products.
Moreover, the U.S. China trade war would impact downstream industries in the U.S. as well. For example, President Trump’s tariff on imported solar cells will impact the 100,000 U.S. jobs that depend on said imports. In regards to the steel tariff, while there are 140,000 jobs at risk in the U.S. steel industry, there are millions at risk in downstream jobs.
With the pressure rising from the Republican base, President Trump is following through on his word to implement strict trade regulations on China. The ultimate goal for the administration is to do what benefits the U.S. economy the most. It remains to be seen if the current measures being taken, and a likely this trade war, will produce such results.