Report

As If Things Aren’t Bad Enough, Trump Mulls Fresh Trade War With China

U.S. considers restoring tariffs as Trump makes reprisals against Beijing the center of his 2020 reelection bid.

U.S. President Donald Trump
U.S. President Donald Trump holds a virtual town hall during the coronavirus crisis on May 3. Oliver Contreras/Getty Images

U.S. officials including President Donald Trump are increasingly banging the drums of a renewed trade war with China, spooking global markets that are already reeling from the unprecedented economic fallout of the coronavirus pandemic.

Stock markets across Europe opened lower Monday—and were joined hours later when New York opened—on fears that the Trump administration’s effort to shift blame for the coronavirus outbreak will bring with it a renewal of the destructive trade policies between the world’s two biggest economies. That trade war, including tit-for-tat tariffs and trade restrictions, acted as a drag on global growth in 2018 and 2019, before seemingly being put to rest earlier this year with the signing of the so-called phase one trade deal.

Last week, administration officials had already floated the idea of restarting tariffs on China to hold the country “accountable” for its role as the original epicenter of the new coronavirus outbreak. On Sunday, Trump said in an interview that he was considering restoring tariffs, which he called the “ultimate punishment,” and threatened to walk away from the mini trade deal that put the trade war briefly to rest. Also on Sunday, Secretary of State Mike Pompeo continued to ratchet up the administration’s rhetoric against China, saying that China “has a history of infecting the world,” raising fears that the virus-driven confrontation between the two powers will force some sort of U.S. action that could spill back into trade relations.

Derek Scissors, a China expert at the American Enterprise Institute, said that so far Trump has been anxious to preserve his phase-one trade deal with China, even though the economic benefits pale in comparison to the carnage wrought by the pandemic. But as he ramps up his reelection campaign, Trump “will have to turn on China, he will have to politically, but we will get crap” policies, Scissors said.

Administration officials have explored a raft of different measures, from defaulting on some U.S. debt owed to China to making China liable for lawsuits to legislation that would force suppliers of certain critical goods to move their operations out of China. But so far, as the White House focuses on blaming China for poleaxing global health and the economy, the administration hasn’t come up with any real way to get back at Beijing.

“We don’t have a policy formulation that will lead to anything useful,” Scissors said. “We have hawks running around with plans, but no one has educated Trump on anything other than tariffs.”

If Trump’s initial trade war with China was a case of politics outweighing economics—the tariffs and Chinese retaliatory measures inflicted harm on both economies but scratched a political itch—that’s doubly true for any prospective resumption of the trade war. While just a few weeks ago, Trump was praising his “friend” Xi Jinping for how the Chinese president handled the coronavirus, U.S. frustration with China’s role in the initial outbreak and its early handling of the crisis has snowballed.

“I can understand why the president might be tempted to get back to the tariff war as a high-profile way to point the finger at China,” said George Magnus, an expert on the Chinese economy at Oxford University’s China Centre. “But it doesn’t necessarily follow to me that tariffs are the right way or the best way to secure the objective.”

A renewed trade war is back in the cards precisely because the politics of seeming to cozy up to China in the midst of the damaging pandemic are so toxic. Over the past decade, sentiment against China’s trade policies steadily grew in many quarters in the United States, where China was blamed for hollowing out U.S. manufacturing and competing unfairly. But COVID-19 has taken that anger at China to a fever pitch, especially during an election year.

“I think people don’t realize the politics of this—China is linked to COVID, and COVID is more important than any foreign-policy issue since the Vietnam War,” Scissors said. China “has never been anything like this important because now it is tied up with bread-and-butter issues like your life.”

That’s why he expects Trump’s lingering attachment to the $200 billion phase-one deal, in which China pledged to buy more U.S. goods and make modest economic reforms, to fall by the wayside sooner or later, as Trump himself hinted on Sunday night. The problem is that, other than tariffs, the administration has yet to identify a response that will effectively get back at China at a reasonable cost to the United States.

“Trump will cave, but the questions are when, and do they have a plan in mind, and I don’t see any evidence of that,” Scissors said.

Going back to tariffs would undoubtedly cause pain for China, which is struggling with a plunge in global demand for many of its products, as well as a sharp slowdown in domestic consumption. Chinese political leaders this spring paid special attention to the need to stabilize international trade and maintain current supply chains, Magnus said, showing that they are aware of their trade vulnerabilities.

But despite Trump’s well-known affinity for using tariffs as a catch-all weapon against other countries, there are three big problems with putting them at the center of any U.S. coronavirus response to China, experts say.

First, U.S. imports from China have already fallen steeply; raising the rates on existing tariffs or following through on proposed tariffs suspended after the phase-one deal would do little more to change the bilateral trade relations between the two countries. Second, the tariffs were meant to force China to make certain concrete concessions—buying a lot more U.S. goods, cracking down on industrial theft, and the like. Purely punitive tariffs to punish China for its role in the virus outbreak would serve no broader purpose.

And, finally, the first wave of tariffs in 2018 and 2019 came at a time of robust U.S. economic growth, when higher costs for businesses and consumers were bearable. Today, with GDP shrinking at unprecedented rates and tens of millions of people suddenly thrown out of work, raising the costs for U.S. businesses and consumers would be doubly self-destructive. China’s uneven experience with trying to resume economic activity after months of forced shutdown offers a glimpse of how prolonged and painful the U.S. economic rebound will be, even after lockdowns are lifted, Magnus said.

“The hangover from this will be quite extensive, so I don’t see what the mileage is by compounding that problem by putting new tariffs on the economy,” he said.

Keith Johnson is a senior staff writer at Foreign Policy. Twitter: @KFJ_FP

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