Here Are the Top China-U.S. Trade Flashpoints as Trump Readies Case

  • Wilbur Ross says more work needed before making announcement
  • History shows that China is likely to retaliate in trade spats

Steel, Aluminum Potential U.S.-China Trade Flashpoint

With his commerce secretary sworn in, U.S. President Donald Trump is now in a position to carry out his trade threats against China -- should he decide to do so.

Specific measures against China will be announced “as soon as we have a proper case prepared,” Commerce Secretary Wilbur Ross said in a Bloomberg Television interview last week. The billionaire investor spoke just before Trump’s speech to Congress, which included promises to bring back "millions of jobs" and that "dying industries will come roaring back to life."

Since the election, Trump hasn’t specified his trade plans, but the U.S. Trade Representative has said the U.S. won’t be bound by World Trade Organization decisions, according to a document obtained by Bloomberg News. The U.S. is seeking more “reciprocal” trade with countries such as China and Germany in a bid to boost growth, reduce the trade deficit and keep production capacity out of foreign hands, White House trade adviser Peter Navarro said Monday.

For its part, China said it will "ensure foreign trade continues to pick up and register steady growth," in a government work report Premier Li Keqiang delivered to the National People’s Congress on Sunday.

For a QuickTake explainer on how a Trump-China trade war could play out, click here

Here are five potential flashpoints should Trump’s team deliver on past threats to take on Chinese exports:

Steel and Aluminum

China produces about half the world’s steel and its exports have hit record levels in recent years. Ross, who amassed some of his wealth by buying and consolidating steel companies, said during confirmation testimony in January that the U.S. must focus on anti-dumping tariffs on Chinese steel and aluminum.

Chinese steel and aluminum represent a relatively small percentage of its shipments to the U.S. But Chinese exports have helped drive a global steel supply glut, fueling trade tensions and prompting dozens of its trading partners, including the U.S., to impose duties and other taxes on steel imports last year.

China will further reduce steel-production capacity by around 50 million metric tons this year, according to the work report delivered on Sunday.

Auto Parts

The U.S. has accused China of dumping cheap auto parts, and a trade spat over Chinese tires dates to 2009, when the Obama administration slapped a tariffs on them. But the U.S. International Trade Commission announced in February that U.S. competitors had not been hurt by imports of bus and truck tires from Chinese producers, which escaped anti-dumping duties of up to 23 percent.

The U.S. imported an estimated $1.07 billion of truck and bus tires from China in 2015, according to the commerce department.

Textiles and Apparel

No U.S. manufacturers have been hurt more by cheap imports in recent decades than producers of textiles, apparel and leather products, according to a Deutsche Bank report released in November. U.S. output met only just more than a third of domestic demand for these products in 2015, down from about two thirds in 1997, the bank said.

Growing dependence on imports could mean that shipments from China face restrictions rather than higher tariffs that would raise prices for U.S. consumers. If the U.S. restricted Chinese textile and apparel imports, other low-cost producers such as Vietnam and India could step in, Deutsche Bank said.

Furniture and toys

These two labor-intensive industries have also suffered significant job losses in the U.S., and Chinese producers make likely targets for import restrictions, according to a report last month from Goldman Sachs Group Inc.

About one-third of China’s exports of these products land in the U.S., Mizuho Securities Asia Ltd. said in February. But as with textiles, hitting China here likely won’t help the U.S. reduce its broader trade deficit, as other nations rich in cheap labor would step in to make up for lost Chinese supply.

Electronics, Electrical Equipment

Electronics, computers and electrical equipment account for a big chunk of the U.S. trade deficit with China. But electronic goods are often made in China for non-Chinese companies such as Apple Inc., and are merely the final products at the end of complex supply chains in which the U.S. is an important player, Oxford Economics Ltd. said in a February report.

In fact, China’s biggest imports from the U.S. are electrical machinery and equipment. So it could be a “lose-lose” if the White House decided to pursue aggressive action in this area.

Hitting Back

History shows that China is likely to retaliate in trade spats. It may choose to strike back at U.S. “soft spots” such as agricultural products, aircraft and cars, said Tu Xinquan, dean at the China Institute for WTO studies at the University of International Business and Economics in Beijing.

Read More: China Hits Back Fast on Perceived U.S. Trade Slights, Past Shows

Beijing also may restrict U.S. companies operating in China and continue selling its holdings of U.S. Treasuries. But those steps would be costly for China as well, so would only be taken should Trump launch a full-on trade war, Shuang Ding, chief China economist at Standard Chartered Plc in Hong Kong, wrote in a recent note.

— With assistance by Miao Han

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