Whatever Became of That Trump-China Trade War?

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Trump Aims to Cut Trade Deficit With China

Donald Trump invoked China so much as a candidate that his mere pronunciation of the word became something of a craze. Since becoming U.S. president, he’s (largely) toned down the rhetoric and stopped short of carrying out campaign threats, including one to label China a currency manipulator. That’s eased some of the concern that the world’s two biggest economies are headed for an outright trade war. But a pending U.S. complaint against China for stealing intellectual property -- and a warning by Trump that countries doing business with North Korea will face sanctions -- highlight how tensions remain close to the surface. Ahead of Trump’s arrival in China on a state visit, he said the U.S. can take “very, very strong action” and “very soon” against China on trade.

1. Why the change in tone since the campaign trail?

There’s the hard reality that taking on China over trade is more difficult than it looks. There’s Trump’s high regard for Chinese President Xi Jinping. And there’s the threat posed by North Korea’s growing nuclear might, which has dominated U.S.-China interaction since the election, overshadowing trade.

2. What exactly did Trump threaten?

As a candidate, Trump pledged to label China a currency manipulator "on day one" of his administration. That didn’t happen. He also said he’d bring cases against China for "unfair subsidy behavior" and use "every lawful presidential power to remedy trade disputes," including the application of tariffs. He once broached a tax of 45 percent on imports from China, then denied bringing it up. He hasn’t come close to any of this, and the two countries reached deals on market access in May and on air safety in October.

3. What has Trump done instead?

He has repeatedly criticized China’s trade surplus. He’s authorized an investigation into intellectual property theft. The U.S. is weighing whether to impose penalties on Chinese aluminum foil imports. And Chinese companies are finding it harder to gain national-security clearance to buy U.S. businesses. At the same time, this week’s trip is expected to result in multibillion-dollar Chinese investments in the U.S.

4. What explains Trump’s restraint?

Deep trade links between the two nations mean that bold sanctions against China risk backfiring, hurting U.S. industry, while targeted ones may end up yielding little. The two economies are so closely tied that it’s difficult for the U.S. to find a specific industry to target without triggering repercussions from China. When Trump considered using a Cold war-era national-security law to protect domestic steel producers from cheap imports, the U.S. wheat industry warned that such a move may lead other countries to use similar claims to hurt American farmers.

5. Does Trump lack the power to carry out his threats?

Hardly. U.S. presidents have wide latitude on trade without congressional approval. The 1974 Trade Act empowers the president to impose tariffs and other sanctions "on foreign countries that either violate trade agreements or engage in other unfair trade practices." Another section of the law authorizes the president to deal with "large and serious" balance-of-payments deficits by imposing import surcharges of up to 15 percent for up to 150 days. President Barack Obama in 2009 used his authority under the Trade Act to slap a tariff on imports of Chinese tires. Trump could also have his top trade official launch a complaint against China at the World Trade Organization, though in past cases that process has taken years.

6. How has North Korea affected trade tensions?

The risk of war on the Korean Peninsula has helped keep a trade war at bay. Trump wants China, North Korea’s biggest trading partner, to use its leverage to force Kim Jong Un to abandon his goal of striking the U.S. with a nuclear weapon. In part to placate Trump, who regularly admonishes China for not doing enough, the Beijing government has gone along with tougher United Nations sanctions while also banning coal imports for five months.

7. How is the Trump-Xi relationship faring?

Trump’s regard for his Chinese counterpart appeared to be blossoming ahead of their third face-to-face meeting. He’s described Xi as a “very good man” and a “friend”, saying they share an “excellent” relationship. According to one of his closest advisers, Trump respects the Chinese president more than any other foreign leader.

8. Is China manipulating its currency?

China’s competitors, including the U.S., have long complained that an intentionally undervalued yuan gives Chinese exporters an unfair advantage. But the past decade has seen China take steps to let the yuan’s value fluctuate against the U.S. dollar. It became one of the International Monetary Fund’s five designated reserve currencies last year -- a reflection that China was starting to play the "economic game by the rules," as IMF Managing Director Christine Lagarde put it. The U.S. stopped calling the currency "significantly undervalued" and lauded China for allowing the yuan to rise against the dollar.

9. Is there no longer a chance of a U.S.-China trade war?

With tensions never far from the surface, it can’t be ruled out. A senior Chinese trade official warned in October that any decision by the U.S. to impose unilateral penalties on China over intellectual property “may trigger a trade war.” China might also react to any moves by the U.S. to enforce its sanctions on North Korea, which go further than the UN measures. A Trump executive order in September gave the Treasury Department the authority to block from the U.S. financial system all banks and companies that do business with North Korea.

The Reference Shelf

— With assistance by Andrew Mayeda

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