Why the World’s Been on Alert for a Trump-China Trade War

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World on Alert for a Trump and China Trade War

Donald Trump invoked China so much as a candidate that his mere pronunciation of the word became something of a craze. As a president, he (largely) toned down the rhetoric and stopped short of carrying out his campaign threat to label China a currency manipulator. Part of that restraint had to do with America’s need for allies to deal with the threat posed by North Korea. But the mood music is changing between the U.S. and China, the world’s two biggest economies.

1. How far has Trump gone?

He announced his intent to impose steep tariffs on steel and aluminum imports, which could provoke retaliation by China, the world’s biggest steel exporter. He’s said to be weighing a broad range of tariffs on imports from China -- from shoes and clothing to consumer electronics -- in retaliation for its alleged theft of intellectual property. (There’s a pending U.S. probe on that matter.) He’s imposing tariffs on washing machines and solar panels that affect, though aren’t solely aimed at, China. Chinese companies -- already finding it harder to gain national-security clearance to buy U.S. businesses -- may face tougher barriers. There’s also a warning by Trump that countries doing business with North Korea (like China) will face sanctions, and Trump’s pledge to use “all available tools” to prevent China’s state-driven economic model from undermining global competition. On Twitter, Trump said a U.S. trade war with China would be "good" and "easy to win."

2. What hasn’t he done?

Trump no longer brings up the prospect of 45 percent tariffs on imports from China, as he did as a candidate. He’s shown a high regard for Chinese President Xi Jinping, whom he’s called a “very good man” and a “friend." As a candidate, Trump pledged to label China a currency manipulator "on day one" of his administration. That didn’t happen, perhaps because China has taken steps in recent years to let the yuan’s value fluctuate against the U.S. dollar; under Trump’s predecessor, Barack Obama, the U.S. stopped calling the currency "significantly undervalued" and lauded China for allowing the yuan to rise against the dollar.

3. What explains Trump’s restraint?

Deep trade links between the two nations mean that bold sanctions against China risk backfiring, hurting U.S. industry and pushing up prices, 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. The U.S. wheat industry, for instance, warned that steel tariffs such as the ones Trump announced could lead to retaliation against U.S. farmers. And China is uniquely positioned to help the U.S. contain the threat posed by North Korea.

4. How does North Korea factor in?

Trump wants China, North Korea’s biggest trading partner, to use its leverage to force Kim Jong Un to abandon his goal to develop the capability to strike the U.S. with a nuclear weapon. Trump regularly admonishes China for not doing enough. In part to placate him, the Beijing government has gone along with tougher United Nations sanctions. On March 6, South Korea officials said North Korea had signaled it was open to talks about denuclearization -- a potentially significant development after a year of escalating tensions.

5. What gives Trump the power to carry out his threats?

U.S. presidents have wide latitude to act on trade matters 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. The 1962 Trade Expansion Act of 1962 allows him to limit imports without a vote by Congress -- if the Department of Commerce finds evidence of a national-security threat from foreign shipments. This is the authority Trump will be exercising on steel and aluminum.

The Reference Shelf

— With assistance by Andrew Mayeda

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