Who Gains From Trump's Tariffs? China

This isn't the start of a trade war, it's friendly fire.

China's already been slashing steel capacity.

Source: AFP/Getty Images

If Donald Trump was aiming at China with his lofty proposed tariffs on imported steel and aluminum, he’s a terrible marksman. Not only will Chinese leaders likely brush off the measures. They have good reason to embrace them.

Trump Says 'Trade Wars Are Good, and Easy to Win'

China is unquestionably the big, bad wolf of the global steel industry. With roughly ten times the steelmaking capacity of the U.S., it’s been widely accused of dumping cheap steel on global markets, pushing competitors in other countries to the wall. The Trump administration has previously prodded Chinese leaders to impose steep cuts on steel production to take pressure off U.S. mills -- to no avail.

The U.S. president clearly believes tariffs are the inevitable next step. Yet, any pain China feels from Trump’s import restrictions will be minimal. A measly 3 percent of total U.S. imports of steel products, by value, came from China in 2017. As Bloomberg economist Tom Orlik points out, China’s total exports of steel and aluminum to all countries account for barely 0.5 percent of its GDP, and the share going to the U.S. is relatively small. Even losing access to the American market entirely would thus have a negligible impact on growth.

China has already been slashing overcapacity in its steel sector -- shutting down about 50 million tons in 2017 -- for its own purposes, both environmental and economic. While that trend will likely continue, the Trump tariffs aren’t going to affect the decision one way or another. (By way of comparison, the U.S. imported less than a million tons of steel from China last year.)

The tariffs will hurt some countries, though -- most prominently, America’s closest allies in Asia. South Korea accounted for almost 10 percent of all U.S. steel imports last year and Japan for nearly 6 percent. Even Taiwan, with a 4 percent share of those imports, could suffer more than China.

The same is true globally. Canada is the biggest supplier of steel to the U.S. The European Union worries that steel that might’ve gone to the U.S. will now find its way to Europe, pressuring local steelmakers even further.

Even if that doesn’t happen, China stands to gain. For one thing, unless the U.S. hands out exemptions to all of its allies -- which some, including Canada and Australia, are still hoping for -- the tariffs will make any sort of cooperation with America much more difficult politically. The U.S., EU and Japan agreed in December to work together to combat not only alleged Chinese steel dumping but intellectual-property violations; a true joint effort could have seriously undercut China’s push to acquire companies and cutting-edge technologies overseas. Now, any resistance is likely to be scattered, uncoordinated and thus less effective.

In Asia specifically, Trump is already seen as too soft on China and too rough on his close friends. He’s withdrawn from the Trans-Pacific Partnership, a trade pact meant to solidify U.S. alliances in the Pacific, and threatened to back out of a free-trade agreement with South Korea. Such steps have not only irked U.S. allies, but also raised serious questions about America’s long-term commitment to the region.

China has taken advantage of Trump’s mistakes to become even more assertive in its foreign policy -- harassing and threatening its neighbors over a range of security and territorial issues, further tightening its grip over the disputed South China Sea and forwarding its own diplomatic and economic agenda for Asia, such as the sweeping infrastructure development program known as “Belt and Road.” The only way the U.S. will be able to contest rising Chinese power -- not to mention tighten the squeeze on North Korea and press Pyongyang into negotiations over its nuclear and missile weapons programs -- is through tight coordination with allies such as Japan, South Korea, Australia and India. Any squabbling among them would suit China’s strategic interests just fine.

Maybe that’s why China’s reaction to Trump’s announcement has thus far been relatively mild, simply urging all countries to avoid unilateral trade restrictions. If the White House really wanted to cause China pain, it could have targeted a range of other industries, from electronics to shoes. Going after steel and aluminum isn’t the start of a trade war; it’s friendly fire.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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