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Hi from Washington, where everything is still locked down. Our main piece today takes a look at whether a resumption of the US-China trade war could be on the cards as Donald Trump & Co escalate their rhetoric against Beijing.
Our person in the news is Josh Hawley, a Republican senator from Missouri, who caused a bit of a stir among trade-watchers on Twitter with an opinion piece in the New York Times calling for the end of the Geneva-based World Trade Organization. Our chart of the day looks at falling laptop exports from China to the US.
‘It’s the ultimate punishment, I will tell you that’
“Well, it’s the ultimate punishment, I will tell you that,” said US president Donald Trump when asked on Sunday evening if he was considering new tariffs for Chinese goods, rattling worried markets at their Monday opening.
The question was asked because of a string of stories about plans being drawn up by Trump officials to hold Beijing “accountable” for coronavirus. Washington accuses Beijing of withholding information about the seriousness of the disease, which it insists originated in a lab in Wuhan, China.
But imposing new tariffs on China would be tantamount to the US breaking the terms of its hard-won phase one “mini-deal”, in which Washington promised to roll back some tariffs in exchange for Beijing buying a lot of American goods — $200bn in extra imports over the next two years, to be precise.
The administration might try to argue that China is not keeping its end of the deal up. Coronavirus has meant that Chinese companies importing American goods have been forced to enter lockdown, and so far, China is a little behind the pace for fulfilling its purchasing commitments. Beijing was also late in issuing a promised intellectual property action plan.
The March trade data do not paint a promising picture. The numbers show a sharp decline of 23.5 per cent in the exports of US goods to China in March compared with the previous year. Analysis from Panjiva shows the drop in those exports includes the 548 products listed in Chinese purchasing commitments under the phase one deal, with exports to China even below the 2017 levels the deal is benchmarked against. Over two years between 2020 and 2021, China must buy $200bn of US goods and services more than it did in 2017, before the start of the trade war.
Chris Rogers of Panjiva calculates that Beijing would need to import about $11.9bn of the promised goods listed in the phase 1 deal per month in 2020 to hit its promise of buying a total $143bn in goods alone over 2020. In March, it imported $5.24bn, which together with shortfalls in January and February mean there’s now an implied $21.2bn shortfall over the course of the year.
It’s important to remember that China’s targets are set over a year, not month to month. So while things are not looking good, shortfalls based on a few months of trading data don’t mean the annual commitments will not be fulfilled. Purchases of agricultural goods are linked to growing seasons, and could pick up in the second half of the year. Although as Wendy Cutler, a former US trade negotiator, puts it: “You can reach some conclusions about whether they’re in the ballpark . . . and they’re not.” Speeding up trade will rely both on an uptick in demand from China as it leaves lockdown, and the ability of US manufacturers to make things and US farmers to plant and harvest.
Joe Biden is putting out attack advertisements accusing Trump of being too weak on China © AP
Is Washington likely to give China a pass on coming in below its purchasing commitments because of coronavirus? On Sunday, Trump said: “Now they have to buy, and if they don’t buy, we’ll terminate the deal. Very simple.” Not everything the president says comes to pass, but Trump has made being tough on China a key part of his political schtick, and is currently bashing China at every given opportunity. Meanwhile, Democratic presidential candidate Joe Biden is putting out attack advertisements accusing Trump of being too weak on China. The tone being set is not one of forgiveness and diplomacy.
Many in Washington argue that Trump’s trade mini-deal with China was only ever a vehicle for political boasts, and not an economically meaningful trade deal. It failed to tackle what the US has always said were serious problems with Beijing’s way of doing business, including subsidising key sectors and infringing IP rights. Moreover, the US has become increasingly antsy about the forced transfer of technology from Chinese civilian companies to the People’s Liberation Army, after a 2017 law said that new technologies developed by the private sector must be shared with the military.
“The deal was a political deal, and when the political circumstances change and not having a deal is more valuable to Trump than having a deal, then we should not be surprised to see it end,” says Chad Bown, fellow at the Peterson Institute.
So what are the policy options available to the president if he’d like to resume his trade war in time for November’s election? His administration could easily, without having to go through many processes, procedures or consultations, crank up the level of existing tariffs on goods. Bown argues that this is unlikely to wildly impact the US domestic economy because US imports of goods already slapped with high tariffs have fallen. Raising those tariffs further will not necessarily have much impact — that is, the effect of “high tariffs” is already baked into import levels.
There is an effect that cannot immediately be measured, though, and that is longstanding damage to the US and China’s diplomatic relationship. In trade terms, Beijing has not always reacted to Washington’s aggression with full force. While they might tolerate some shortlived trade aggression during a presidential campaign season, they might also decide that in the context of the growing drumbeat over tech transfers, Huawei, and now the accusations around coronavirus and Wuhan, maintaining what was only ever a “mini deal” is not worth their time.
Charted waters
Chinese laptops making their way to the US were given a last-minute reprieve in December, after Trump pulled his planned December 15 round of tariffs at the eleventh hour ahead of the mini-trade deal signed in January. In the end, the coronavirus proved the bigger disruption to US imports from China, as imports from other countries rose this year. April figures, however, have shown an uptick from China again as the country’s economy gets back on track.
Person in the news
Who is it?
Josh Hawley, a Republican senator from Missouri
Why is he in the news?
Hawley published an op-ed in the New York Times calling for the total abolition of the World Trade Organization. “The global economic system as we know it is a relic,” wrote Hawley, who went on to argue: “The United States must seek new arrangements and new rules, in concert with other free nations, to restore America’s economic sovereignty and allow this country to practice again the capitalism that made it strong.”
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