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2018 China–United States trade war

2018 China–United States trade war

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On July 6, 2018 U.S. President Donald Trump imposed tariffs on $34 billion worth of Chinese goods, which then led China to respond with similar sized tariffs on U.S. products. The Trump administration said the tariffs were necessary to protect national security and the intellectual property of U.S. businesses, and to help reduce the U.S. trade deficit with China.[1][2] Trump had already, in August 2017, opened a formal investigation into attacks on American and its allies' intellectual property, the theft of which had been costing America alone an estimated $600 billion a year.[3]

The U.S. is relying partly on Section 301 of the Trade Act of 1974 to prevent what it claims are unfair trade practices and theft of intellectual property.[4][5] It gives the president the authority to unilaterally impose fines or other penalties on a trading partner if it is deemed to be unfairly harming US business interests.[6] In April 2018, Trump had imposed tariffs on steel and aluminum imports from China, Canada, and countries in the European Union.[7]

Tariff announcements

On January 23, 2018, President Trump placed a 30% tariff on foreign solar panels, to be reduced to 15% after four years.[8][9] China, the world leader in solar panel manufacture, decried the tariffs.[10] That same day, tariffs of 20% were placed on washing machines for the first 1.2 million units imported during the year. In 2016, China exported $425 million worth of washers to the United States.[11][12]

On March 22, 2018, President Trump had the United States Trade Representative (USTR) apply tariffs of US$50 billion on Chinese goods. He relied on Section 301 of the Trade Act of 1974 for doing so, stating that the proposed tariffs were "a response to the unfair trade practices of China over the years", including theft of U.S. intellectual property.[1][2] Over 1,300 categories of Chinese imports were listed for the tariffs, including aircraft parts, batteries, flat-panel televisions, medical devices, satellites, and various weapons.[13][14]

On April 2, China responded by imposing tariffs on 128 products it imports from America, including aluminum, airplanes, cars, pork, and soybeans (which have a 25% tariff), as well as fruit, nuts, and steel piping (15%).[4][5][5][15][16]

On May 20, it was reported that Chinese officials had agreed to "substantially reduce" America's trade deficit with China by committing to "significantly increase" its purchases of American goods. As a result, Treasury Secretary Steven Mnuchin announced that "We are putting the trade war on hold".[17] White House National Trade Council Director Peter Navarro, however, said that there was no "trade war," but that it was a "trade dispute, fair and simple. We lost the trade war long ago."[18]

The White House announced on May 29, that it would impose a 25% tariff on $50 billion of Chinese goods with "industrially significant technology;" the full list of products affected to be announced by June 15. It also planned to impose investment restrictions and enhanced export controls on certain Chinese individuals and organizations to prevent them from acquiring U.S. technology.[19] China said it would discontinue trade talks with Washington if it imposed trade sanctions."[20]

On June 15, Trump declared in a short White House statement that the United States would impose a 25% tariff on $50 billion of Chinese exports. $34 billion would start July 6, with a further $16 billion to begin at a later date.[21][22] China's Commerce Ministry accused the United States of launching a trade war and said China would respond in kind with similar tariffs for US imports, starting on July 6.[23] Three days later, the White House declared that the United States would impose additional 10% tariffs on another $200 billion worth of Chinese imports if China retaliated against the U.S. tariffs. The list of products included in this round of tariffs was released on July 11 and was set to be implemented within 60 days.[24]

China retaliated almost immediately with its own tariffs on $50 billion of U.S. goods, and claimed the United States had "launched a trade war." Import and export markets in a number of nations feared the tariffs would disrupt supply chains which could "ripple around the globe."[25]

American tariffs on $34 billion of China goods came into effect on July 6, 2018. China imposed retaliatory tariffs for the same amount. The tariffs accounted for 0.1% of the global gross domestic product.[26]

Rationales given for the tariffs

During a campaign speech in June 2016, President Trump vowed to cancel international trade deals and go on an offensive against Chinese economic practices, describing his promise as a reaction against "a leadership class that worships globalism."[27] In April 2018 Trump denied that the dispute was actually a trade war, saying "that war was lost many years ago by the foolish, or incompetent, people who represented the U.S." He added: "Now we have a trade deficit of $500 billion a year, with intellectual property (IP) theft of another $300 billion. We cannot let this continue."[28][29]

In January 2018 Trump said he wanted the United States to have a good relationship with China, but insisted that it treat the United States fairly.[30] In his State of the Union Address a few weeks later, he stated:

America has also finally turned the page on decades of unfair trade deals that sacrificed our prosperity and shipped away our companies, our jobs, and our Nation’s wealth. The era of economic surrender is over. From now on, we expect trading relationships to be fair and to be reciprocal. We will work to fix bad trade deals and negotiate new ones. And we will protect American workers and American intellectual property, through strong enforcement of our trade rules.[31][32]

A number of government and industry experts have offered their own rationales about why the tariffs are, or are not, appropriate:

John Ferriola, the CEO and President of Nucor, America's largest steel producer and its largest metal recycler, claimed that tariffs were not unfair, but were "simply leveling the playing field." He explained to TV host Jim Cramer, that not only the "European Union, but most countries in the world, have a 25 percent or greater VAT, value-added tax, on products going into their countries from the United States. So if we impose a 25 percent tariff, all we are doing is treating them exactly as they treat us."[33] VAT (value added tax) is a sales tax which is charged regardless of origin.

Analyst Zachary Karabell claimed that the administration's desire to reject long-standing trade consensus in favor of a more nationalist approach will not succeed: "A set of very public and punitive tariffs will not reverse what has already been transferred and will not do much to address the challenge of China today, which is no longer a manufacturing neophyte."[34]

Peter Navarro, White House Office of Trade and Manufacturing Policy Director, gave a number of the administration's explanations for the tariffs, among them are that they are "purely defensive measures."[35] He claims that the cumulative trillions of dollars Americans transfer overseas as a result of yearly deficits, are then used by those countries to buy America's assets, as opposed to investing that money in the U.S. "If we do as we're doing . . . those trillions of dollars are in the hands of foreigners that they can then use to buy up America."[36]

Richard Trumka, president of the AFL-CIO, which represents over 12 million active and retired workers, said that China has stolen U.S. intellectual property and "bullied its way into acquiring critical U.S. advances in technology." He stated in March 2018 that "Tariffs aren’t an end goal, but an important tool to end trade practices that kill American jobs and drive down American pay."[37]

A number of experts have focused on China's theft of intellectual property, and that it forces U.S. firms that want to do business there into transferring its confidential technology and trade secrets before having access to their market. Although that kind of transfer is disallowed by the WTO, the negotiations are usually conducted in secret to avoid penalties.[38] In 2018 the American Chamber of Commerce in China learned that over half its members thought that "leakage of intellectual property" was an important concern when doing business there.[38] Similarly, the EU Chamber of Commerce has also complained that European companies wanting access to the Chinese market often had to agree to transfer vital technology.[39]

U.S. Trade Representative Robert Lighthizer, after a seven-month investigation into China and intellectual property, explained that the value of the tariffs imposed was based on U.S. estimates of the actual economic damage caused by China’s alleged IP theft and the forced transfer of technology to Chinese companies.[40] In response, Premier Li Keqiang promised in March 2018 to henceforth protect the rights of foreigners investing in its economy,[40] followed in April by an announcement by China that it would eliminate laws that required global automakers and shipbuilders to work through state-owned partners.[41]

Chinese President Xi Jinping reiterated those pledges, affirming a desire to increase imports, lower foreign-ownership limits on manufacturing and expand protection to intellectual property, all central issues in Trump’s complaints about their trade imbalance.[42] Trump thanked Xi for his "kind words on tariffs and automobile barriers" and "his enlightenment" on intellectual property and technology transfers. "We will make great progress together!" the president added.[42]

National security experts say Chinese hackers have consistently stolen trade secrets from U.S. defense contractors. This prompted former National Security Agency head Keith Alexander to describe Beijing’s practices as "the greatest transfer of wealth in history." He states:[3]

Chinese spies have gone after private defense contractors and subcontractors, national laboratories, public research universities, think tanks and the American government itself. Chinese agents have gone after the United States’ most significant weapons, such as the F-35 Lightning, the Aegis Combat System and the Patriot missile system; illegally exported unmanned underwater vehicles and thermal-imaging cameras; and stolen documents related to the B-52 bomber, the Delta IV rocket, the F-15 fighter and even the Space Shuttle. President Trump’s action on Monday acknowledges the broad scope of the challenge.[3]

Reactions

U.S. commerce secretary Wilbur Ross said that the planned Chinese tariffs only reflected 0.3% of U.S. gross domestic product, and press secretary Sarah Huckabee Sanders stated that the moves would have "short-term pain" but bring "long-term success".[43][29][44][28] Nucor's John Ferriola said that even with the tariffs on steel, the cost of an average $36,000 car would go up about $160, less than 1/2 of 1%, while a can of beer would only cost an extra penny more.[33]

After president Trump imposed tariffs against a number of allies, including Mexico, Canada and countries in the EU, G7 finance leaders strongly condemned the tariffs and planned retaliating with tariffs of their own.[45]

By early July 2018, there were negative and positive results already showing up in the economy as a result of the tariffs, with a number of industries showing employment growth while others were planning on layoffs.[46]

Markets

In anticipation of tariffs going into effect, stock prices in the U.S. and China sustained significant losses for four to six weeks prior. Trade war fears had led to a bear market in China where by late June the total value of the country's stock markets was 20% lower than it had been at the beginning of 2018 when it reached record levels.[47] The Japanese Nikkei also suffered a "three-week pullback".[48] On July 6, when the tariffs went into effect, markets rebounded and rallied due to positive jobs report in the U.S.[49] Asian markets similarly rebounded, ending the day in a high note. According to the Associated Press, the positive reaction to the tariffs in U.S. and Asian markets was because of an end to uncertainty[49] and, according to Investor's Business Daily, because "markets had largely priced in the impact".[48]

Industry associations

Following announcements of escalation of tariffs by the U.S. and China, representatives of several major U.S. industries expressed their fears of the effects on their businesses. Organizations critical of the intensifying trade war included National Pork Producers Council, American Soybean Association, and Retail Industry Leaders Association. Several mayors representing towns with a heavy reliance on the manufacturing sector also expressed their concerns.[50]

Proponents of the increased U.S. tariffs included Scott Paul, president of the Alliance for American Manufacturing.[50]

See also

References

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  2. ^ a b Diamond, Jeremy. "Trump hits China with tariffs, heightening concerns of global trade war". CNN. Retrieved March 22, 2018. 
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