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With US President Donald Trump gearing up to impose tariffs on US$200 billion (RM828 billion) on Chinese goods and Beijing certain to retaliate against any measures, the world’s two biggest economies are locked in an escalating trade war, with no resolution in sight.
The United States is negotiating with Canada this week to try and finalise a deal to modernise the North American Free Trade Agreement (Nafta), an outcome some in the White House say will allow Washington to turn up the heat on Beijing.
“The hope is that this (Nafta) puts a lot of pressure on the Chinas of the world to help us negotiate better reciprocal trade deals,” Kevin Hassett, chair of the White House Council of Economic Advisers said.
The world’s two largest economies have already applied tariffs to US$50 billion of each other’s goods. Talks aimed at easing tensions ended last month without major breakthroughs, and Washington appears emboldened by a sell-off in Chinese markets and a weakening economy.
China is planning two choreographed celebrations of free trade – a major import fair in November and the 40th anniversary in late December of its move towards market reforms. However, Chinese government advisers are tamping down expectations either occasion will yield measures that could defuse tensions.
“China seems unable or unwilling to announce major liberalisations that could be termed ‘confidence building
measures’ or ‘down payments’ on expected near-term reforms,” Craig Allen, president of the Washington-based US-China Business Council, said in a letter to members over the weekend.
“We know that the President has received reports that the Chinese economy is struggling – reports that we believe are overstated – and thus he may believe that additional pressure might be effective in the short-term,” Allen said.
Washington is demanding Beijing improve market access and intellectual property protections for US companies, cut industrial subsidies and slash a US$375 billion trade gap.
The Trump administration is ready to move ahead with a next round of tariffs after a public comment period ends at midnight in Washington on Thursday (Friday afternoon Malaysian time), but the timing is uncertain, people familiar with the administration’s plans said.
The new duties will start to hit consumer products directly, including furniture, lighting products, tyres, bicycles and car seats for babies.
Trump said he was not prepared to make a deal with China “that they’d like to make”.
“We’ll continue to talk to China,” he said at the White House on Wednesday. “But right now we just can’t make that deal. In the meantime, we’re taking in billions of dollars of taxes coming in from China, with the potential of billions and billions of dollars more taxes coming in.”
Given the smaller amount of goods China imports from the US on which it could slap duties, Beijing has vowed to hit back with unspecified “qualitative” and “quantitative” measures, actions perceived within the US business community as likely to be increased customs and regulatory scrutiny.
Beijing appears to be bracing for a long fight.
Official Chinese media is asserting that Trump’s trade war is aimed at containing China’s rise, a perception solidifying Beijing’s resolve not to buckle under US demands.
In light of such a US agenda, China should “maintain strategic determination” and “take care of our own matters”,
Long Guoqiang, vice-president of the State Council’s Development Research Centre said.
“The Soviet Union was pulled into an arms race in the Cold War. Japan’s economy became a bubble in a trade war. These profound lessons are close at hand,” Long said.
While US businesses in China do not yet appear to face widespread retaliation, some company officials have said they are bracing for blowback. Some are shifting supply chains to avoid tariffs.
