President Trump has already acted on some of his trade-related campaign promises. One of his first official actions was to withdraw the United States from the Trans-Pacific Partnership (TPP). Trump also floated the idea of imposing a 20% tax on all imported Mexican goods to pay for the US-Mexico border wall, but he appears to have backed off that idea, at least somewhat. Below I discuss how the Trump Administrations early trade actions may benefit China the most, instead of benefitting America “first.” I also discuss how China is not standing idly by, but rather is positioning itself to defend or retaliate against U.S. trade actions that target China.
- Trump’s TPP Withdrawal. In signing the executive order withdrawing the United States from the TPP, President Trump merely signed the death certificate for a trade deal that was practically comatose well before he took office. Trump described the TPP (along with basically every other trade agreement) as a “bad deal” that would result in a “death blow for American workers.” Many commentators, however, have noted that China will be the biggest winner from Trump’s abandonment of the TPP. The TPP aimed to reduce trade barriers and tariffs across 12 countries, but specifically and tellingly did not include China. The TPP was part of a strategic U.S. pivot towards Asia that attempted to strengthen American economic ties in the region to counter-balance China’s increasing power there. With the demise of the TPP, other Asian countries such as Australia, South Korea, and the Philippines, likely will be pulled even tighter into China’s expanding economic sphere of influence in the region. China also has been handed an opportunity to fill the political leadership void in the region created by Trump’s withdrawal from TPP. China now could take the place of the United States in the TPP, but appears more likely to push for completing of its own proposed Regional Comprehensive Economic Partnership (RCEP), which includes many of the same Asian countries that were part of TPP, but not the United States. If RCEP is successfully negotiated, U.S industries stand to lose significant market share throughout the Asian countries that will have preferential rates with its RCEP partners, but not the United States.
- Trump Floats, Then Walks Back, A Proposed 20% Tax on Mexican Imports. The Twitterverse exploded with people angry that avocados and tequila could cost more because of Trump’s proposal to impose a 20% tax on all Mexican imports. White House spokesperson Sean Spicer rushed to explain that the idea of the 20% tax was not really a policy proposal, but just one example of the options for how to pay for the U.S.-Mexico border wall. Trump’s having paused after proposing a 20% tax on imported Mexican goods got a bad reaction (“Guacapocalypse!!”) and that may bode well for China exports to the United States, at least temporarily. During the campaign, Trump had proposed a 45% tax on all Chinese imports. But if U.S. consumers hated the idea of a 20% tax on Mexican goods, it seems likely that a 45% tax on Chinese imports would trigger even greater outrage because of the broader spectrum of goods from China that would be affected. Instead of a straight tariff on imports, however, Trump may now try to impose a border adjustment tax (BAT) similar to what House Republicans have recently started pushing. But calling it a tariff or a more complicated BAT won’t change the bottom line, which is that either option would make imports more expensive and US consumers would bear the brunt of those increased costs.
China thus far has publicly taken the high road and stated no one wins in a U.S.-China Trade war. However, China also has taken the following steps to better position itself to defend, or to more aggressively retaliate, against the United States if Trump insists on escalating the trade war.
- China’s WTO Challenge v. U.S. Continuing NME Status for China – China insists that when it negotiated the terms that allowed China to accede to the WTO in 2001, the United States agreed to treat China as a non-market economy (“NME”) in antidumping cases, but only for another fifteen years, after which it would be treated like all other market economy countries. Unfortunately for China, the Chinese negotiators for the 2001 US-China WTO Accession agreement were primarily politicos, and not lawyers. Because this agreement was not drafted precisely as the Chinese intended, the United States has been able to parse the language to come up with a plausible legal argument that the U.S.-China WTO Accession did not call for an absolute hard deadline for terminating China’s NME status, but rather provided only a conditional promise to terminate China’s NME status. The revocation of China’s NME status is a high priority objective among China’s leadership and immediately after the December 11, 2016 fifteenth anniversary of China’s WTO accession, China filed a WTO challenge against the United States’ continued application of NME status in antidumping cases against China.
- China’s Increasing Opposition to U.S. AD/CVD Proceedings – China’s complaint against the United States’ refusal to grant market economy status will take many years to work its way through the WTO dispute settlement process. In the meantime, China will not just wait to see if the WTO will rule in its favor. China just within the past month has become more outspoken against U.S. Department of Commerce (DOC) determinations in AD/CVD proceedings against China. China’s Ministry of Commerce (MOFCOM) recently issued press releases objecting to specific methodologies used by DOC and ITC to obtain inflated AD/CVD rates in a wide variety of cases involving off-road tires, biaxial geogrids, hardwood plywood and amorphous silica fabric, carbon and alloy steel, and ammonium sulfate. Previously, MOFCOM typically would only monitor the outcomes of DOC and ITC cases without commenting on any specific