The Trade War Is Just the Beginning
Tariffs aren’t changing China’s mind. So get ready for more tariffs.
“I have been talking about China for many years. And you know what? Nobody listened,” Donald Trump told a crowd outside Pittsburgh in 2016. “But they are listening now.” If China’s leaders didn’t notice a campaign speech then, the president has their attention now.
In office, President Trump and his administration have taken a series of escalating measures against China in hopes they would coerce Beijing to change its trade practices. But, two years and numerous rounds of meetings later, the trade talks aren’t moving.
And now the Trump administration has dropped an economic bomb on China by taking steps to cut off the tech giant Huawei from its American suppliers. The escalation points to an ominous reading of the trade war: It’s only the starting point for what administration hard-liners see as a generational battle with America’s most powerful adversary since the Soviet Union.
As of mid-May, the United States has imposed 25 percent tariffs—import taxes that studies have found are paid by American firms—on $250 billion worth of Chinese imports. Trump has also threatened to raise tariffs on the remaining $300 billion worth of imports. Other tariffs that raise the price of steel and aluminum imports on national-security grounds no longer apply to Canada and Mexico, as of last week, but still include China. Beijing, meanwhile, has retaliated with tariffs of its own.
The administration’s trade-focused plan for dealing with China has always seemed small-scale, given the amped-up rhetoric Trump’s advisers and allies use in public. China has committed “economic aggression.” It’s “the most predatory economic government,” and it has made war on American workers for 20 years. Even Trump’s trade negotiator thinks the idea that trade talks will fix these problems is a little far-fetched. “I am not foolish enough to think that there is going to be one negotiation that is going to change all of the practices of China or our relationship with them,” U.S. Trade Representative Robert Lighthizer testified to the House in February. (Lighthizer’s office didn’t respond to a request for comment on this story; a White House official declined to comment on the record.)
What happens when tariffs don’t do the trick? It’s hard to say. If the administration has a Plan B for a new trade strategy—one in which the tariffs go away without Chinese action—it won’t say so. “There’s no time limit. There’s no timeline. The way this works is the tariffs are in place until the president decides the tariffs go out of place,” Lighthizer told NPR at the outset of the talks.
Lighthizer has maintained that the tariffs are entirely separate from national-security actions against Huawei, such as charges against the company’s CFO. But The Washington Post reports that White House officials decided to issue an executive order last week clearing the way for action against Huawei after China balked at what Lighthizer and his partner negotiator, Treasury Secretary Steven Mnuchin, were asking. Based on that order, the Commerce Department is developing rules that will require American companies to register with the government before doing business with Huawei. That could include companies like Google, which reportedly cut Huawei off from some Android services on Sunday. Huawei spent $11 billion with American suppliers last year, a not-insignificant chunk of the overall $737 billion in annual bilateral trade.
The further the administration goes, the less the dispute falls into the neat policy toolbox and the more it seems like a wholesale push to contain China. “There are many reasons why the United States is not off the mark in terms of going after Huawei,” Elizabeth Economy, a China watcher at the Council on Foreign Relations, said on a call with reporters Thursday. “But I think this last step does speak very directly to the Chinese, sort of the U.S. is trying to contain our growth and our rise as an economic superpower. I think it takes it a little bit over the line.”
Ask economists what they fear, and the response will likely start with the dreaded D-word: decoupling. The U.S. and China could forcibly unravel their closely intertwined economies. “You’ve already seen an increasing amount of that, whether it’s various chips that people are trying to source elsewhere, [or] whether it’s Foxconn going to India,” says Christopher Balding, an associate economics professor at Fulbright University Vietnam. (Huawei claims it already has plans to build chips elsewhere. On the other end of the trade war, Apple supplier Foxconn is looking to India for new factories.)
The Trump administration’s mantra that “economic security is national security” has led it to call Canada a national-security threat, only to backtrack. Last week, the administration declared that the innovation that goes into building new cars and trucks is an essential part of the defense-industrial base—taking logic that past administrations have used and applying it in a radical new way. Part of the problem is that even if the U.S. and China are as deeply politically opposed as the administration claims, there’s no good model for moving forward. “I can’t think of a good case where the world’s two largest economies with a high degree of integration deliberately take steps to decouple themselves from one another in peacetime,” Douglas Irwin, an economic historian at Dartmouth University, told me in an email.
As national-security thinking metastasizes, otherwise healthy economic organs will suffer. It’s easy to get the impression that every Western company in China is getting ripped off, but that’s not quite right, Mary Lovely, an economist at Syracuse University who has studied the tariffs’ effects on supply chains, told me. “If you look at the boring companies like Procter & Gamble, who are selling tons of dish soap, clothes soap, and diapers—no one has accused the Chinese of stealing the special beads that keep your kids’ bottoms dry in the morning.” (I emailed Procter & Gamble to confirm that claim, which otherwise appears true, but I didn’t hear back.)
The challenge with conflating economic and national-security concerns isn’t that one or the other is wrong. The difficulty is that the national-security directive is all-consuming, obscuring the profound economic asset China has become for Americans. China’s production marvels have saved consumers money, to be sure, but they’ve also changed Americans’ lives in more subtle ways. One is that products don’t fail nearly as often as they used to. “You go to Target and buy a TV for 50 bucks, and it works,” Lovely said. Companies manufacture in China because China is good at making their products cheaply. It has roads, electricity, and a healthy, educated workforce; others do too, but not on China’s scale. Those assets have allowed China to make ever more of the world’s goods—not just televisions. “Think about the life or death stuff,” Lovely said. “They’re making airport doors or wings. They’re making artificial knees. You can’t have an artificial knee that fails. The supply chain is actually certified by U.S. regulators from start to finish.”
The administration’s only move is to increase the pain until the deal that Trump’s negotiators have offered starts looking appealing to China. The point may not be to hurt Americans, but it’s the only means to achieve the ends that Trump says he wants. Sooner or later, the pain will leave a mark.