After hints of progress, a tweet from Donald Trump sows doubts
JUST AS it looked like America and China were close to a deal, President Donald Trump has brought the two countries back to the brink of a full-fledged trade war. In a pair of tweets late on May 5th he threatened to slap 25% tariffs on all Chinese imports, a rate that applies to only a much smaller portion of imports now. “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” he said. Only a month ago he had trumpeted that an “epic deal” was in the works.
The first question is what the fallout will be for trade talks. Intensified meetings in recent weeks had fuelled the impression that an agreement was in the offing. American negotiators, led by Robert Lighthizer, the United States Trade Representative, were in Beijing last week. This week Liu He, a Chinese vice-premier, was due to lead a delegation of dozens of high-level Chinese officials on a trip to Washington for the next round of discussions.
Now, though, the immediate risk is escalation. Last year America imposed 25% tariffs on $50bn-worth of Chinese imports and 10% on a further $200bn-worth, leaving another $300bn or so untouched. Mr Trump has threatened a two-step increase. First, on Friday, America would ratchet up the 10% tariffs to 25%. Shortly thereafter it would place 25% tariffs on all remaining goods .
A full-on trade war would, unquestionably, be damaging for both countries. As the bigger exporter, China would probably suffer more. But Mr Trump is fooling himself if he thinks that he can bring China to its knees with tariffs and that America itself will be unscathed. Over the past half-year, China’s government has administered a moderate stimulus that has stabilised growth and fuelled a big rebound in its stockmarket.
The risk of mutually assured slowdown has stayed Mr Trump’s hand in the past. It was when the American stockmarket fell sharply in December that momentum toward a trade deal with China began to build. Xu Gao, an economist at Everbright Securities Asset Management, a Chinese firm, remains optimistic that the same logic will prevail. Mr Trump, he reckons, will ultimately back off the tariff threat, for fear of undermining America’s growth. Even with all the bluster, that still seems plausible.
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