The tariff tiff between China and the US has reached levels unimaginable a year ago. But China is running out of ammunition and the global trade regime may be on the brink of big change, says DW’s Timothy Rooks.When Washington announced 25 percent tariffs on $50 billion (€42.7 billion) of Chinese goods earlier this year, China did the same in retaliation. Now, the United States has put another set of tariff duties on an additional $200 billion worth of Chinese goods and on Tuesday China said it was forced to announce counter measures.
All together, around half of China’s exports to the United States are now hit by these punitive duties. We are talking about the world’s two biggest economies; if this is not a trade war, what is?
Yet tariff-wise things can only go so far. Though the Chinese have reduced their dependency on cheap exports, they still export more to the US than they buy. This puts defined limits on how much the Chinese can retaliate, but there are many other ways to cause disarray — from putting future cooperation on North Korea on hold to more naval intervention in the South China Sea. China also holds over a trillion dollars in US treasury bonds and, as one of the five permanent members of the United Nations Security Council, and can veto any resolution.
Gift wrap that, please
Free trade is not a right, but surely something to strive toward. In any event, the US and China need to be on friendly terms economically and politically for the good of the world. But things have escalated so much, and so openly, that neither the Chinese nor the Americans can back down.
Though government officials have met numerous times, their talks have ended in disappointment. Face-saving measures now seem out of the question. On the surface, things look bleak, but a closer look at the details shows more caution — and self preservation — than at first glance.
The latest tariffs imposed by the US will start next week at 10 percent, only increasing to 25 percent on January 1, after the important Christmas shopping season. Donald Trump doesn’t want to spoil the gift giving of his supporters, or loose control of the legislature in November’s elections by hitting his voters’ wallets too soon.
At the same time, voters are fickle and have short memories. Only when the average cost of a gallon of gas in the US goes from its current $2.80 to $6 will voters take notice. Until then, the Trump show is simply too chaotic to know where to look or what to concentrate on. Businesses, on the other hand, are taking notice.
A positive disruption?
Manufactures in Germany and the US have been the loudest opponents of higher tariffs. They argue that costs will go up and these must be passed on to consumers. Yet new calculations by Germany’s ifo Institute point to China as the loser and expect the new tariffs to hit its economic growth by 0.1 to 0.2 percent. And if China is forced to make big concessions it will also help boost Europe’s trading position.
Read more: Next stop in Trump’s trade crusade: Japan
Though the US has a checkered history on tariffs, Trump may yet push the US economy even higher. Yet it would be a mistake to think that his crude methods are the right way forward.
America is not the center of the globe; India and China both have over a billion more people than the US and as countries like Indonesia, Pakistan and Nigeria grow, a new, connected global order needs to be maintained. That can only been done through talking and real negotiations on equal footing.
Realigning global trade cannot be left to a stick-waving, bullying billionaire and cannot be done overnight. The unforeseeable consequences will be too great and unwieldy. Nonetheless, strongmen like Trump, Vladimir Putin, Recep Erdogan and Viktor Orban are having their moment in the sun right now. Acting tough is much easier for voters to understand than picky details about some trade regime.
In the end, Trump won’t win this trade war with China because he is right about trade deficits or because he is the better negotiator. He isn’t even negotiating. He will win it simply because the US buys more from China than the other way around and he doesn’t seem to care about the collateral damage — at home or abroad.