[van id=”politics/2018/03/22/china-tariffs-announcement-trump-bts-ip.cnn”]
On Thursday, President Donald Trump announced a series of tariffs totaling $50 billion against China, the second time this month he has instituted tariffs. (The first were on steel and aluminum and not specifically directed at China.)
Why is Trump doing this? And will it trigger a trade war with China? I reached out to my friend Patrick Gillespie, an economics reporter for CNNMoney, to get some answers.
Our conversation, conducted via email and lightly edited for context, is below.
Cillizza: Are these tariffs against China unprecedented? If not, have past tariffs succeeded?
Gillespie: The scope and breadth of these tariffs is unprecedented for US-China relations. But we already have hundreds of tariffs and trade barriers on China for other exports, such as steel and aluminum foil.
Trump is dusting off a very powerful trade tool that grants him authority to slap tariffs on China without congressional approval. It’s called the Trade Act of 1974 — specifically section 301. The law fell out of use in the early 1990s with the creation of the World Trade Organization, which is intended to be the global police on commerce. The Trump administration argues the WTO is ineffective and that it needs to take its own action.
US tariffs on China have not succeeded, in terms of protecting [American] jobs — Trump’s ultimate goal. For example, the US continues to lob tariffs on Chinese steel, and it’s set to impose a global tariff on steel Friday. Yes, Chinese steel exports to the US are way down, and they only make up about 2% of all steel shipped to American shores. But the US is already investigating whether China is shipping its steel to Vietnam, then to the US, to evade US tariffs. Vietnamese steel exports to the US surged nearly 300% in 2016 — the same year the Obama administration slapped a large tariff on Chinese steel.
More broadly, global steel prices have been kept down by China flooding the market with its cheaply made steel. US steel companies struggle to compete — and maintain jobs — when global prices are kept low.
Cillizza: Do we know what specific products the tariffs are aimed at? And how those were chosen by the Trump administration?
Gillespie: As of Thursday, we do not know which specific products will be targeted. Trump is expected to put tariffs on about $50-60 billion Chinese exports to the US. That’s a little over 10% of what China sends to America each year. A senior official at the US Trade Representative declined to tell reporters during a background call Wednesday about which products, the number of tariffs or how big each tariff would be.
However, Politico and The New York Times have both reported that it’s expected to be about 100 tariffs on a range of Chinese exports, from toys to electronic goods — the things American consumers buy. We don’t have the full list yet, but expect prices to go up for some everyday consumer items. How much and which ones — that’s what we all want to know.
Cillizza: There is much worry stateside of a trade war. How aggressive has China been in terms of potential retaliation?
Gillespie: China isn’t mincing words. They say they will retaliate, but they won’t show their cards until Trump’s tariffs come through. No action yet, but it could come as soon as Thursday.
Fears of a US-China trade war are rising. On Thursday, the Dow was down as much as 500 points — and it was down even before the news about Trump’s lawyer resigning. These are the world’s two largest economies. A trade war between them runs the risk of embroiling large swaths of the US economy. The size of these tariffs — $50-$60 billion — is more than double what we import in steel worldwide. So while the steel and aluminum tariffs are global, this China-US case is, in fact, much bigger in many ways.
China could hit American farmers hard. Over 60% of American soybeans goes to China, according to the US Soybean Export Council. China also buys lots of American pork, sorghum and other products. The real concern is the domino effect for farmers. A tariff on soybeans means farmers would have to sell more soy in the US — at the expense of other crops. Farmers have told me [that] one tariff can actually lead to a lot of pain, and lower prices for other farmers, even if they don’t grow soy.
Cillizza: What’s the effect — if any — on the American economy — of these tariffs, particularly in the wake of the steel and aluminum tariffs Trump recently out in place?
Gillespie: A full-blown trade war would, over time, wipe out any gains of economic growth from the tax cuts. It would also wipe out a year’s worth of wage growth. That’s according to analysis last week by UPenn’s Wharton Budget Model. It’s unlikely we’ll get to that extreme, but a US-China trade war would raise prices for consumers, cost jobs in both countries and risk ruining a really sweet moment in global growth. Right now, almost every major economy is growing. That hasn’t happened in a decade, and it’s a sign of how healthy the global economy is 10 years after the financial crisis.
About two-thirds of the US economy is driven by consumer spending — you and me buying stuff on Amazon and at Walmart. If prices for consumer goods rise, spending will dip. There’s already a small slowdown in consumer spending — it’s declined for three straight months on a monthly basis. It’s never a good time to raise prices on consumers, but the engine of the US economy is already showing signs of a slowdown.
Good news on the steel and aluminum tariffs: The Trump administration announced Thursday it will exempt the European Union, Argentina, Brazil, South Korea and Australia. Mexico and Canada were already exempt. That excludes the top 4 steel exporters to the US, and four of the top 7 aluminum exporters. So the steel and aluminum tariffs won’t deliver the death blow to global trade that many people feared. They will still hit Russia, China, Japan and all other nations.
But with all the exemptions on top exporters, it raises the question about the effectiveness of the tariffs. Trump argued that US national security is at risk from imported steel and aluminum. So by that thinking, Japanese steel poses a threat to America, but not European steel?
Cillizza: Finish this sentence: “In a year’s time, we will look back on these tariffs as a ____________ thing for Donald Trump’s political future.” Now, explain.
Gillespie: “Negative.”
The irony is that tariffs will hurt the red states more than blue states. Farmers across the Midwest could face Chinese tariffs. Steel and aluminum tariffs will still likely cost jobs at auto manufacturing plants in the Rust Belt. Even in the South, lots of foreign car makers, such as BMW (Spartanburg, SC) or Volkswagen (Chattanooga, TN) or Toyota (Georgetown, Kentucky) will be adversely affected by the steel and aluminum tariffs. Lots of steel goes into making a car, particularly the engine.
What’s key: It’s not just that imported stuff becomes more expensive. American companies take advantage of less foreign competition and raise their prices to maximize profits. Prices for American-made steel and aluminum are already up since Trump made the initial announcement on March 1.
Trump’s campaign rhetoric on trade certainly struck a chord. The consequences of his actions now may not draw the same cheers.
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