China-US trade war can still be avoided
China announced new tariffs on 128 products imported from the United States on Monday in response to the new US tariffs on steel and aluminum that took effect a week ago. Although China is determined to counter the US' trade protectionist move to impose up to $60 billion in tariffs on Chinese products, it still hopes to resolve the trade conflict through talks. It means a trade war between the US and China can still be avoided if Washington comes to the negotiating table.
The opposition to the high tariffs on Capitol Hill, especially by Republican congressmen and many big US companies, such as Apple, is very strong. In a letter to Trump on March 18, a coalition of more than 40 enterprises, including Amazon, Google, Facebook and Microsoft, said the US administration should not impose high tariffs or take other measures that will harm US companies, workers, farmers, ranchers, consumers and investors.
Tariffs that result in reduced consumption will also depress financial markets－a decline in the purchase of information and communications technology products alone could result in a potential decrease of GDP, by $11 billion for every percentage point of stock value lost, which would have not only a short-term effect, but also a mid- and long-term economic effect. US President Donald Trump cannot ignore this strong tide of domestic opinion also because his trade measures could end the US' economic recovery. In particular, when Trump realizes his actions will cost the US economy dear, he is sure to think twice.
Trump's tactic to win domestic support by playing the tariff card will be ineffective. Trump advanced the time to impose high tariffs on imported steel and aluminum from mid-April to March 8 to help defend a congressional seat in the Pennsylvania 18th District special election, which was scheduled for March 13.
Pennsylvania is a steel manufacturing and coal mining state, and the 18th District covers steel plants, farmlands and a coal belt along the West Virginia border, as well as Pittsburgh suburbs. Trump won the district by nearly 20 points in the November 2016 presidential election. So he announced the high tariffs to ensure Republican candidate Rick Saccone wins the special election. But Saccone still lost to Democrat Conor Lamb, albeit by a narrow margin, indicating even Trump's supporters in the Rust Belt are divided on his trade policies.
Moreover, China has sent multiple signals that harsh trade actions, which violate World Trade Organization rules, cannot strike a balance in bilateral trade. And China is willing to talk.
Till now, China's response to Trump's actions has been measured. The Ministry of Commerce announced additional duties of up to $3 billion on imports from the US, including fruits, nuts, pork, wines and seamless steel pipes. But the duties were not in direct response to Trump's actions under Section 301 of the Trade Act of 1974; they were in response to the US' punitive tariffs on steel and aluminum imports. China's measured response shows that it will use tit-for-tat trade actions only as the last resort.
A necessary factor that makes a big power an influential global power, too, is opening up to the outside world. China knows that full well, and it demonstrated its determination to become an influential global power at the first session of the 13th National People's Congress, China's top legislature, which means it will deepen reform and further open up to the outside world. And the US has no reason to doubt that.
The bilateral negotiation channel, including at the high level, is still open. If the two sides don't overreact and keep negotiating, they can exorcise the specter of trade war. And since the leaders of the two countries have good personal relations, they could have a face-to-face meeting to resolve the trade conflict, which is crucial for overall healthy bilateral relations.
The author is a research fellow at and director of the Division of American Economic Studies at the Institute of American Studies, China Institutes of Contemporary International Relations.