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Trade

Trade war signalled by Trump has to be stopped at all costs

Heavy tariffs on US steel and aluminium imports threaten retaliatory measures from China and Europe with Hong Kong being painfully caught in the middle

PUBLISHED : Saturday, 03 March, 2018, 12:53am
UPDATED : Friday, 23 March, 2018, 12:58pm

The timing of the announcement by US President Donald Trump that his country would impose heavy tariffs on imports of steel and aluminium was hardly auspicious for hopes of avoiding a trade war with China and Europe. It came on the same day that Liu He, top economic adviser to President Xi Jinping and on a mission to the United States, called on senior White House officials to try to head off a trade war.

Trump said he would sign an order next week levying the tariffs. This is bound to trigger retaliation from the European Union and China, and risks setting off a tit-for-tat process. That is not to say attempts by Liu to find more reasonable solutions to Sino-US trade differences would have fallen entirely on deaf ears.

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Trump’s decision represented a defeat for pro-trade voices in his administration, but only after vigorous debate in which they argued against tariffs at this stage, in favour of exerting more pressure on China. And there has to be hope that Liu’s talks with Trump trade envoy Robert Lighthizer may yet be positive for Sino-US trade relations.

US steel and aluminium industry executives who claim to be the victims of cheap Chinese exports welcomed Trump’s decision, but it does not set a good tone for cooperation and goodwill between the two sides that is needed to achieve more balanced trade and address wider American grievances. Hopefully we are not yet seeing the start of the long feared trade war. It would wreak economic damage from which no country would be safe.

Hong Kong, a regional pivot for US business, has just had a sharp reminder that it would be far from unaffected. The city has been hit with a 23.6 per cent duty on aluminium exports to the US. Secretary for Commerce and Economic Development Edward Yau Tang-wah said the government had complained to the US about a “unilateral and discriminatory” act based on unfounded allegations.

Hong Kong may be an independent member of the World Trade Organisation and separate economic entity, but the cross-border imposition of tariffs shows how potentially vulnerable it would be in a looming trade war. Hong Kong, of course, is not an aluminium exporter on its own account. The US has placed the city on the same list as China to plug loopholes – in other words to cover re-exports of Chinese aluminium exported to Hong Kong.

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The American Chamber of Commerce in Hong Kong has expressed support for the government to promote the city’s “unique role” in the region for US business. Hong Kong is literally caught in the middle of Sino-US trade tensions. As an independent member of the WTO, the government should heed the chamber’s advice to engage with US officials to defend the city’s role and try to head off similar trade measures.