Engage in dialogue to resolve trade disputes
Tit-for-tat tariffs by the United States and China will not serve the interests of either country or the world at large; it would be far more sensible to hold talks
A trade skirmish, not war, is under way between China and the United States. The tariffs on 128 American products imposed by Beijing on Monday were moderate in scope and represent just a fraction of the estimated US$600 billion in trade between the world’s two biggest economies.
But US President Donald Trump has threatened tougher action for alleged theft of intellectual property and should that be imposed, Chinese retaliation in the same vein is certain to again follow. While there will be an impact for both countries, it is the effect such measures will have on the global economy that is most troubling.
Trump was not looking at the big picture when he followed through with election pledges and imposed tariffs on solar panels and washing machines in January, and steel and aluminium last month.
China had every right under World Trade Organisation rules to respond in kind and its measures, affecting goods such as pork, fruit, nuts and wine, will have a US$3 billion impact on trade.
But the tariffs were mild, being only between 15 and 25 per cent, and products that are more important to the US economy could have been targeted. Still, the White House replied angrily, accusing Beijing of unfair trading practices that were “harming US national interests and distorting global markets”.
Labelling steel and aluminium as being “in the national interest” is a poor excuse; US allies Canada and Australia were among countries also affected, but they have been given temporary exemption from the tariffs while negotiations take place. Beijing’s calls for similar talks have been ignored. Chinese authorities have therefore left room to manoeuvre should the White House take the next step in coming days.
There is good reason for such a prediction; Trump has already launched his campaign for re-election in 2020 and midterm elections for Congress in November require a strong showing for his Republican Party.
Taking aim at China again, this time with up to US$60 billion in tariffs on Chinese goods, would meet the expectations of his blue-collar electoral base. But China’s leaders will not back down to such threats; they will meet any action toe-to-toe.
GDP growth rates will be affected, but not dramatically. The big losers will be investors, who have already been handed uncertainty by Trump’s salvoes; the world’s stock markets have tumbled and will continue to be shaken by Trump’s anti-China measures.
There is precedence with US protectionism during the 1930s, which caused a two-thirds drop in the value of the global economy. Beijing’s friendly overtures have been ignored as have its offers of talks on the trade imbalance to reach an amicable agreement. Dialogue is the only sensible route.