China-US relations

Crunch time nears as Trump mulls trade sanctions against China

US president has a raft of decisions to make potentially targeting China in the coming weeks that could spark a trade war between the two giant economies

PUBLISHED : Monday, 22 January, 2018, 2:13pm
UPDATED : Monday, 22 January, 2018, 10:54pm

The next month will be crucial in signalling whether US President Donald Trump’s threats to get tough on China over trade turn from rhetoric into reality.

A year into his presidency, Trump has failed to stem growth in China’s trade surplus as an economic upswing in the US fuels imports from the world’s factory floor.

Yet the kind of punitive actions threatened during his campaign have not materialised, with Trump ordering his administration to study the challenges instead of slapping on tariffs from the start. Now, a raft of China targeted trade decisions are piling up on Trump’s desk as the deadlines for those assessments loom.

The clock is ticking on a decision on whether to impose new tariffs on steel imports, while initial reports on aluminium and solar panels are due this week. China – which has flagged “all necessary measures” should a trade war unfold – is also making its case. In a telephone call last week with Trump, President Xi Jinping highlighted “positive changes” in getting North Korea to resume negotiations over its nuclear weapons programme and urged a “constructive approach” to resolving disputes and opening up each other’s markets.

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“The possibility is what we feared last year happens this year,” said Michael Spencer, global head of economics at Deutsche Bank in Hong Kong. “Outside the geopolitical sphere, trade related fears are probably the biggest external risks we face, since the whole cycle in Asia is currently still very export oriented.”

Such risks were further fanned when China reported that its trade surplus with the US widened last year to US$275.8 billion, according to Bloomberg calculations based on customs administration data. Trump told Xi in the call that the growing US deficit with China is not sustainable, the White House said in a statement.

Trade tensions between the world’s two biggest economies have flared anew since last month when the US national security strategy branded China a “revisionist power” and China resisted harsher sanctions on North Korea.

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In a speech last month, Trump bracketed China alongside Russia as a US rival seeking “to challenge American influence, values, and wealth”. The accompanying strategy document mentioned China more than 30 times, including in accusations of unfair trade practices. China’s state-run Xinhua News Agency hit back against the plan, saying it perpetuated a “you win, I lose” mentality that jeopardised the US’ own interests.

On Thursday, China’s Ministry of Commerce spokesman Gao Feng questioned the objectivity and credibility of a US list of “Notorious Markets” for fakes that cites China’s Alibaba Group Holding. The Office of the US Trade Representative released the list this month, citing e-commerce giant Alibaba’s Taobao online marketplace for a high volume of reported counterfeiting and piracy. Alibaba owns the South China Morning Post.

Yet so far it has largely been bickering rather than a full-blown confrontation. And most analysts continue to believe that Trump’s need for China’s help in dealing with the threat of North Korea will be enough to limit hostilities to trade skirmishes. Yet not everyone is convinced.

“In the first weeks of 2018 many are still catching up to the reality of shifting deep forces in US-China economic relations,” the Rhodium Group wrote in a note. “Many in China think this is a rough patch and will blow over. It won’t.”

Donald Trump warns Xi Jinping US-China trade deficit not sustainable

If there is to be a ratcheting up of tensions, Trump’s first State of the Union address on January 30 would provide an opportunity to lay out actions that the administration plans to take in the coming year on trade issues, said Jacob Parker, a vice-president at the US-China Business Council in Beijing.

As for other potential flash points, these are some key dates to watch:

January 22

Trump to receive a Commerce Department report on whether foreign aluminium imports are harming US national security, potentially starting the clock on specific action within 90 days. Trump received a similar report January 12 on steel, again with 90 days to mull actions such as tariffs, quotas or talks with foreign producers.

January 23-28

Montreal hosts talks to revamp the North American Free Trade Agreement between the US, Mexico and Canada. This sixth round is critical for a breakthrough to avert the risk that the trade deal collapses. A break-up may signal a more combative approach to trade-in Trump’s second year as president. 

January 26

Trump is due to decide whether to take action on cheap solar panel imports to protect the US manufacturing sector. The US International Trade Commission has found that cheap foreign-made solar products are hurting domestic producers.

Late January

The US International Trade Commission is expected to give a final ruling on whether American industry has been hurt by Bombardier’s sales of passenger jets, as Boeing Co. alleges. If the commission sides with Boeing, duties on Bombardier C Series jets would become permanent.

End of January

The Trump administration could announce action on China’s intellectual property practices before his month-end State of the Union speech, according to the industry publication Inside Trade.

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This could also be delayed – an investigation into China’s alleged IP theft and forced technology transfers is not due until later this year.

Early February

Trump is expected to make a decision on whether to impose tariffs on imported washing machines. The US International Trade Commission has recommended imposing graduated tariffs over three years on a quota basis.