Will Trump succumb to China in the tariff war?

TPCI-IBT-Business-Perspectives

A series of trade and geopolitical concerns continue to weigh on the markets in South East Asia, ranging from uncertainty around US-China trade to widening tensions between India and Pakistan. Though US President Donald Trump’s chief trade negotiator has said the US and China have settled on a process for enforcing a trade agreement between the countries, critics of the US President argue that Trump may capitulate to China in the tariff war, giving more for no sizeable returns.

While the US President has announced that he may meet Chinese President Xi Jinping to announce a deal next month, the signs that he will yield to the Chinese in the ongoing tariff war are ominous. There is growing concern in Congress that President Trump will fail to resolve underlying disagreements over intellectual property and unfair trading prices and may play to the gallery that he has emerged victorious but may give away more in lieu for insignificant or smaller gains.

Sensing this, the US Congress has warned the Trump administration that any trade deal with China should secure substantive policy changes.

Chinese chief negotiator Vice Premier Liu He has emphasized that his country will reduce their large bilateral trade surplus by buying US soy beans and natural gas. This sharp reduction in the US trade deficit with China would enable Trump to claim victory and give him something to celebrate when Xi makes a visit to the US. There is no mention of the technology theft that China is doing, which was the key points of confrontation that initiated the trade war in 2017.

The most important problem that needs to be resolved is not the trade deficit with China but the Chinese firs stealing US technology and using it to help Chinese companies compete with those same firms in China and around the world. The Chinese do it either by making US companies willing to trade in China to share their technology compulsorily or by entering the US firms’ computer systems to steal technology and blueprints. Some Chinese companies also use the reverse-dismantling process, making parts as per specifications and then mount them again.

Urging a tough stand, both Republican and Democrat lawmakers, at a House Ways and Means Committee meeting, asked Trump administration’s top negotiator Robert Lighthizer to continue to take a tough approach.

“This administration has chosen to take a path of high-risk confrontation,” said Rep Richard Neal, a Democrat from Massachusetts, adding further that now “it must hold out for a good deal.”

It is to be remembered that President Trump had initiated the trade war in 2017 citing unfair trading practices, including accusations that Chinese companies were stealing intellectual property from the US firms by forcing them to transfer technology to China. In the aftermath, the US imposed tariffs on US$ 250 bn worth of Chinese goods. Retaliating, China put duties on US$ 110 bn of US products. President Trump had threatened further tariffs on an additional US$ 267 bn worth of Chinese products, thus putting duties on all Chinese imports into the US.

The trade dispute had prompted concerns over global economic growth and had put immense pressure on China’s economy, already showing signs of strain. If President Trump bows down without getting much out of the deal, all efforts would go to waste.

2018: U.S. trade in goods with China

NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade.

Month Exports Imports Balance
January 2018 9,835.3 45,788.0 -35,952.8
February 2018 9,806.1 39,067.6 -29,261.5
March 2018 12,382.1 38,256.7 -25,874.6
April 2018 10,268.0 38,230.0 -27,962.0
May 2018 10,610.8 43,797.4 -33,186.6
June 2018 11,115.6 44,599.5 -33,483.8
July 2018 10,261.7 47,096.0 -36,834.3
August 2018 9,294.3 47,863.9 -38,569.6
September 2018 9,789.1 50,032.1 -40,243.0
October 2018 9,130.5 52,233.0 -43,102.5
November 2018 8,664.9 46,525.7 -37,860.8
TOTAL 2018 111,158.4 493,489.9 -382,331.5

Source: United States’ Census Bureau

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