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China Center Newsletter
April 2018 | Newsletter
After the Trump administration's announcement last month of plans to levy tariffs on $50-60 billion worth of imports from China, the risk of a protracted trade war is real. It's a situation that could hurt businesses in both countries and around the world—and even undermine the established global trading order if things spiral out of control. Given the importance of trade and foreign investor activity for China’s economy, US actions may ultimately yield some concessions from China that are helpful for MNCs. But this scenario is, of course, deeply uncertain and could take a while to play out.
Our team has been tracking US–China trade relations very carefully over the past 18 months—for instance, see David Hoffman and Eric Lundh's recent Bloomberg Viewcolumn, 'Huge' Trade Deficits Are Smaller Than You Think. In this month's newsletter, we highlight a range of member-exclusive archival pieces from our research portfolio that anticipated the events now transpiring, and illuminate the path the confrontation will likely take going forward.
A few key points for interpreting the very latest events as they unfold:
- The policies emerging in the wake of the new USTR Section 301 report are designed to curtail the trade deficit, constrain China’s techno-nationalist ambitions, limit the ways in which US companies can be forced into supporting "China’s rise," and ultimately to create a new status quo where China feels compelled to take seriously the question of reciprocity and level playing fields.
- Given its druthers, China would necessarily seek to maintain the status quo, and avoid this confrontation altogether (recent retaliatory tariffs notwithstanding).
- The economic impact of a trade war could very well prove destabilizing for China. Our alternative growth series for China shows that external shocks have much higher impact on Chinese growth than the official data reveal.
- It's impossible to know at this point how hard the US team will push for genuine and major concessions. It is quite possible that all of this is more about domestic politics than deep-rooted concerns about trading relationships. Alarmingly, it is also possible that a trade war represents the Trump team’s idea of a positive short-term outcome.
We will be providing more insights as the dust begins to settle and final policy formulations begin to clarify.