US President Joe Biden and Chinese President Xi Jinping trying to look friendly during their last ... [+]
It is wrong to say that China and America stand at the brink of a trade war. The fact is that these two huge economies have long since gone over that brink. They are involved in a full-fledged trade war, one that is only likely to become more intense.
Conflict has built since President Donald Trump imposed punitive tariffs on Chinese goods in 2018 and 2019. He aimed to persuade Beijing to stop its unfair trade practices – among them domestic subsidies, patent theft, unusual demands on American firms doing business in China. His tariffs failed to get a change in Beijing’s policies, but the Biden administration, despite reflexively reversing everything Trump had done, kept the tariffs in place. U.S. Trade Representative Katherine Tai insists that they are the only way to get a change out of Beijing. In more recent years, the Biden White House has added to the pressure. It has cut off U.S. exports of advanced semiconductors and chip making equipment to China as well as American investment in Chinese technology. To further thwart what the president describes as Beijing’s ambition to dominate the global chip market, he has offered subsidies to domestic U.S. chip manufacturing operations.
Very recently, more talk of tariffs and other trade penalties has emerged, and from both sides. Washington has begun a probe into Chinese shipbuilding. It stems from a complaint from five national labor unions to Katherine Tai’s office, claiming that Beijing uses unfair policies in its effort to “dominate [global] maritime logistics and shipbuilding sectors. China’s Commerce Ministry has countered, claiming that the accusations are false and that Tai’s office has “misinterpreted normal trade and investment practices.” The ministry has also leveled a not very veiled threat of its own probe into what it describes as Washington’s use of discriminatory subsidies to its own industries.
President Biden has threatened new and enlarged tariffs. During a campaign stop at a U.S. Steel plant in Pittsburgh, he referenced Chinese subsidies for their steel and aluminum industries and threatened to triple the basic 7.5% tariff on these products to 25%. If these threats find their way into law, they would go on top of the 10% duties on steel and aluminum put in place by the Trump White House. This latest tariff threat comes only shortly after the president suggested new higher tariffs on Chinese electric vehicles (EVs), batteries, and solar panels.
Chinese authorities have said little about these threats, except to criticize what it calls Washington’s “rash” behavior generally. What Beijing has done is imposed its own new tariff on American made chemicals. The Commerce Ministry has singled out propionic acid, a chemical widely used in pesticides, herbicides, and drug development. The ministry has set a steep tariff of 43.5%. While the Chinese commentary has failed to mention the two American firms most affected by the levy–Dow Chemical and Eastman Chemical–it has blamed American interests for “dumping the product on Chinese markets.” Since Beijing’s action came just a few days after Biden threatened new tariffs, what it effectively says, though not in words, is that two can play the same game.
This new Chinese tariff can hardly do much harm to the U.S. economy or even Dow’s and Eastman’s bottom lines. Though propionic acid is widely used, its global market is relatively small, only about $1.3 billion as of a 2022 accounting. With China consuming about one-quarter of global trade and the United States not that economy’s only source, the American sales involved amount to $300 million at most. But of course Beijing is less interested in limiting the sales of a particular product than in sending a message to Washington that its threatened tariffs will get a response.
In this ratcheting game of tariffs, subsidies, and probes, Beijing has the weaker hand. Washington has on its side the European Union and Japan as well as the United Kingdom, all of which have also complained about Chinese trade practices and are also considering tariffs on Chinese goods as well as other measures against China trade. These are formidable allies for Washington in this contest. Nor can Beijing hope that the pressure will ease should the current U.S. administration lose in the November election. Trump has promised still more tariffs against Chinese products if he is elected.
