Ceasefire in Trade War With China Bodes Well for American Business

COMMENTARY Trade

Ceasefire in Trade War With China Bodes Well for American Business

Dec 26th, 2018 3 min read
COMMENTARY BY
Riley Walters

Policy Analyst, Asia Economy and Technology

Riley Walters is policy analyst, Asia Economy and Technology in The Heritage Foundation’s Asian Studies Center.

Key Takeaways

There still is a slim chance that the new tariffs and the escalating trade war with China could be put back on hold.

The bad news is that the tariffs this year, now applied to $250 billion worth of Chinese goods, are likely to stick around for a while.

Chinese policy will continue to mirror United States trade policy, which means being tough on your competitors while attempting to woo third party investors.

By January, what you buy from China may come with an additional 25 percent markup. That is because President Trump has threatened to slap new tariffs on half of all United States imports from China. Yet, there still is a slim chance that the new tariffs and the escalating trade war with China could be put back on hold when President Trump and President Xi Jinping meet next month at the G20 summit in Argentina. Why would the United States agree to a ceasefire in the trade war with China when political rhetoric against Beijing in Washington seems to be heating up?

Maybe President Trump will see the move for what it is, which is a win for American consumers and manufacturers. Or perhaps he simply does not want to ruin the good personal relationship he and President Xi have. While it is unlikely there will be any significant deal between the United States and China before the meeting, it is possible the two presidents could commit to entering into negotiations, which could produce an agreement that neither country will impose new tariffs on the other.

This would be similar to what the United States and Japan recently agreed to on trade negotiations. The difference is negotiations between the United States and China would not be a trade deal requiring approval from Congress. Treasury Secretary Steven Mnuchin quipped that the trade war was on hold earlier this year. This lasted less than a fortnight before President Trump announced another round of tariffs on $50 billion worth of Chinese goods imported to the United States.

Putting the trade war with China back on hold would surely boost American business confidence. It is unlikely negotiations would have as short a shelf life as previous efforts. But the bad news is that the tariffs this year, now applied to $250 billion worth of Chinese goods, are likely to stick around for a while. Even with the potential for an amicable armistice in November, a number of events over the next four weeks will shape the future of negotiations between the United States and China.

The Treasury Department recently released its report on foreign exchange of major trading partners. The report once again stopped short of calling China a currency manipulator. Not calling China a currency manipulator bodes well for negotiations, at least until the next report comes out. Just because the yuan has lost up to 9 percent in value over the last year does not mean Beijing is manipulating it. In fact, a weaker yuan will offset some of the benefits that the China Ministry of Commerce hopes to gain in its upcoming China International Import Expo planned for next month.

The China International Import Expo will be a chance for President Xi to restore business confidence in China, which has waned in light of its stagnating economy and the emerging trade war with the United States. To offset some of the political costs, there may be new commitments to reduce certain tariff rates. There may even be announcements to reduce investment restrictions, although these would be limited. Chinese policy will continue to mirror United States trade policy, which means being tough on your competitors while attempting to woo third party investors.

More likely, President Xi wants to make good with businesses that have been less critical of the trade war pushed by Washington. His speech will set the tone for Chinese officials who attend the Association of Southeast Asian Nations and the Asia Pacific Economic Cooperation summits next month. Vice President Mike Pence will represent the United States at these important meetings. Chinese officials already signaled they expect an uncharacteristically aggressive tone from the vice president on trade and other security matters. A recent speech he gave at the Hudson Institute has Chinese officials considering further backing off trade talks.

Not only do Chinese officials worry that any deal with the United States is going to be more than a trade deal, they still see an American side that keeps increasing its list of demands. They are more than willing to sit out until the United States side can get its ducks in a row. This may not be enough to keep the two presidents from working toward a trade truce at the G20 summit. But it does guarantee that progress on key issues between the United States and China will be a long time coming.

This piece originally appeared in The Hill on 10/27/18