Monday, 14 November 2016

Trump and China: A Trade War on the Cards?

     Every US Presidential election witnesses a high tide of anti- China rhetoric, mostly by right wing candidates. Trump was no exception. What he proposed to do, with the certainty of an evangelical preacher, was that [a] he would impose a 45 percent tariff on Chinese imports to the US [b] officially declare China as a "currency manipulator" and [c] alleged that it were the Chinese who "finished" the US manufacturing industry. Every US President in the recent past has invariably started his innings, with some such accusations against the Chinese authorities. For example, President Clinton sought to link the denial of human rights in China with trade, President Bush declared that he would "do whatever it takes to defend Taiwan", whilst President Obama pushed for a "pivot to Asia". The question is will a future President Trump push for the implementation of his campaign rhetoric or will he, realizing the realities of the case, become considerably tamed?
     Judy Sheldon, a Trump economic advisor, told Bloomberg TV in an interview after the elections, that Trump is "someone who is going to carry through what he said". If that is so, then what is the future for the Sino-US trade relationship? Is a trade war looming?
    Let us take the case of the proposed 45 per cent tariffs on Chinese imports into the US. Firstly, as per existing law, a US President can only impose a 15 per cent tariff across the board and that too only for 150 days. This limit can only be broken if the President were to declare a 'state of emergency". A proposition that is hardly likely to be enacted! But what the President can do is place tariffs on individual commodities imported from China. The last time this was attempted was when President Obama imposed a 35 per cent tariff on the imports of Chinese tires. The Chinese immediately retaliated by placing tariffs on imports of chicken and automotive products from the US. Both sides lost. But the lesson was learned and thereafter there were no more attempts at imposing tariffs by either side. The Global Times [GT] has already threatened that if Trump imposes tariffs, then China will inevitably retaliate. Orders for Boeing aircraft will be replaced by Airbus; US auto parts and I-phone imports by China from the US will suffer. US exports of maize and soybeans to China would also come under pressure. Presently, US exports of corn are up 80 per cent world wide from same period last year, as are wheat up 27 per cent and soybeans up by 18 per cent. China is a major importer of these agricultural commodities.
    As for naming China as a "currency manipulator," the Chinese maintain that the Rmb [Yuan] is already in the  SDR basket of currencies with monetization of the exchange rate. If Trump persists, there is nothing that prevents the Chinese from letting the value of their currency fall even further. Already it is trading at the lower end of the permitted range. This would make imports of Chinese goods into the US even more attractive; thus further hitting at US local manufacturing.
    Despite Trump's campaign rhetoric there are no easy solutions, if he tries to implement them. Both the US and China are deeply intertwined together and any turbulence in the relationship would cause immense hardships to both. That is the bitter lesson that Trump is going to learn when he enters the White House. A President Xi Jinping reportedly told Trump in a telephone conversation "cooperation" is the only way forward!         

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