Donald Trump fires another volley in the US-China trade war

Donald Trump fires another volley in the US-China trade war

Another brief ceasefire in the trade wars has ended, and the US has brought out the heavy ordnance again. After a week or two when faint hopes appeared of de-escalating the US-China conflict, President Donald Trump has imposed 10 per cent tariffs on about $200bn-worth of imports from China. Together with previous actions, this means that nearly half of China’s total exports to the US will be covered by Mr Trump’s tariffs.

Given the domestic pressure to be seen to respond, Beijing has already signalled it will hit back. Although there are relatively few imports from the US for it to block, China has plenty of other ways to retaliate, including making life hard for American companies operating in the country.

Recent attempts by Steven Mnuchin, the US Treasury secretary, to restart talks with Beijing failed. The trade hawks in the administration, led by Peter Navarro, a senior White House trade adviser, are in the ascendant. That is a shame, and a problem.

Unlike Mr Trump’s complaints against other economies, including the EU and the US’s Nafta partners, Mexico and Canada, much of his criticism against Beijing is warranted. China has swerved significantly off the glide path to becoming a market economy that the rest of the membership of the World Trade Organization believed the country would follow after it joined the body in 2001.

The “Made in China 2025” initiative, which aims to establish a global lead in high-technology sectors, has given central and local governments and state-owned enterprises even more licence to intervene. They are distorting markets with protectionist regulation and stealing technology from foreign companies operating in the country.

But apart from some restrictions on inward Chinese investment into the US, Mr Trump is doing relatively little to tackle these problems directly. His solution to 21st-century protectionism is to use trade tools of the prior two centuries, in the form of tariffs on goods.

An intelligent campaign to press China to moderate its anti-competitive action would be hard, but it could be attempted. Allies, in the form of Japan and the EU, are there for the co-opting: there is already a trilateral initiative of the three trading powers under way. Among other things, this would mean working through the WTO rather than — as Mr Trump currently is — crippling the institution by jamming up its dispute settlement system. As it happens, China has a reasonably good record in complying with WTO decisions.

On Tuesday the EU formally launched a package of proposed reforms to the WTO, attempting to allay some US concerns about the institution. With co-operation from Washington, the initiative could go significantly further. Without it, the EU’s plans — and possibly the WTO itself — will wither and die.

Mr Trump, however, persists in the wrong-headed belief that reducing bilateral trade deficits is a central policy goal, and that trade rather than macroeconomic policy is the way to do it. It is, in fact, possible that the president will win the trade war with China by his very narrow metric. But by doing so he will destroy value-creating international supply chains and weaken the US and the global economy.

If China does not accede to Mr Trump’s demands — and there are few signs that it will — all of its goods exports to the US may soon be covered by punitive tariffs. That is an extraordinary risk for Washington to take with the health of the world trading system. There are better and more collaborative ways. Sadly, this US president seems determined not to take them.

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