Some $50 Billion in Chinese Goods to Face Tariffs; Trump Vows This Will Be 'First of Many' Actions

The Office of the U.S. Trade Representative will soon release a list of the 1,300 tariff lines from China recommended because of China's forced technology transfer, forced joint ventures, intellectual property theft and technology licensing restrictions (see 1803220030). Within that list, the agency will propose 25 percent tariffs on aerospace, information and communication technology, and certain machinery, the White House said in a fact sheet. The total value of goods subject to levies will be $50 billion, the amount the administration says is the annual cost to American businesses because of China's unfair restrictions.

Once the list of products released, the public will have 30 days to comment, and there will also be a public hearing. After analysis of the comments, the final tariff list will be published.

President Donald Trump, who vowed "this is the first of many" trade actions as he signed a memo March 22, spoke with satisfaction about how many countries have come asking for negotiations to avoid the Section 232 tariffs on steel and aluminum imports. "Every single one of them wants to negotiate," he said, adding that he believes in many cases and maybe in all cases, they'll reach a deal and the countries will not be subject to the tariffs. "The people we’re negotiating with, they cannot believe they’ve gotten away with this for so long," he said. He implied that China, too, may be able to temper some of these actions, which will also include investment restrictions on China inside the United States. He said he's been telling the president of China that the trade deficit of $375 billion must fall by $100 billion immediately. Commerce Secretary Wilbur Ross, speaking at the signing ceremony, said, "We will end up negotiating these things rather than fighting over them, in my view."

Peter Navarro, director of the White House National Trade Council, told reporters on a conference call that the U.S. is "simply strategically defending itself against this particular form of economic aggression." He said there will be outreach to the country's trading partners to see if they will also put pressure on China to reform its policies on foreign investment in China and intellectual property theft. "Everyone faces this problem," he said.

The Chinese Embassy in Washington put out a strongly worded statement after the memo was signed. "China has demonstrated sincerity in making reasonable suggestions to the U.S., and has made great efforts to address the current trade imbalance between China and the U.S. China does not want a trade war with anyone," it said. "But China is not afraid of and will not recoil from a trade war."

Scott Kennedy, an expert on China's economy at the Center for Strategic and International Studies, said Trump's trade policies since taking office will make it unlikely the U.S. will get cooperation. "As a result of the 232 penalties on steel and aluminum; pulling out of [the Trans-Pacific Partnership]; threatening to withdraw from KORUS; and the ambivalence that the president has expressed about NATO, I think that has left our European and Asian allies far less willing to not just stand shoulder to shoulder with the U.S., but to [even] show support for what the U.S. is doing," Kennedy said. "I just came back from China this week. I did not hear anything reassuring with our European and Japanese colleagues ... even though they agree that what China is doing is wrong and that just talking to China has not been enough." He said that for Europe and Japan, even more so than the U.S., taking China on is a high-stakes move. "If we’re going to go to battle against China, they want to make sure the U.S. is doing everything we can -- that all our T's are crossed and I's are dotted on this." And they are not, he said.

For importers, the big question now is how much will they be able to shape the list. Exporters want to know what kind of retaliation might follow. And all those involved in trade will be waiting to see if the total volume of goods falls because of tariffs and countermeasures.

The Information Technology and Innovation Foundation opposes tariffs on Chinese goods to deal with IP violations, and released a study that said that economic growth will be damaged by levying 25 percent tariffs on laptops, tablets, cell phones, routers, servers -- all the 256 product lines it identifies as information and communications products (see 1803160009). Stephen Ezell, one of the co-authors of the report, said in an interview that purchases of these items will decline by 1 percent for each 1 percent the price increases, though it's not known whether the full tariff amount would be passed on to the consumer. The study did not examine whether some purchases in these categories would continue but just shift to products made in Malaysia, Indonesia or even the U.S.

Restrictions on Chinese investments and an equally punitive approach to technology licensing -- especially done in concert with other countries -- is preferable to any tariffs, Ezell said. But if tariffs are unavoidable, he said levying tariffs on goods made by Chinese-headquartered producers would be more effective to bring political pressure on China without hurting ourselves, given that tariffs on tech products would hit American companies such as Apple, HP and Cisco Systems. "Really impose the penalties in the way that are hitting Chinese producers the hardest," he said, such as "tchotchkes, luggage, apparel." Of course, retailers that sell apparel and American clothing companies have a different view. "America already levies import taxes as much as 32 and 67 percent on basic clothes and shoes," they wrote in a letter March 19.

U.S. Trade Representative Robert Lighthizer told Congress the tariffs lines will be selected through “an algorithm that would maximize the pressure on China and minimize the pressure on U.S. consumers.” Will exports to China fall now? Congress members from farm states have been anxious about Chinese retaliation against soybeans, seen as a likely target.

"I think Trade War 101, in the short term you’re going to have a reduction in two-way trade and investment," Kennedy said. "The question is whether the Chinese will eventually surrender and reduce barriers to imports" and change its approach on intellectual property. If that happened, it could "outweigh the short-term pain," he said. Kennedy said the length of "short-term" depends "on the two sides’ staying power to determine how long this goes, how intense this becomes."

He said there are reasons to believe the U.S. will blink first. "There’s several things that put the U.S. in the difficult position. The first is that the president has not sought to generate domestic consensus either within the Republican Party, with labor groups, or with American consumers, letting everybody know they may need to sacrifice in the short term for the betterment of the country in the long term." The second is that Trump has alienated allies. "I don’t think just holding back the sword on 232 is going to make them that much more enthusiastic about working with Trump on China in this matter," he said.

If the administration can stand political pushback about the economic consequences, Kennedy said it's not clear how they will determine their actions worked, and roll back the remedies. "The administration has intentionally not conveyed to the Chinese in any detail what it would take for the U.S. to not launch the trade war, or what it would take to end it should it begin," he said. "I think that’s for two reasons. The first is tactical. Their purpose is to get this conflict going, and to raise China’s blood pressure as much as possible. And by not clarifying what is needed to fix things, they ensure that China will be as nervous as possible going in."

The second reason, he believes, is there’s not "a full consensus in the administration about what it is they want China to do." Trump, and some allies, just want a $100 billion reduction in the trade deficit. If that's because we buy fewer imports, and don't increase exports at all, that's fine with them. Others are more focused on changing China's investment restrictions, industrial subsidies and tariffs, which might not change the deficit at all, Kennedy said. In a call with reporters about the 301 remedies, a senior White House economic official declined to say what markers they need to see to end the tariffs. "As for the timeline, a lot of this rests with them," he said.