China Experts Expect Section 301 Tariffs and Chinese Retaliatory Tariffs to Last at Least a Year

China will implement retaliatory 25 percent tariffs on 545 tariff lines, largely agricultural and auto targets, but also "aquatic products," on July 6, it said in a statement. Like the U.S., it is saving an additional $16 billion in targets in reserve. For China, those will be chemicals, energy imports and medical equipment. For the U.S., semiconductors, plastics, railcars, tractors, cranes and new industrial machinery lines could be in the second phase. China's tariffs are in response to the Section 301 tariffs on imports into the U.S. set to begin July 6 (see 1806150003)

China experts disagree on whether the U.S. has more leverage in negotiations now that 25 percent in additional tariffs will begin on 818 tariff lines from China, including hard drives, industrial machinery and LED lights. But they agree that these tariffs will not be lifted in the next few months, and maybe not for years. Eric Miller, president of the Rideau Potomac Strategy Group, believes the U.S. is in a stronger position than it was before, but he's not hopeful a negotiated settlement will put an end to the tariffs. "Even if China did bend, this U.S. administration is not very good at taking yes for an answer," he said, pointing to what's happened with NAFTA. Moreover, he said Democrats would capitalize politically on a settlement and attack the president for not being tough enough on China.

The failure of Sen. Bob Corker's amendment to require congressional approval of Section 232 tariffs (see 1806130012) also shows Congress is not going to thwart a trade war, Miller said. "I don’t see a pathway to really eliminate this," he said. Not only does Miller believe the 232 tariffs on aluminum and steel are in for the long haul, he expects new tariffs on imported autos and auto parts under Section 232 to come in October.

"The only way these tariffs fundamentally get eliminated is the United States has to go in a major recession," he said. "You’re going to need plant closures, you’re going to need price increases, you’re going to need investors pulling their money out of the country, before the people in the Republican Party feel they have to take a stand against this. I think they’re going to be with us for a good, long time to come."

Philip Levy, senior fellow on the global economy at the Chicago Council on Global Affairs, said the administration is being incoherent. First the trade war with China's on hold, then "everything falls apart, not because of some specific event, either because somebody else became ascendant [at the White House] or changed his mind," he said. "It’s also relevant for this that we’ve managed to alienate most of our normal allies. The G-7 breakdown -- you’ve had the war of words with the Canadians, the application of tariffs [on NAFTA and EU countries]. They’d probably be significantly more worried if he had rallied the Western world. It leaves the Chinese even less likely to make concessions because they don’t know what they’re negotiating over."

The possibility that Congress might preserve the seven-year export ban for ZTE also makes China wonder if Trump has the ability to guarantee any deal, he said. From the Chinese perspective, Levy, a former Bush administration trade economist, said: "There’s no pattern to this except endless demands. The Chinese are fairly anxious to strike a deal and avoid a trade war. They’re not anxious to give and give on politically sensitive things and get nothing in return."

Six months from now, Levy thinks, it's likely the Trump administration will have put an additional 25 percent tariff on $150 billion in Chinese imports, in a retaliation to China's retaliation. He said "the big uncertainty is: Will Congress step up to its responsibility and do something?"

Levy said that while it's true the Corker amendment couldn't even get a vote, its existence gives trade groups such as the Business Roundtable and those representing agriculture interests something to latch onto. When they visit Congress, they can do more than just ask them to lean on the White House to scale back tariff targets, or improve the product exclusion process. Instead, he said, they can ask representatives to take back the power to decide when tariffs are justified on national security grounds.

Levy, who signed a Never Trump letter during the campaign, said he can't predict what will be so dramatic that Republicans in Congress would go beyond grumbling to confront the president on trade. "You move to autos, quantitatively it’s much more important than steel and aluminum," he said. "You’re talking about a huge chunk of trade." If imported cars increase in cost by 25 percent, he said, constituents will be asking: "Why did you just cost me an extra couple of thousand dollars on that car I wanted to get?"