Donald Trump is banking on the idea there’s not much difference between China being terrified and being “tariffed” – as he describes his latest imposition of tariffs on Chinese imports.

Not that most other world leaders share the US President’s confidence that China will see tariffs on a further $US200 billion ($279 billion) of Chinese imports as a reason to change its ways.

Instead, this intervention becomes another big brick in the real wall the White House is building – one of rising American trade protectionism. Who pays for that?

The rate in the latest round of US tariffs is set at 10 per cent rather than the threatened 25 per cent, but that lower rate only lasts until January 1.

Donald Trump obviously believes the political value of the message to his supporters – that he is taking on China's ...
Donald Trump obviously believes the political value of the message to his supporters – that he is taking on China’s unfair trade practices – will be worth it.

Bloomberg

With China certain to impose its own retaliatory tariffs, this will only encourage Trump to quickly follow up on his next threat. This is tariffs on a further $US267 billion of goods, adding up to the entire $US505 billion value of Chinese imports last year.

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The American business community in general – as well as the markets – may love the economic impact of Trump’s tax cuts but they increasingly fear the results of his trade tactics.

Trump’s decision to remove about 300 products from the original list – including such necessities of life as smart watches, Bluetooth devices and car seats – is designed to limit immediate consumer complaints. Earlier tariffs mainly affected intermediate goods used by businesses such as semiconductors, plastics and machinery.

Limiting direct impact

The Chinese currency has fallen against the US dollar by around 6 per cent this year, also limiting the direct impact on American consumers of this new round of tariffs. But the direction of higher prices is clear.

trump trade china tariffs imports trade war rowe
trump trade china tariffs imports trade war rowe

Trump obviously believes the political value of the message to his supporters – that he is taking on China’s unfair trade practices – will be worth it. This will play out in the mid-term elections in November, including the reaction from the big agriculture exporting states now seeing their own exports to China curtailed.

“As President, it is my duty to protect the interests of working men and women, farmers, ranchers, businesses, and our country itself,” Trump said. “My administration will not remain idle when those interests are under attack.”

Bolstered by a booming economy, the US President also argues the cost to American consumers has been negligible so far. That is despite the tariffs imposed earlier this year on $US50 billion worth of Chinese imports.

“Tariffs have put the US in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable,” an enthusiastic Trump insisted via the inevitable White House tweet. “If countries will not make fair deals with us, they will be ‘Tariffed!'”

The White House seems to be relying on the Chinese being less willing to endure and escalate trade restrictions because ...
The White House seems to be relying on the Chinese being less willing to endure and escalate trade restrictions because their own economy is slowing.

Tomohiro Ohsumi

Power groupings

In the constant and chaotic shuffling of power groupings within the White House, the move is another sign that Treasury Secretary Steve Mnuchin has lost more ground to hardline officials like US Trade Representative Robert Lighthizer and another key adviser, Peter Navarro.

But the hardliners also better reflect Trump’s own instincts against moderation.

Mnuchin had been attempting to organise further trade talks with key Chinese officials, including the visit of Chinese Vice Premier Liu He to Washington planned for later this week.

The move is another sign that Treasury Secretary Steve Mnuchin has lost more ground to hardline officials.
The move is another sign that Treasury Secretary Steve Mnuchin has lost more ground to hardline officials.

Andrew Harrer

With the tariffs now officially starting on Monday, such efforts – and talks, assuming they still proceed – will clearly produce no truce in a widening trade war between the US and China.

The White House also seems to be relying on the Chinese being less willing to endure and escalate trade restrictions because their own economy is already slowing due to Beijing’s attempts to limit the growth of debt.

This seems most unlikely given the much greater unwillingness of the Chinese leadership to be seen to be losing a very high-profile and long-term battle with the US.

To justify its own actions, the US administration is relying on a report it commissioned earlier this year that concluded China has forced American companies to turn over intellectual property to gain access to its market.

China, Trump declared, had been given “every opportunity” to treat the US more fairly but had been unwilling to change its practices.

With typical bravado about his personal negotiating skills, Trump is once again holding out the prospect he can still fix this via another example of his “art of the deal”.

“Hopefully, this trade situation will be resolved, in the end, by myself and President Xi of China, for whom I have great respect and affection,” he said.

Nervous reaction

But this is not just another big business deal with another big property developer – as the nervous reaction in global markets demonstrates this week.

General global complacency that there will be some form of commonsense end to the escalating trade pressure is slowly being punctured by Trump’s self-belief in his approach to world leaders and long-term problems.

He is clearly not deterred by the lack of practical progress on the denuclearisation of the Korean peninsula following his summit with Kim Jung-un, for example.

Australia, as usual, faces being squeezed by the miscalculations and risk-taking of bigger players.

Despite a generally upbeat tone, the Reserve Bank’s minutes of its September 4 meeting released on Tuesday note the “significant tensions around global trade policy”.

“More generally, the direction of international trade policy in the United States continued to be a source of uncertainty for the outlook for the world economy,” the minutes said.

Treasurer Josh Frydenberg points out the obvious: “No one wins from a global trade war.”

That’s not a view Donald Trump ever held. Nor will he be persuaded by anything other than his own version of reality. No deal.

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