Trump has promised a new trade war on China. We should all be nervous

Even as Donald Trump promised, if he regains the US presidency, to double down on his trade war with China this week, thousands of American companies have been queuing up to complain about the existing tariffs and seek compensation for their impact.

Trump unveiled his new “America First” trade policy on Tuesday, pledging to “tax China to build up America.”

Donald Trump wants to double down on his trade war with China if he wins the next US election.
Donald Trump wants to double down on his trade war with China if he wins the next US election. Credit:AP

He pledged to completely eliminate America’s dependence on China, removing its favoured nation trade status, phasing out all imports of essential goods from China and denying federal contracts to any company outsourcing activity to China.

His trade policy would also target other countries. He said he would phase in a system of universal baseline tariffs on most foreign products which would “increase incrementally depending on how much individual countries devalue their currency.”

His plan would end America’s “gaping” trade deficits and bring “trillions and trillions” of dollars of revenue from foreign countries that could be invested in American workers and families.

It would seem Trump still hasn’t realised that his tariffs weren’t paid by China or its exporters but by US importers. Those “trillions and trillions of dollars” would effectively be new taxes on American companies and consumers, which is the point that has been made, repeatedly, by the US companies and others that have been criticising the existing tariffs.

While Trump was promising an escalation of the trade war with China (and others) that he started in 2018, American companies in their thousands – there are about 6000 plaintiffs – are challenging the legality of the $US300 billion ($447 billion)-plus of existing tariffs on China’s exports to the US, with some seeking to recover billions of dollars of refunds through legal actions in the US Court of International Trade in New York.

Separately, the United States Trade Representative (USTR) is conducting a statutory four-year review of the Trump tariffs that has attracted more than 1500 submissions, the majority of which argue that they have harmed the companies and their workforces and damaged the US economy.


Those arguments have been supported by almost every serious analysis of the impact of the tariffs, the cost of which has been largely borne by US companies and their consumers. There are estimates that the tariffs, and China’s retaliatory tariffs, have cost American companies and consumers more than $US160 billion.

The Cato Institute has, for instance, calculated the cost to the US apparel and furniture industries alone at more than $US1 billion each a year.

Global trade tensions with China have thawed with Trump out of office, but that could change quickly if he is elected back to the White House.
Global trade tensions with China have thawed with Trump out of office, but that could change quickly if he is elected back to the White House.Credit:AP

The US Congressional Budget Office (in 2020) put the cost at $US1277 per US household and other studies put the cost to economic growth at about one percentage point a year.

None of the studies has shown any net benefit from the tariffs.

If the objective of the tariffs was to reduce America’s trade deficit with China, it also hasn’t worked. The deficit last year was slightly larger than that in 2017, just before Trump began his trade war, although China does represent a smaller proportion of total US imports than it did then.

The trade truce that Trump trumpeted in 2020 has also been a fizzer. Under the “phase one” deal, which averted the threat of more and higher tariffs, China agreed to buy $US200 billion more US products in the next two years than it had in 2017. It didn’t, tracking well below its commitments even before the pandemic struck.

“America First” puts the rest of the world last.

The tariffs, imposed in four waves between 2018 and 2020 with rates of duty up to 25 per cent and an average rate of about 20 per cent, have been left in place by the Biden administration, although it has increased the number of exclusions from them.

While the administration continues to review them and has acknowledged their negative impact on the US economy, it sees them as leverage in the wider range of economic and geopolitical tensions it has with China.

Their removal would slightly lower the US inflation rate but there are also domestic political considerations at play. Action against China, however ineffective, is popular in the US and not just among Trump’s MAGA supporters or Republicans more broadly. That may have influenced Trump to go bigger and harder with his new campaign for the presidency.

Multiple studies have shown that Trump’s tariffs on China have had a negative effect on the US economy.
Multiple studies have shown that Trump’s tariffs on China have had a negative effect on the US economy. Credit:Bloomberg

In May last year the USTR invited submissions from parties wanting to retain the tariffs and received several hundred. Without those submissions, the tariffs would have hit their four-year anniversary and lapsed.

Subsequently, it opened the review to broader feedback, which generated about 1500 submissions. Most of them are opposed to the retention of the tariffs, or want the range of products covered by them to be greatly reduced.

The USTR review is into the effectiveness of the tariffs in eliminating or countering China’s acts, policies and practices in relation to technology transfer, intellectual property and innovation and their effect on the US economy, including US consumers.

The simple conclusion to the questions the review poses would be that they have proven quite ineffective in altering China’s actions and policies and that they have caused significant harm to the US economy and consumers.

There may be a final ruling this year in the cases before the Court of International Trade, which revolve around whether the Trump administration met its legislative obligation to consult with the public and assess the effects of its actions in the economy. (The USTR, the defendant in the case, has argued it was simply following the president’s orders). It would be open for any of the parties to appeal, which is likely regardless of the outcome.

The USTR’s own review is open to public submissions until May this year but the practical reality is that the White House, whether it is still housing Biden, a re-elected Trump or another Democrat or Republican, will ultimately decide whether to maintain the trade war with China.

Under Biden new trade sanctions – and there have been a lot of them – have been targeted at protecting areas of the US economy that are economically or militarily strategic, with the actions designed to build America’s capacities and reduce China’s. Advanced semi-conductors (computer chips) are a good example.

It’s not just China that should be nervous about the prospect of Trump returning, a prospect that has to be taken seriously given the strength of his hold on the Republican base, and reigniting his trade wars.

The Europeans, Japanese and South Koreans where trade tensions have thawed under Biden, would be very concerned that Trump wider trade agenda would again include their exports. “America First” puts the rest of the world last.

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