BEIJING (BLOOMBERG) - United States President Donald Trump's proposed steel and aluminum tariffs won't cause China too much pain. If he really wants to land a blow on the biggest trading nation, he'd need to target electronics, toys and textiles.
Metals were just 5.1 per cent of American imports from China in 2016, World Bank data show, while machinery and electronics made up 48 per cent. Miscellaneous items like furniture and toys accounted for 16.5 per cent of imports. Textiles and clothes made up 8.6 per cent.
The data show Mr Trump is attacking the wrong imports if he wants to cut the huge trade deficit with China, and that doing so would require measures against higher value products. Problem is, tariffs on goods such as electronics would ripple across a vast global supply chain, hurting US allies from Japan to South Korea and Taiwan.
"If Trump really wants to hit China's exports to the US, he'll have to move beyond small fry steel and solar panels to big ticket items such as electronics and telecom products," said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong. "Any serious attempt to bring down the US trade deficit with China will need to focus on the big categories."
Mr Trump said Thursday (March 1) that the US will slap tariffs on steel and aluminum imports to protect national security, a major escalation of his hawkish trade agenda that could hit producers from Europe to Asia and spur global retaliation. He said he plans to sign a formal order next week that will impose tariffs of 25 per cent on imported steel and 10 per cent on aluminum.
The announcement came the same day Chinese President Xi Jinping's top economic adviser, Liu He, was scheduled to meet with Mr Trump's economic team in Washington: White House economic adviser Gary Cohn, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.
The tariffs may provoke retaliation from China, the world's biggest steel and aluminum producer. US tariffs "overturn international trade order," and "countries including China will take relevant retaliatory measures," Wen Xianjun, vice chairman of the China Nonferrous Metals Industry Association, told Bloomberg Friday via WeChat.
Beijing has already launched a probe into US imports of sorghum, and is studying whether to restrict shipments of US soybeans - targets that could hurt Mr Trump's support in some farming states. While China accounts for just a fraction of US imports of the metals, it's accused of flooding the global market and dragging down prices.
"China's total exports of steel and aluminum are equal to about 0.5 per cent of GDP, most of that from steel," Tom Orlik, chief Asia economist at Bloomberg in Beijing, wrote in a note. "Relative to fears from Trump's campaign trail rhetoric, in which he threatened an across-the-board 45 per cent tariff on all imports from China, these measures are extremely limited."
Mr Trump warned this week that the US will use "all available tools" to prevent China's state-driven economic model from undermining global competition. On China trade though, action against steel, aluminum and solar show he's yet to bring out the heavy artillery.
"To have a large effect he would have to go beyond individual products to broad restrictions on imports of labour-intensive products from China: footwear, garments, smartphones, televisions and appliances," said David Dollar, a former US Treasury attache in Beijing and now a senior fellow at the Brookings Institution in Washington.
The US focus on narrowing the bilateral trade deficit puts China in an untenable position because it's driven as much by macroeconomic conditions in the two countries as it is by trade policies, says Eswar Prasad, a former chief of the International Monetary Fund's China division and now a professor at Cornell University in Ithaca, New York.
With a major fiscal expansion underway in the US at a time when the economy is already gaining momentum, the US trade deficit is bound to rise further, says Mr Kuijs at Oxford Economics.
That sets the stage for a potential tit-for-tat trade confrontation. China's economic might gives Mr Xi's government the leverage it needs to strike back decisively, including scaling back purchases of American products and subjecting well-known US companies with large Chinese operations to tax or antitrust probes.
China hasn't been shy about threatening US corporate interests. A Communist Party newspaper warned in late 2016 that a trade war would have economic consequences.
"Boeing orders will be replaced by Airbus," the Global Times said in an editorial. "US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted."
"There will definitely be a rhetorical reaction" from China, Andrew Polk, co-founder of research firm Trivium China in Beijing, said in a Bloomberg Television interview today. "But I wouldn't expect them to comeback, counter-punch very hard because their whole goal is to make sure that the heat of a trade war doesn't get ratcheted up."
