News analysis

Trump and allies may be vulnerable to Chinese retaliation on trade: Analysts

WASHINGTON - President Donald Trump has upped his threats of action against countries with which the US runs hefty trade deficits - particularly China.

But at a meeting at the White House on Tuesday (Feb 13), it was also evident that there is concern even among the Republican base, over retaliation by China.

Apart from recently imposed tariffs on washing machines and solar panels, the US looks likely to impose tariffs on steel and aluminium. Mr Trump has about 60 days left to decide whether to act under Section 232 of a 1962 trade law, which gives him the power to apply higher tariffs and quotas on imported steel and aluminium for national security reasons. This is principally aimed at China.

On Wednesday, Secretary of Commerce Wilbur Ross announced an "affirmative preliminary determination" in an anti-dumping duty probe of imports of cast iron soil pipe fittings from China - valued at US$8.6 million in 2016. This means Customs and Border Protection will collect cash deposits from importers of cast iron soil pipe fittings from China.

The US is also tightening its oversight over Chinese investment, and will soon release the results of an investigation into intellectual property theft.

Most trade experts believe a trade war will damage both countries even if the US eventually emerges better off. And China this month singled out American sorghum for an anti-dumping investigation, showing that it can hit America where it hurts Mr Trump in particular.

"I don't know anyone who didn't expect this to happen," Mr Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics told The Straits Times.

"I suspect they have a tool kit that they are willing to deploy in a measured way if the United States takes actions they think are not compatible with international treaty rights."

The largest sorghum producers in the US in terms of acreage are Kansas, Texas, Colorado, Oklahoma, and South Dakota. China's investigations, which may take up to a year, signal that Beijing can inflict disproportionate pain on rural constituencies that voted for Mr Trump and his allies, said one analyst who asked not to be named.

 

"It's a shot across the bow as Trump decides whether to inflict tariffs on Chinese steel and aluminium imports," the analyst said.

"I get the strong sense that this will be a big element of China's strategy if a trade war really does take place - hitting US agricultural exports… in pro-Republican, pro-Trump constituencies before mid-terms, hoping that the Trump administration steps back."

A mid-term Congressional election is due in November, in which the Republican Party's majority in both houses will be strongly challenged.

At a meeting at the White House on Monday with state and local government officials to talk about the administration's infrastructure plan, Mr Trump said: "We are going to charge countries… that take advantage of the United States."

"Some of them are so-called allies, but they are not allies on trade," he said.

But the next day when Mr Trump raised the issue of steel and aluminium, Republican Roy Blunt of Montana warned him, saying : "We need to be careful here that we don't start a reciprocal battle on tariffs."

"We make aluminium and we make steel in Missouri, but we buy a lot of aluminium and we buy a lot of steel as well," he said.

Republican Senator Pat Toomey of Pennsylvania, highlighting the importance of steel to the defence industry, urged Mr Trump to "go very, very cautiously here".

Senator Toomey said invoking national security to slap tariffs on Chinese steel would be a difficult case to make, and "invites retaliation that will be problematic for us".

Mr Schott said most Chinese steel is blocked from entering the US under existing anti-dumping and countervailing duty measures, with only about a million tonnes or maybe less going into the US.

He said: "Chinese imports are not the cause of problems for the US steel industry. Chinese exports to other markets which have an effect on world steel prices is what affects the US steel makers. This makes it more complicated than the Trump people thought."

China has successfully played interests of Congressmen and Senators against each other previously, said Mr Schott.

In 1982, when the late Senator Jesse Helms from North Carolina tried to get Congress to slap tariffs on textiles from China, Beijing retaliated by telling another Republican Senator, Mr Bob Dole of Kansas, a major agricultural state, that it may stop buying wheat. The attempt to target textiles was withdrawn.

Mr Schott said: "It was tit for tat in the most simple yet effective way, textiles for wheat and Republican against Republican.

"And now the Chinese have more levers to pull, with a much bigger economy, more sophisticated knowledge of the trading system, a more extensive trading relationship with the US and many other suppliers who can fill in if they block products from the US."