The White House has dug itself into a hole on trade with China, and there’s little prospect of getting out before 2019. Threats aside, both Washington and Beijing seem at a loss for what to do next. For now, the new taxes on imports are here to stay.
American families won’t be insulated much longer from this emerging trade war as costs continue to increase. Before October, a new tax on $200 billion worth of goods Americans buy from China will go into effect — impacting half of all things Americans buy from China.
One silver lining to this is that the U.S. economy is about to enter into its fourth quarter. This time typically represents a significant period of U.S. economic expansion. For families, it’s a time of gift giving. For some companies, it represents the first quarter of their next fiscal year.
Both could come in conflict with President TrumpDonald TrumpOvernight Defense & National Security — The Pentagon's deadly mistake Overnight Energy & Environment — Presented by Climate Power — Interior returns BLM HQ to Washington France pulls ambassadors to US, Australia in protest of submarine deal MORE’s plan — what he is calling “phase three” — to impose a tax on every single item Americans buy from China. It's a threat he’s made twice now, and a threat he plans to implement if China continues to push back.
Not to help the situation, Washington and Beijing have given up on high-level economic dialogues. Talks between the two governments are now taking place between those with less authority to speak on behalf of their countries’ leaders.
But the only foreseeable way out of the current trade war will be an agreement between President Trump and President Xi of China.
As President Trump recently stated however, “We’ve done very well in negotiations with China, but we’re not prepared to make the deal that they’d like to make.”
President Trump isn’t planning to travel to either the Asia-Pacific Economic Cooperation or East Asia Forum this year — something he may want to reconsider. It’s unlikely that either side could come to any significant trade agreement on the sidelines of the U.N. General Assembly later this September or even at the Group of 20 Summit this November.
Besides, not showing up, especially amid widespread unease over American trade policy, sends a very negative signal about America’s commitment to the region.
The White House may believe it is fully prepared for an extended trade impasse. Yet, given both the economic costs to the country and political costs of the new import taxes, it should look to a more targeted approach to the issue that has served as the legal pretext for this trade war — intellectual property theft.
Recent reports show there may be efforts underway to punish those who have stolen intellectual property. This and more extensive effort at the World Trade Organization would be far preferable to the current tariff-based approach, if addressing intellectual property concerns is the true motivation and not just a legal pretext.
The future of U.S.-China trade relations is murky to say the least, and it’s hard to say that trade disputes with other countries won’t only impact how but when the administration will make its next move against China.
An amicable North American Free Trade Agreement (NAFTA) renegotiation — one that doesn’t completely sour U.S.-Mexico-Canada trade relations — could bolster the White House to take more dramatic actions against China.
But new taxes on auto-part imports could not only throw any new NAFTA deal out the window but any U.S.-Korea, U.S.-EU and U.S.-Japan trade deal, too.
As things stand right now, there’s no doubt that as a whole the U.S. economy is doing well — much do to pro-growth measures the president has taken. Much of the costs from the trade war — until now, relatively small — have been offset by tax reform. U.S. economic numbers could even continue to expand for the rest of 2018.
But with no end in sight for the U.S.-China trade war, Americans living in 2019 will question where the economic success of 2018 went.
Riley Walters is a policy analyst in the Davis Institute for National Security and Foreign Policy at The Heritage Foundation (heritage.org).