This week the White House announced that it would be moving forward with plans to impose a 25 percent tariff on $50 billion of goods imported from China. This move comes days before Commerce Secretary Wilbur Ross lands in China for another round of trade talks, and just days after Treasury Secretary Steve Mnuchin declared that the administration was “putting the trade war on hold.”
The White House will announce a final list of imports that will be subject to the tariff by June 15th, with implementation following shortly thereafter. The initial list released in April included more than 1,300 imported goods ranging from dishwashers to medical devices to aircraft parts. Many of those goods were final products sold in stores to American consumers, but many were also intermediate goods purchased by American companies and used to make their products.
New investment restrictions would also be implemented with regards to the acquisition of technology deemed industrially significant, with an announcement with more details coming June 30th and implementation taking place soon afterwards.
The surprise change might be intended to give American officials more leverage in their negotiations with China, but it is just as plausible that the move could erect more obstacles to productive talks.
This is not to say that some of the underlying concerns about China’s actions have no merit. China did reduce its unweighted average tariff from 35 percent in 1995 to about 12 percent in 2002, but since then progress has been more halting, and its current average of 10 percent is far higher than the United States’ average of 3.5 percent. Productive negotiations could encourage China to further reduce its tariffs and open up more of its domestic markets to foreign companies.
Similarly, Chinese actions related to intellectual property rights are proper cause for concern, such as policies that effectively require foreign companies to transfer intellectual property or licensing rights to Chines firms. Other countries in addition to the United States have voiced similar frustrations with Chinese practices, and progress along this front is vital to stop the theft of American innovation.
Before the easing of tensions, China had responded in turn to each U.S. action it perceived as escalating the trade disputes with a measure of its own. For example, the initial release of the more than 1,300 goods from the United States prompted China to announce its own suite of 106 U.S. products that would be subject to a 25 percent tariff.
The resumption of tariff actions by the United States could lead China to restart its own tariff actions.
Meanwhile, companies and consumers alike have been buffeted by the back-and-forth, facing heightened uncertainty that makes it difficult to make long-term business decisions.
This plight is perhaps best encapsulated by the RB Eden, a bulk carrier loaded with sorghum in Texas and initially bound for Shanghai. As tracked by Bloomberg, during the ship’s journey, in mid-April China announced a 179 percent tariff on sorghum imports in retaliation for earlier announced tariffs from the United States. The announcement threw the viability of the shipment into question, and the RB Eden reversed course in the Indian Ocean and instead headed to Spain.
However, the ship never reached that destination either, as in mid-May China ended its anti-dumping and anti-subsidy probe related to sorghum, reflecting an easing of trade tensions between the country and the United States. The intrepid crew of the RB Eden changed course yet again, this time bound for Singapore, although it is not certain what their ultimate end-destination will be.
Journey of the RB Eden
Source: Jen Skerritt, “The Ship Caught in the Middle as U.S. and China Zigzag on Trade,” Bloomberg, May 22, 2018.
Sorghum is a relatively small market, but already this year Federal Grain Inspection Services data from the Department of Agriculture shows certifications for 243 ships loaded with sorghum bound for China. The number of ships slowed drastically after the tariff back and forth, as April saw only 11. Some of the cargoes that were caught in this situation reportedly had to resell their cargoes at discounts of as much as 40 percent, as their initial plans were derailed.
Although many of the Administration’s complaints have merit, the series of announcements, reversals, retrenchment, and de-escalation is not a productive way to resolve problems. These actions create a cloud of uncertainty for American consumers and companies that cause price fluctuations and make it difficult to engage in trade, as exemplified by the RB Eden. Furthermore, while the possibility remains that this new announcement will increase leverage for negotiators, it could just as easily derail those conversations, and make it more difficult to make meaningful progress.
Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes.
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