Trump and Xi go mano a mano on tariffs — who will back down first?
According to President Trump, famed investor and business leader Chuck Schwab told him that “he’s been waiting for 40 years for somebody to do what I did over the last month” — meaning his attempt to rebalance unfair trading practices, especially with China.
He’s not alone.
Sifting through all the stops and starts (and at times contradictory rhetoricfrom the White House about tariffs), one thing is clear: Trump is determined to penalize China for its long history of cheating the United States. As of last evening, the president had imposed unprecedented tariffs of 145 percenton China, even as he has given most other nations a 90-day reprieve from the “reciprocal tariffs” announced last week. He says he is singling out Beijing for what he called a “lack of respect that China has shown to the World’s Markets.”
Here is what is also clear: Xi Jinping is not ready to bend the knee.
Trump may have been angered by President Xi’s announcement that his country would hit U.S. imports with 84 percent duties, but our president has long believed that China should pay for decades of trade transgressions.
China is virtually the only country retaliating against the U.S. and refusing any resolution of the tit-for-tat tariffs. Though many are criticizing Trump for attempting to reset our trading arrangements with Beijing, China is the villain in this showdown.
Beijing has waged economic war against the West for decades and gotten away with it. Trump is the first U.S. president to push back; he did that during his first term in office, demanding that China import more goods from the U.S., cracking down on subversive Chinese activities in the U.S. and alerting our country to Beijing’s perfidy. At the time, he also imposed tariffs on some Chinese-made goods, highlighting Beijing’s illegal dumping practices and currency manipulation.
China joined the World Trade Organization in 2001 only to break every rule meant to ensure fair trade among countries. Between 2002 and 2019, China was involved in 65 disputes brought before the WTO’s dispute settlement system, 44 times as a respondent and 21 times as a complainant. The U.S. and European Union charged China with forcing companies to give up their technology to gain access to Chinese markets, subsidizing state-owned enterprises, dumping excess product on international markets, restricting financial firms from operating in that country and applying higher value-added taxes to foreign-made products than to domestic ones.
WTO membership helped boost China’s trade in goods from $516.4 billion in 2001 to $4.1 trillion in 2017. At the same time, according to a 2020 analysis by the labor-friendly Economic Policy Institute, the U.S. trade deficit with China resulted in the loss of 3.7 million jobs from 2001-2018.
Further, China stole hundreds of billions of dollars of U.S. intellectual property and thumbed their nose at revelations of their wrongdoing. In 2023, the so-called “Five Eyes” countries’ intelligence chiefs jointly accusedChina of massive intellectual property theft and using artificial intelligence to hack and spy on other nations. Beijing didn’t care; with U.S. consumers hooked on cheap Chinese goods, they bet that U.S. leaders would not dare risk upsetting that apple cart.
Beijing also knew they had the support of U.S. business leaders who took advantage of China’s low wage rates to outsource manufacturing. Many of those C-suite executives came to regret their move to China, as they too were victimized by their hosts — subject to random damaging rule-making, biased legal maneuvering, technology theft and so on.
China made many promises of reform during their 15-year application for WTO membership, but as a report from CSIS gently notes, Beijing never “instituted deep, systematic reforms and its mixed compliance with WTO dispute rulings has at times challenged the WTO’s underlying norms.”
They continue to play the same games today, but now the country is in trouble.
Xi undertook personal management of China’s economy some years ago; it has not gone well. Growth has slowed and the population is shrinking. A housing crash, brought on by years of state-sponsored overbuilding, devastated China’s consumers and undermined efforts to build up internal demand. Consequently, exports remain the main driver of growth and employment. China has spent $1.9 trillion over the past four years to expand its manufacturing sector, according to the New York Times, guaranteeing even greater flooding of global markets with subsidized cheap goods.
That is what President Trump is resisting. He is not alone; last fall, the EU slapped tariffs on Chinese-made electric vehicles, fearful that imports would swamp their own car makers. Chinese EV makers, including BYD, now the world’s largest, had captured roughly 8 percent of the EU market in just a few years.
Now, Xi and Trump are engaged in what appears to be a personal battle of wills. Xi is blocking his country’s imports of certain U.S. products, like movies, driving down Disney’s stock price and prospects, and he can capitalize on Americans’ dependence on Chinese rare earths or pharmaceuticals.
Ultimately, though, China does not hold winning cards. Their exports to the U.S. last year totaled $439 billion, or nearly 3 percent of GDP; U.S. exports to China totaled $143 billion, less than 1 percent of GDP. Because of the current tariff wrangle, economists are cutting China’s growth outlook by as much as 0.5 percent.
It isn’t just growth that is on the line, however. As Trump lowers the boom, the flood of countries already moving production out of China to less controversial host countries, like Vietnam or Mexico, will accelerate.
Xi has one advantage: he does not face voters. Trump does, which makes it imperative that the White House quickly craft trade deals with other countries, demonstrating the value of the tariff battles, and fully isolate China.
If the showdown between Xi and Trump persists, it will hurt both countries — one will have to break, and I’m guessing it won’t be Trump.
https://thehill.com/opinion/white-house/5244426-china-trade-war-trump
Published in The Hill
