Trump wants to punish China on trade, but his latest tariffs strike Asian allies instead
President Trump signs Section 232 Proclamations on Steel and Aluminum Imports in the Oval Office on March 8, 2018. (Mandel Ngan / AFP / Getty Images)

 

President Trump has repeatedly singled out China for the kind of unfair trade he aimed to curb Thursday when smacking tariffs on steel and aluminum imports. But in the fallout, China is the one emerging relatively unscathed.

Trump gave a reprieve to Canada and Mexico, for now, and suggested allies such as Australia also may receive exemptions. Countries around the globe, including Japan and South Korea, scrambled to get on the list. Leaders loudly condemned the move, which threatens to explode into a trade war and rupture America’s most important alliances in Asia.

“This is not just about Japan,” said Ken Onuki, director of general affairs at the Japan Aluminum Assn. “It’s a violation of free trade.”

Japan’s trade minister called the decision “extremely regrettable,” and South Korean officials said they might lodge a protest with the World Trade Organization.

China, the world’s largest producer of steel and aluminum, denounced the tariffs as an affront to the international trade order. The country will take “effective measures” and safeguard its rights based on the damage caused, the Ministry of Commerce said on its website.

It probably won’t feel much. China accounted for about 2.5% of U.S. steel imports last year, a result of previous restrictions. It exports a fraction of the aluminum the U.S. receives.

“It seems the U.S. administration keeps on shooting at the wrong target,” Hong Kong-based analysts Alicia Garcia Herrero and Jianwei Xu said in a research note for Natixis, a French investment bank.

Chinese officials routinely warn about the reciprocal damage of a trade war, but kept fairly quiet about the tariffs in the lead-up to Thursday. China views it as a welcome distraction, analysts say, from more biting tariffs on industries such as high-tech or semiconductors. Officials appear more anxious about the results of an American investigation into China’s intellectual property practices.

“China is definitely happy to let the other countries fight this battle for them,” said Andrew Polk, co-founder of Trivium/China, a Beijing-based research firm. “The reaction to the tariffs couldn’t have played into China’s hands any better.”

The nation’s rapid industrial growth helped create a global glut that, American steelmakers attest, has driven down prices and hurt U.S. jobs. Trump believes China delivers more steel to the U.S. via a third-party country, a process known as transshipping.

It’s “a big deal,” he said at a news conference this week. But little evidence proves this actually boosts China’s steel exports to the U.S.

“From the U.S. perspective, Korea appears to be like the gateway for the transshipment from China to U.S. markets, so we became one of the major targets,” said Ahn Dukgeun, who researches international trade law at Seoul National University. “That is not true.”

South Korea is the third-largest steel exporter to the U.S., after Canada and Brazil. Along with Mexico, they make up about half of the steel sent to America. Canada is the largest exporter of both steel and aluminum to the U.S.

The tariffs — 25% on steel imports and 10% on aluminum — will take effect in two weeks.

Trump invoked national security as his justification, a tactic that infuriated allies. The European Union has threatened to hit back with tariffs on bourbon, bluejeans and Harley-Davidson motorcycles — items from regions with more political support for Trump or Republican lawmakers.

“If you put tariffs against your allies, one wonders who you’re enemies are,” European Central Bank President Mario Draghi told reporters at a Thursday news conference.

Trump hinted that he might use tariff exemptions as a bargaining chip, particularly in negotiations with Mexico and Canada over the North American Free Trade Agreement. Neither of the two countries — the largest U.S. trading partners after China — took kindly to that notion.

The trade negotiation “will follow its course independently of this or any domestic policy measures,” Mexico’s Finance Ministry said in a statement. Canadian Foreign Minister Chrystia Freeland also emphasized the move would not impact Canada’s decisions.

Foreign trade officials in Brazil, one of America’s top steel exporters, said the country would take “all necessary steps” to preserve its interests.

Trump’s announcement came the same day as 11 nations, including Japan and Australia, signed a massive Pacific trade deal. The president withdrew the U.S. from it last year, a move some viewed as the dawn of a protectionist era in America politics.

Timing is especially significant for South Korea. The shocking Thursday evening announcement that Trump would meet with North Korean leader Kim Jong Un could give the American ally more leverage — or put one of the most significant breakthroughs with the rogue state in jeopardy.

South Korean officials played an instrumental role in organizing the meeting, and the U.S. will need the country’s help to make it successful. Government officials, at least until now, have sought to distance the two issues.

“Trade and security can’t be separated,” said Ahn, the Korean trade expert. “The current government should try to link these two and increase its bargaining power.”

China also could stand to benefit. The communist nation is North Korea’s only ally, and Beijing would make a logical spot for the meeting. China’s Foreign Ministry on Friday welcomed the talks.

Analysts doubt the White House will ultimately abandon efforts to confront China on trade, especially with the resignation of Gary Cohn, Trump’s top economic advisor, and the growing clout of Peter Navarro, a prominent administration critic of China.

“All the adults have left the White House, so there are a lot of uncertainties,” said Li Wei, professor of economics at the Cheung Kong Graduate School of Business in Beijing. “It’s going to be very messy.”

The U.S. administration in January issued tariffs on solar panels and washing machines in an effort to slash cheap imports from China and South Korea. China, in response, launched an anti-dumping and anti-subsidy investigation weeks later into American imports of sorghum.

The American Chamber of Commerce in China has warned that officials could respond against punitive American actions by targeting swathes of the U.S. that resonate with Trump, particularly agricultural areas in the Midwest. Experts point to soybeans, one of America’s top exports to China, as a possible target for retaliation. Leaders also could embrace tit-for-tat measures aimed at American companies that make sizable profits from the Chinese market (think Boeing and Apple).

Trade wars “only hurt others and yourself,” Chinese Foreign Minister Wang Yi told reporters Thursday before the announcement. But if the U.S. takes aim at China, he said, the country will make a “justified and necessary response.”

Trump’s move left many in China wondering what he hoped to achieve.

“A rabbit does not eat grass near his home,” said Xu Bin, a professor at China Europe International Business School in Shanghai, referencing a Chinese saying. “You do not attack your relatives, the people close to you. But Trump is doing the opposite.”

Special correspondents Kemeng Fan and Nicole Liu contributed from Beijing, Yuri Nagano from Tokyo, Kate Linthicum from Mexico City, and Jill Langlois from Sao Paulo.

Meyers is a special correspondent.

Twitter: @jessicameyers

Courtesy: Los Angeles Times

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s