The US has announced it will increase tariffs on Chinese goods if the nations fail to make progress on a trade deal by March 1.
During the annual State of the Union address on Wednesday, US President Donald Trump promised to right the wrongs of decades of calamitous trade policies, by seeking greater powers from the Congress to impose reciprocal tariffs on Chinese goods.
What Trump said about China and ongoing talks
Washington’s ongoing aggressive trade negotiations would end in China’s theft of US jobs and wealth, the president declared, adding, We are now making it clear to China that after years of targeting our industries, and stealing our intellectual property, the theft of American jobs and wealth has come to an end.”
Therefore, we recently imposed tariffs on $250 billion of Chinese goodsand now our treasury is receiving billions of dollars a month from a country that never gave us a dime. But, I dont blame China for taking advantage of us, I blame our leaders and representatives for allowing this travesty to happen.”
He went on to say that he has great respect for Chinese President Xi Jinping and his administration was working on a new trade deal with China. But, it must include , structural change to end unfair trade practices, reduce our chronic trade deficit, and protect American jobs, he said, urging Congress to pass the United States Reciprocal Trade Act.
And therein lies the rub.
Why Trump’s tariffs powers need to be curbed?
The Reciprocal Trade Act aligns itself perfectly with Trump’s protectionist policies to address his complaints that nations around the world have been taking advantage of the US. It would essentially authorise the US to levy tariffs equal to that imposed by a foreign country on the goods traded by the US.
Trump in his address said, if another country places “an unfair tariff on an American product, we can charge them the exact same tariff on the same product that they sell to us.” This tit for tat approach would also extend to non-tariff barriers when determining such tariffs.
This means if it is signed into law, the Reciprocal Trade Act will have disastrous consequences on USA’s bilateral trade with countries like India.
How can reciprocal tariffs affect India?
India has already reduced the customs duty on imported motorcycles like Harley-Davidson to 50% after Trump called it unfair and threatened to increase the tariff on import of Indian bikes to the US (2.4%).
In January, Trump boasted of his ability at arm-twisting weaker economies into relaxing non-reciprocal tariffs. Look at motorcycles as an example. (In) India, it was 100 percent. I got them down to 50 percent, just by talking for about two minutes,” he said, going on to complain about India’s high tariffs on liquor imports. “You look at whiskey…India gets 150 percent, we get nothing, he had said.
The Reciprocal Trade Act is likely to face an uphill fight in Congress before it is passed. A bipartisan group of lawmakers has already introduced legislation to limit the president’s powers to hike tariffs on the grounds of national security. The country’s business and corporate sectors are rallying behind the bill.
What the UN makes of latest developments
Increasing protectionism is detrimental for the Asian markets, a recent United Nations (UN) study on the US-China trade war concluded. A UN trade official on Wednesday warned that additional tariffs on Chinese goods next month would have “massive” implications for the global economy and trading system.
But, the UN Conference on Trade and Development’s (UNCTAD) report, however, notes that India could be one of the unlikely beneficiaries, besides Australia, B, Vietnam, the Philippines, Japan, Canada the European Union. This could happen as a result of China and US trading with other countries to substitute their current imports from each other.
However, overall, the implications will remain negative. The higher cost of US-China trade would prompt companies to shift away from current East Asian supply chains causing about $160bn contraction in the region’s exports, according to Pamela Coke-Hamilton, UNCTAD’s head of international trade.
“There’ll be currency wars and devaluation, stagflation leading to job losses and higher unemployment and more importantly, the possibility of a contagion effect, or what we call a reactionary effect, leading to a cascade of other trade distortionary measures,” Coke-Hamilton said at a news conference.
Challenges to arriving at an agreement
Both sides have been locked in an escalating tariff war since last year, with the US levying 10% import duties on $200 billion worth of Chinese goods. Even though senior officials meeting on the sidelines of the G20 summit last year agreed to stall additional tariffs, Qrius had compared the disparities in their statements to show why that was not likely.
A ninety-day deadline was agreed upon, for fleshing out the terms of truce into a proper deal. The US had announced it would refrain from raising the tariff rate to 25% until March 1, but consensus on several deal-breaking matters has not been reached, and that could determine the direction for Sino-US trade relations in the days to come.
US Secretary of the Treasury Steven Mnuchin had warned China against going soft on trade agreements even as the two countries don’t actually appear to be on the same page.
The White House reported that the Chinese had agreed to buy a “not yet agreed upon, but substantial amount of agricultural, energy, industrial” and other products, that would help reduce America’s huge trade deficit with China. But, this section was missing from China’s statement released by Chinese Finance Minister Wang Yi.
Intellectual property theft, an accusation against China, was also not addressed in Wang’s statement while the US media reported that both leaders summarily agreed to negotiate on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services, and agriculture.
According to Beijing, both sides have supposedly agreed to work towards canceling all tariff increases, intensify consultations, and reach a concrete agreement on mutual benefit and win-win as soon as possible. The White House statement does not convey a similar commitment.
Trump said China has agreed to “reduce and remove” tariffs on American cars to 15% from the current 40%, reported Bloomberg. China hasn’t made a similar announcement on auto tariffs.
All this point to diminishing prospects of arriving at a diplomatic trade agreement that is of mutual benefit to two of the wealthiest economies in the world. But a diplomatic solution to this trade tension is of utmost importance for the sake of the global economy.
Prarthana Mitra is a staff writer at Qrius