President Trump’s latest tough talking on trade has upset stock markets, angered US allies around the world and even drawn criticism from members of his own party.
Whether it represents the start of a global trade war is likely to depend on the reaction from China, which Trump has repeatedly slammed for killing American jobs with its unfair trade practices.
The tariffs on US steel and aluminum imports that Trump announced Thursday are “definitely the start of more aggressive trade measures by the Trump administration to protect US industry from what it sees as predatory practices of others,” said Scott Kennedy, an expert on the Chinese economy at the Center for Strategic & International Studies in Washington.
China could retaliate by imposing punishing measures of its own on major US exports such as soybeans or airplanes, according to analysts. Or it could put the squeeze on top American companies that do big business in its market, such as Apple and Intel.
But as the world’s biggest exporter, China may choose to keep its response more muted to try to avoid a trade war, and claim the moral high ground as the defender of the global trading system.
“China does not want to see an escalation of tension,” said Aidan Yao, senior emerging Asia economist at AXA Investment Managers. “Instead, Beijing wants to manage the relationship.”
Beijing’s response on Friday was measured in tone. A spokeswoman for China’s Foreign Ministry urged the US “to abide by the multilateral trade rules and make contributions to the international trade and economic order.”
But China has previously warned it could act tough. The Commerce Ministry said last month that it “will take necessary measures to defend our rights” if US tariffs on steel and aluminum hurt Chinese interests.
China sold roughly $4 billion of steel and aluminum to the US last year. But those amounts accounted for just a small portion of the country’s wider exports.
“The actual direct commercial pain for China … is not particularly large,” Kennedy said.
Trump’s next move
The bigger concern for China is whether Trump will soon come out with other measures that target it more heavily and directly. That could result from an investigation into Chinese efforts to get hold of US intellectual property that was launched last year by Trump’s trade czar, Robert Lighthizer.
“Behind the scenes, the US administration appears to be preparing a more focused campaign directed against China,” said Arthur Kroeber, a founding partner at economic research firm Gavekal.
If Trump comes down harder on Beijing by slapping tariffs on a broad range of China’s exports and clamping down aggressively on Chinese investment in the US, President Xi Jinping will fire back, experts say.
But China could do so by inflicting pain on US companies while still playing by global trade rules.
“Retaliatory steps would be low key. China would challenge the US at the [World Trade Organization] and probably implement a few tit-for-tat anti-dumping … measures of its own,” analysts at Capital Economics wrote earlier this year.
“There would be reputational gains for China in casting itself as the guarantor of free trade in the face of US protectionism,” the analysts said. “But there would be practical benefits too for the world’s biggest exporter in preventing the global trading system from fragmenting further.”
China could also use tactics it has previously deployed to express discontent with other countries’ actions by making their companies suffer.
South Korea’s decision last year to install a US missile defense system on its territory angered Beijing. It was followed by what were viewed as “unofficial sanctions” — sudden regulatory clampdowns and consumer boycotts — that did serious damage to the Chinese businesses of South Korean companies such as Hyundai and Lotte.
China could also direct its massive airlines to shift their orders for new planes to Airbus rather than Boeing.
Who’s the bad guy?
Trump’s argument that the steel and aluminum tariffs are justified on grounds of national security may have given Chinese leaders another avenue of attack.
“By using a national security justification for protection that obviously serves no real national security purpose, Trump opens the door for other countries — notably China — to use the same justification to protect their own industries,” Kroeber wrote in a note to clients.
Trump’s latest move also helps China deflect widespread criticism of its own trade practices, which include subsidizing key industries, dumping excess production of product such as steel on global markets and shutting out foreign companies and investors from huge swathes of its economy.
“Although Trump and his trade advisers consistently claim that China is the main villain in international trade, these tariffs make it far harder to organize resistance to Chinese bad behavior,” Kroeber said.
The metal tariffs could end up doing most harm to US allies like South Korea, Japan, Germany, Taiwan and Brazil.
Most of those governments “would have been quite happy to join in US-led efforts to restrain Chinese mercantilism and fight for greater market access in that highly protected economy,” Kroeber wrote. “Now they will be inclined to wonder whether it is really China or the US that poses the greater threat to the world trading system.”
— CNN’s Tim Schwarz contributed to this article.
