Could there be a Trade War with China?
On February 22, the Center for the National Interest hosted a meeting titled “Could there be a Trade War with China?” with David M. Lampton, the George and Sadie Hyman Professor and Director of SAIS-China and China Studies at the Johns Hopkins School of Advanced International Studies, and Myron Brilliant, Executive Vice President and Head of International Affairs at the U.S. Chamber of Commerce. Mr. Brilliant’s remarks were off the record and not reported here. Professor Lampton’s presentation was broadcast live by The National Interest on Facebook and can be viewed online here. His comments are summarized below. Center Executive Director Paul J. Saunders moderated.
Could there be a Trade War with China?
One of the United States’ leading China-watchers argued that the likelihood of the United States and China engaging in a trade war is low, though Washington and Beijing may well experience greater trade friction. David M. Lampton discussed the possible elements of trade tensions between the U.S. and China and how the Chinese view the Sino-U.S. relationship.
Before the 2016 Presidential Election, Lampton contended that China viewed President Trump as someone who could improve Sino-U.S. relations due to his business background. However, few in China expected Mr. Trump to win the election. On the contrary, Chinese officials expected Secretary Clinton, of whom China has had a more negative opinion since 1995, to become President of the United States.
Despite President Trump’s rhetoric throughout the campaign, Beijing expected Mr. Trump to moderate his stance and to focus more on engagement like his predecessors, according to Lampton. Beijing became concerned when President Trump did not change his views, particularly after he took a call from Republic of China (Taiwan) President Tsai Ing-wen and questioned the One China policy. Lampton asserted that these events transformed China’s general concern into “heightened anxiousness” and “growing alarm.” Beijing was relieved when President Trump said that he would honor the One China policy in a call with President Xi, thereby reestablishing a stable equilibrium in the U.S.-China relationship, said Lampton. Since then, Lampton argued, China seems to be addressing some of President Trump’s concerns by banning coal imports from North Korea (putting more economic pressure on Pyongyang) and allowing the renminbi to rise in value (possibly reducing the U.S. trade deficit with China).
Moving ahead, Lampton stated that Beijing is still unsure which U.S. policymakers to engage. Chinese State Councilor Yang Jiechi and U.S. Secretary of State Rex Tillerson appear to have established a foundation for a cordial relationship after speaking by telephone. Additionally, Cui Tiankai, China’s Ambassador to the United States, reached out to Jared Kushner, Senior Advisor to the President, Ivanka Trump, and their family and invited them to attend a Lunar New Year celebration at the Chinese Embassy in Washington, D.C.—an effort to open another channel of communication with the Trump Administration. Lampton said China is uncertain of the division of labor among the newly-created National Trade Council, National Economic Council, and Office of the U.S. Trade Representative.
Should trade tensions escalate, Lampton argued severe trade restrictions, such as the 45 percent tariff on Chinese goods that Mr. Trump previously threatened, would indirectly hurt many U.S. friends and allies, such as Japan and South Korea, as China is the top trade partner for around 120 countries. Instead of a trade war, Lampton stated that trade friction is the likelier scenario. This could include the United States imposing secondary sanctions on Chinese firms dealing with North Korea to punish China for a lack of cooperation in dealing with the nuclear issue.
Lampton noted that differences in other areas could likewise spill over into trade tensions. For example, he said, China could use trade to retaliate if President Trump diverges from the traditional outlines of the One China policy, perhaps by allowing formal meetings between ROC and American officials in U.S. government buildings or having the U.S. Marine Corps guards at the American Institute in Taiwan wear uniforms, each of which would be perceived as boosting Taiwan’s status. In response, Beijing could refuse to buy soybeans or other agricultural goods that the U.S. exports to China.