Trade Cases

Leibowitz on Trade: China Trade War Escalates—U.S. Interests Express Dismay

August 25, 2019

Trade attorney and Steel Market Update contributor Lewis Leibowitz offers the following update on events in Washington:

On Friday, China announced new tariffs in response to the Trump administration’s new tariffs on $300 billion of imports from China. Effective Sept. 1, China will impose 5 percent or 10 percent tariffs on more than 5,000 tariff lines. The tariffs affect a wide variety of goods. On Dec. 15, the delayed effective date for new U.S. tariffs on imports from China, the Chinese retaliation will principally affect U.S. autos and auto parts imports. China is an important export market for the U.S. auto industry, a signal of the increasing Chinese auto market, which has surpassed the U.S. as the world’s largest. The new China tariffs affect about $75 billion in U.S. exports to China.

Almost immediately a Twitter flurry ensued. The president announced, in response to the Chinese government’s move, that tariff on Chinese imports would increase by 5 percent. For goods on Lists One, Two and Three, tariffs will increase to 30 percent, effective Oct. 1. For goods on List Four, the 10 percent tariffs announced earlier this month will rise to 15 percent, effective Sept. 1 and Dec. 15.

Business groups immediately lamented the escalation. Agriculture will be hit hard again by the escalation, as Chinese tariffs on U.S. farm goods will escalate. John Deere, the agricultural equipment manufacturer (and major steel user) has announced that the tariff war has sharply reduced its profitability. Interestingly, as chronicled by columnist George Will today, one of the bright spots for Deere is increased export orders from Brazil and Argentina, both of whom compete with the U.S. for farm sales to China. The auto industry will be big losers from the retaliatory tariffs as well.

There is a disturbing echo of the First World War in these exchanges of fire, in which advances are literally non-existent. “The tit-for-tat tariffs, absent any meaningful negotiations, are damaging to the American auto industry,” President and CEO of Global Automakers John Bozzella said on Friday. Many other industries are aware of this reality.

If we are in a war, we must develop a winning strategy before the public’s patience for the war is exhausted. I believe we are in that stage now. To be sure, China’s practices have raised legitimate concerns in the United States and other countries. Now, the people of Hong Kong may be casualties in the trade war. With no “meaningful negotiations” in prospect, the leverage of the U.S. to affect China’s behavior in Hong Kong, intellectual property rights, foreign investment and other issues is diminished.

If tariffs were going to be successful in resolving these and other issues, there should be some results already. Essentially, there have been no results, only suspensions and postponements of tariffs that are now being imposed. If this is sacrifice without purpose, it cannot and should not endure.

One thing that has not been tried with China is international cooperation. Our staunchest allies, including Europe and Japan, have also been punished by the U.S. with tariffs on steel and aluminum. If China is our top priority, perhaps it is time for the U.S. to ask for help from those in a position to do so. Removing the steel and aluminum tariffs on our allies would be a remarkably good first step toward obtaining the assistance we need.

Lewis Leibowitz

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