Trump’s New Tariffs on China Have Everything to do With The North Korea Summit

Donald Trump’s White House has just announced a new round of tariffs on Chinese technology imports. It is not surprising that Trump is coming back for a second round of what looks to be a long running on again/off again tariff war with America’s chief economic rival after round one ended in a win-win compromise. With Trump pushing for more tariffs on rivals like China and economic “frenemies” like South Korea, Canada, the EU, Mexico and Japan, what is more significant than the announcement of new tariffs itself, is the timing of today’s announcement. The White House released the following statement regarding the new tariffs:

“My great friendship with President Xi of China and our country’s relationship with China are both very important to me. Trade between our nations, however, has been very unfair, for a very long time. This situation is no longer sustainable. China has, for example, long been engaging in several unfair practices related to the acquisition of American intellectual property and technology. These practices, documented in an extensive report published by the United States Trade Representative (USTR) on March 22, 2018, harm our economic and national security and deepen our already massive trade imbalance with China.

In light of China’s theft of intellectual property and technology and its other unfair trade practices, the United States will implement a 25 percent tariff on $50 billion of goods from China that contain industrially significant technologies. This includes goods related to China’s Made in China 2025 strategic plan to dominate the emerging high-technology industries that will drive future economic growth for China, but hurt economic growth for the United States and many other countries. The United States can no longer tolerate losing our technology and intellectual property through unfair economic practices.

These tariffs are essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs. In addition, they will serve as an initial step toward bringing balance to the trade relationship between the United States and China.

The United States will pursue additional tariffs if China engages in retaliatory measures, such as imposing new tariffs on United States goods, services, or agricultural products; raising non-tariff barriers; or taking punitive actions against American exporters or American companies operating in China”.

 

 

First of all, the statement is notable for being written in the first person, as though it were an open letter to Chinese President Xi by Donald Trump. Secondly, the letter comes just over a day after US Secretary of State Mike Pompeo held what appeared to be a positive meeting with President Xi and State Councilor Wang Yi. Most importantly, the announcement comes days after the historic summit between Trump and DPRK Supreme Leader Kim Jong-un. Here is the significance of each of these non-coincidental facts:

1. Stealing China’s real and perceived thunder after Kim summit 

During the period in which Donald Trump threatened to “destroy” the DPRK, he was often critical of “his friend” President Xi for not doing more to “help” the US with its DPRK problem. Now that an historic breakthrough has been reached between Washington and Pyongyang, Trump and Pompeo expressed their subtle but unmistakable gratitude for China’s obvious role in facilitating the peace process.

This is both good and bad for China. Of course China deserves more credit than it has given itself for helping to foster the historic rapprochement on the Korean peninsula and the Trump-Kim peace process. But Chinese politicians being particularly wise and also particularly lacking in egotism know full well that in the world of tit-for-tat Trump negotiations, every success or perceived success that China attains, will be met with new attempts at punitive measures against China.

 

 

In this sense, Trump’s timing of the new tariffs was meant to demonstrate to China that while it may have done most of the heavy lifting behind the scenes of the peace process, the US is still willing and (arguably) able to do things to China that are both negative and potentially meaningful. While China’s vast and diverse global trading relationships, its large and growing domestic market and its ability to leverage the US with the threat of dumping its stockpiles of US Treasury debt means that any US trade war against China can be managed with relative ease, such a trade war is still something China does not want and does not objectivity need. That being said, it is almost certain Beijing saw this one coming because it so stridently fits into the Trump mould of raining on anyone else’s parade other than his own.

Trump also scores a domestic win of sorts. After a mean spirited Washington Post piece implied that Trump surrendered to China at the Singapore Summit, Trump can now say that he’s once against “standing up” to China and like comedic clockwork, the Washington Post will once again decide that while disliking both China and Trump, it will once again dislike Trump slightly more. This clearly plays into Trump’s surprisingly accurate assessment of “fake news” in the United States.

Trump will also be aware that as the DPRK inches closer to opening its economy to the wider world, the US and China will be in stiff competition for overall economic influence in the wider Korean peninsula. This is especially true as South Korea increases its trade with China, while the DPRK will for the first time ever be considering some of the deals that US investors will be eager to present. Because of this, Trump is effectively using tariffs to ‘mark his territory’ – thus attempting to demonstrate to China that it won’t be the only superpower vying to ‘Make the DPRK Great Again’.

2. Less of a press release than an open letter 

While Trump wants to ‘mark his territory’, he also realises that he is paradoxically indebted to China for its proactive role in the peace process. While China seeks Korean de-nuclearisation for its own reasons, China could have allowed a tense status quo to build up rather than taking clearly active (albeit understated) efforts to accelerate the peace process. China could have even privately encouraged the DPRK to push the envelope knowing that Beijing’s own economy pressure could roll back Pyongyang’s threats when things got too close to the edge. Instead, China encouraged a peace process that has given Trump his biggest visual moment of glory to-date, while achieving a regional de-escalation of tensions that Beijing has long sought.

 

 

Because of this and because of the overall importance of Chinese imports to American businesses, Trump is also sending a signal to China that while there will be a trade war, it is in reality more of a trade version of a war games than anything that will significantly alter long term trends in global trade, let alone domestic US industrial capacity which remains woefully under invested by the public sector compared to China.

China has another upper hand in this sense due to the fact that Trump’s style of brinkmanship is becoming increasingly predictable. Much like a prankster comedian in a costume who can only fool the public so long as most people don’t recognise the character, once the method behind Trump’s apparent madness becomes clear, he will have a more difficult time calling the bluff of others.

The Trump method in trade, “diplomacy” and military matters is becoming clear and can be summarised as follows:

1. Make unreasonable demands

2. Follow the unreasonable demands with extraordinary and often blood curdling threats

3. Just when you think things can’t get worse – make even more unreasonable demands followed by even more extraordinary threats

4. Say that dialogue is an option but that if it fails the threats will be executed

5. Dramatically close the door on dialogue

6. Engage in dialogue and reach a compromise that should have been reached in the first place under more adult conditions – even though by now most members of the public and some politicians have forgotten the original threats because of Trump’s personal ability to go from a raging bully to a pleasant host – a kind of unpolished version of Ronald Reagan.

 

 

Because of this, China likely knows that all it will take is agreeing to do what it is on the path to doing anyway and open its markets to ever more foreign goods and foreign capital in order to ebb the current trade war. As this fits in with China’s long term strategy of building a more inter-connected economy while domestically pursuing the goal of a moderately prosperous society, China can take the time to see how many short term Chinese instigated tariffs on US goods that US businesses will stand for, before the inevitable win-win comprised is reached after enough “fire and fury” has been expelled. Thus, China gets to test American resolve all while calculating Trump’s increasingly standardised pattern of negotiation.

3. A subtle message to Kim Jong-un 

It is rather unusual so far as international diplomacy is concerned to hold visibly productive meetings with a foreign power and then to surprise the power with a big negative announcement subsequent to the meeting. While Mike Pompeo appeared as an affable character when in Beijing this week, as soon as Pompeo left China, Trump was readying his “surprise” tariff announcement which he dropped like a lead zeppelin once Pompeo’s jet had safely landed.

 

 

Because as was previously discussed, China would have been expecting the announcement anyway, the message here was to the DPRK. The message is one designed to force the DPRK to act as quickly as possible in executing its end of the de-nuclearisation agreement with the implied threat being that any dragging of feet could result in Trump tearing up the agreement at the Singapore summit. In other words, anything the US is prepared to do to mighty China it could do something all the more rash and negative to a smaller DPRK.

Conclusion

Nothing in geopolitics happens in a vacuum, but Donald Trump’s flair for open melodrama means that seemingly unrelated issues become more directly intertwined than under more traditional US leaders. In spite of this, what goes around comes around and just as Trump’s previous trade war resulted in a win-win compromise so too will this trade war.

For all Donald Trump is, he appears to be largely someone who enters a negotiation process like a lion and exists not quite like a lamb, but not exactly like a predatory beast either.

 

 

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