Will a trade war follow Trump-Xi meeting?

Will a trade war follow Trump-Xi meeting?

US President Donald Trump this week hosted Chinese President Xi Jinping at Mar-a-Lago, his Florida resort. The talks between the leaders of world’s two largest economies surely touched on economic and security issues, but alongside the North Korea issue, trade likely topped the agenda.

Trump already set the tone for his first face-to-face meeting with Xi by tweeting last week that the trade deficit would be key to the discussions. He signed two executive orders calling for tighter enforcement of tariffs imposed in anti-dumping and anti-subsidy trade cases, as well as a comprehensive review of US trade deficits.

To be sure, last year, China accounted for the biggest chunk of all countries in the overall US trade deficit of $500 billion, according to the US Census Bureau. Additionally, since China joined the World Trade Organization (WTO) in 2001, the US has accrued around $4 trillion in goods trade deficit with Beijing.

Protectionist measures

Of course, the big outstanding issues between the two countries could not be resolved within two days, but the meeting may provide a roadmap to deal with these issues in the future. That said, the Trump administration is likely to implement some kind of protectionist measures against China as a result of two key factors.

First, President Trump wants to fulfill some of his electoral promises such as declaring China a currency manipulator, to bring trade cases against China both in the US and at the WTO, and to impose up to 45 percent tariffs on Chinese imports. Second, Trump’s administration has a long list of high-profile officials who have negative attitudes, and even open hostility, toward China.

Beijing’s response will depend on the nature of the measures that Trump may impose during his presidency. Although it is difficult to determine exactly what the US administration will do, it will certainly apply some measures against Beijing during the course of the next four years. To be sure, even the administration of former President Barack Obama adopted protectionist measures against China (such as imposing tariffs on Chinese tires entering the US) to protect American producers. Trump’s administration is expected to accelerate this process.

Avoiding a trade war

However, any escalation in protectionist measures against Beijing will also have negative effects on the US. First, any severe economic slowdown in China will hurt the US because it is expected to adversely affect its largest trading partners — the EU, Canada, Mexico, Japan, South Korea, Taiwan and India respectively — which all have strong trade ties with China. Second, tariffs on Chinese imports will lead to higher costs of imported goods, meaning inflationary pressures detrimental to the US consumer. Rising protection could also pose significant risks to the global supply chain of US companies, in which China plays a key role.

Any escalation in imposing protectionist measures could lead to instability in the global economy.

Dr. Naser Al-Tamimi

Importantly, China can reciprocate, which would hurt major sectors active in China. Wang Wen, the executive dean at Chongyang Institute for Financial Studies (CIFS) at the Renmin University of China, warned in the Financial Times that protectionist measures could backfire: “To be frank, the US economy cannot afford the cost of unemployment and price increases for millions of Americans who now benefit from US-China economic ties, and who would lose their jobs and livelihoods as the inevitable consequence of a trade war.”

Above all, trade and investment ties between the two countries are deeply intertwined with the rest of the world, thus any escalation in imposing protectionist measures could lead to instability in the global economy, which has been teetering in last few years. Certainly, any trade war between the US and China is expected to resonate around the globe, especially if we consider that the two countries together account for around 40 percent of the world gross domestic product (GDP) and around a quarter of the total international trade.

Taiwan: A red line

In this context, one of the optimistic interpretations of Trump’s positions asserts that tough rhetoric toward China is part of a negotiated strategy aimed at obtaining concessions such as improving access for US exporters and investors in China. The recent bombing of Bashar Assad’s airbase in Syria may also lend credibility to American threats on North Korea.

It is true that Beijing has shown some flexibility and wants to avoid a trade war with the US; the Chinese president has stated this on more than one occasion. However, with Beijing it is difficult for Trump to separate economics from politics; consequently any US moves that the Chinese leadership interprets as hostile or a threat to what they consider as their “core interests,” such as Taiwan, may backfire.

Indeed, when the Chinese tell the US that Taiwan or the “One China policy” is a red line, they mean it. Historical evidence shows that China cannot be intimidated or bullied. Therefore, Beijing is most likely to take a strong stand against Trump’s hard-line tactics, especially when the Communist Party of China holds its five-year party congress in October.

It seems that each side seeks to identify the other’s weaknesses during this transitional period of their bilateral relations, sometimes in an attempt to maximize benefits through the policy of brinkmanship. However, while Washington and Beijing do not see eye-to-eye on several issues, both sides realize that economic war is not in the interest of anyone.

Certainly, Trump’s political and economic aims are centered around the “America First” policy, creating American jobs and substantively reducing the US trade deficit. As such, and beyond the rhetoric, President Trump has the potential to make trade deals with China that satisfy his domestic constituents while avoiding a trade war with Beijing.

• Dr. Naser Al-Tamimi is a UK-based Middle East researcher, political analyst and commentator with interests in energy politics and Gulf-Asia relations. Al-Tamimi is author of the book “China-Saudi Arabia Relations, 1990-2012: Marriage of Convenience or Strategic Alliance?” He can be reached on Twitter @nasertamimi and e-mail: [email protected]

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