A whiff of trade war is in the air. Donald Trump used Twitter to express his disappointment with China and its efforts to pressure North Korea into abandoning the nuclear program and missile launches. US ambassador to the United Nations Nikki Haley said that Washington would not seek UN Security Council action following North Korea's latest missile test. According to her, the «the time for talk is over». The ambassador believes it’s up to Beijing who «must decide if it is finally willing to take this vital step» of challenging Pyongyang.
According to Politico, President Donald Trump’s top advisers are huddling behind the scenes in a bid to craft a set of economic measures meant to punish China. There is a range of options on the table, including trade restrictions. Other possibilities include economic sanctions. During his election campaign, President Trump complained many times about China’s «unfair trade practices».
The language was changed in April after meeting Chinese President Xi Jinping and his wife for a diplomatic visit at Trump's Mar-a-Lago estate in Florida. Now, the criticism is back. North Korea’s missile launches have poured more fuel on fire.
President Trump appears to have no China policy. He swings from promises to get closer to Taiwan challenging Beijing to the friendly talks in Mar e Lago and then back to the plans to introduce punitive measures.
The measures may target Chinese steel imports with tariffs, quotas or a mix of both. In theory, Chinese transactions on US soil could be frozen and joint economic programs could be curtailed. In early 2016, Trump also threatened to raise the tariff on imported Chinese goods to 45% and close America’s market for Chinese goods.
China could fight back by restricting American imports and squeezing American goods from the Asian market. If a trade war sparks, Beijing would take advantage of the fact that it was the US who started it to tell its One Belt, One Road project partners that Washington is untrustworthy and its policy gives priority to threats, not negotiations. No doubt, China will use the tools offered by WTO membership to protect its interests. Beijing now holds over $1tn in US Treasury bonds (5.5 per cent of the total amount of T-bonds). It can sell them off.
China has its own concerns. The last thing it wants is the collapse of North Korean regime followed by refugee flows and US-South Korea’s military presence on the Chinese border.
Actually, the deployment of THAAD missile defense system in South Korea is the first step on the way. The move has been strongly opposed by China but that’s what the US is doing under the pretext of North Korea’s missile threat. The deployment is supported by Japan. In addition, South Korea announced plans to modernize the US-made Patriot missile defense systems on its soil.
With bilateral trade volumes reaching $519bn in 2016, China and the US are now each other’s second-largest trading partners. And a trade war between the economic giants would affect the whole world.
It’s not China only. President Donald Trump will soon sign a bill on a new package of sanctions against Russia, Iran and North Korea, said Vice President Mike Pence on August 1 during his visit to Georgia. So, Russia and China appear to be in the same boat targeted by American punitive measures. With more of them imposed against Venezuelan President Maduro, the introduction of sanctions appears to become the most frequently used tool for implementation of Washington’s foreign policy goals.
As of 2017, the US Office for Foreign Assets Control (Ofac) administers 26 active sanctions programs. The economic war against Russia gave rise to serious protests among America’s European allies. Many European companies are studying prospects for investments in Iran, despite the US sanctions. A war against China will not make happy many US allies, especially in Asia-Pacific.
Some time ago, many Asia-Pacific nations were frustrated by administration’s rejection of the Trans-Pacific Partnership (TPP) they pinned so many hopes on. With the Chinese One Belt One Road project underway, the US has nothing to counter it with.
Sanctions always bite back. Economic wars sap resources the same way armed conflicts do. But this time, the United States is prone to go global. For instance, the president mulls a plan to institute tariffs of up to 20 per cent on steel importers like China. It could trigger an all-out economic war. The International Monetary Fund has warned leaders in the run-up to the G20 summit in Hamburg, Germany that they were putting at risk recovery in global growth by pursuing national policies at the expense of internationally agreed rules on trade. «Because national policies inevitably interact in a number of vital areas, creating strong spillovers across countries, the world economy works far better for all when policymakers engage in regular dialogue and work within agreed mechanisms to resolve disagreement», the warning said.
With sanctions widely used as a foreign policy instrument, the United States will be largely considered as an unreliable trade partner imposing sanctions to its heart’s content. Other countries will look for other, more trustworthy partners. Trade wars, like any other wars, bring trouble and don’t benefit anybody. There will dangerous global consequences and no winners. In its desire to make «America First» policy succeed, the administration is stepping off on the wrong foot.