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images-1     Donald Trump invoked China so much as a candidate that his mere pronunciation of the word became something of a craze. Now that he is president, Trump has the chance to take action against the country he blames the most for stealing American jobs, intellectual property and capital. But a trade war, like a real war, can have retaliatory strikes and collateral damage, which might be why Trump has already delayed one of his promised salvos.

1. What is Trump’s plan for China?

As a candidate, Trump pledged to label China a currency manipulator “on day one” of his administration. That didn’t happen. He also said he’d bring cases against China for “unfair subsidy behavior” and use “every lawful presidential power to remedy trade disputes,” including the application of tariffs. He once broached a tax of 45 percent on imports from China, then denied bringing it up.

2. Is China manipulating its currency?

China’s competitors, including the U.S., have long complained that an intentionally undervalued yuan gives Chinese exporters an unfair advantage. But the past decade has seen China take steps to let the yuan’s value fluctuate against the U.S. dollar. It becameone of the International Monetary Fund’s five designated reserve currencies last year — a reflection that China was starting to play the “economic game by the rules,” as IMF Managing Director Christine Lagarde put it. The U.S. stopped calling the currency “significantly undervalued.” If anything, China is working to prop up, not weaken, its currency these days. All of this might be why the Trump team has softened its rhetoric. Treasury Secretary Steven Mnuchin says he’ll wait for a quarterly review of foreign-exchange markets to determine if China is cheating.

3. What can Trump do?

The U.S. president has wide latitude on trade without congressional approval. The 1974 Trade Act empowers the president to impose tariffs and other sanctions “on foreign countries that either violate trade agreements or engage in other unfair trade practices.” Another section of the law authorizes the president to deal with “large and serious United States balance-of-payments deficits” by imposing temporary import surcharges of up to 15 percent for up to 150 days. President Barack Obama in 2009 used his authority under the Trade Act to slap a tariff on imports of Chinese tires. Trump could also have his top trade official launch a complaint against China at the World Trade Organization, though past cases show it can take years to wind through that process.

4. What might this mean for China?

For the world’s leading exporter, a trade war could be contractionary and deflationary, wiping hundreds of billions of dollars of output from the $11 trillion economy. Kevin Lai, the Hong Kong-based chief economist for Asia at Daiwa Capital Markets, estimated during the campaign that Trump’s suggested 45 percent tariff on Chinese goods would spark an 87 percent decline in China’s exports to the U.S. — a decline of $420 billion, which over time would lead to a 4.8 percent blow to China’s gross domestic product. Even watered-down tariffs of 15 percent would result in a loss of GDP for China of 1.8 percent.

5. Could China fight back?

Yes. It could launch legal proceedings of its own through U.S. courts or the World Trade Organization. It could respond with tariffs targeting specific U.S. companies and goods. It also could subject U.S. businesses to tax or antitrust probes. The state-run Global Times described China’s possible “tit for tat” retaliation: “A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the U.S.”

6. What might China’s retaliation mean?

Potentially, more economic pain for the same blue-collar Americans who constitute Trump’s fervent base. Prices on items ranging from clothing to appliances could rise, and U.S. farming and factory jobs that rely on global trade could be threatened.

7. So is Trump all bad news for China?

Not necessarily. China is more than ready to go head-to-head in a trade war rooted in economic nationalism, according to Bloomberg View contributor Michael Schuman. And Trump acted quickly to fulfill his pledge to withdraw from the Trans-Pacific Partnership, a global trade deal that Obama promised “would give us a leg up on” China. While that deal goes into deep freeze, China continues to pursue its own Asia-wide trade pact.

(picture is not from Bloomberg)
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