By trade correspondent L.C. and the editor
President Trump is so wedded to his tariff threat against China that he has been practicing unilateral disarmament with respect to an objective arguably more important than a trade deal – namely, encouraging the Chinese people to rise up against the Xi Jinping dictatorship. In this respect, the US president has been following the playbook of his predecessor, President Obama, who eager to make nicey-nice with the mullahs in order to conclude a US-Iran agreement, refused to voice support for the massive anti-regime protests in 2009. Similarly President Trump, in the hope of not offending President Xi in order to secure a meeting with him at the end-of-month G20 conference, canceled a planned speech by Vice President Pence that was to commemorate the Tiananmen massacre. Trump then compounded his propitiation of the Chinese dictator by not endorsing the unprecedented mobilization of Hong Kong’s population against Beijing’s attempt to nullify Hong Kong’s independent judicial system.
Instead, the US president (“Tariff Man”) is relying entirely on the threat of slapping 25% Section 301 tariffs on the remaining $300 billion in imports from China to get Beijing to negotiate a trade deal. This will hurt American consumers as well as Chinese producers, however — and the Chinese producers who will be hurt will be mainly in the private sector. A better-targeted US trade policy would emphasize the weakening of China’s large state-sector, military, and intelligence-connected industries rather than its small- and medium-sized private sector.
But for once, Congress has been well out in front of the president. Both House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell released statements warning that if the Hong Kong government’s Beijing-promoted extradition law is passed, Congress would reassess whether the territory is sufficiently autonomous for the US to continue to grant it its special trade and economic status under the 1992 US-Hong Kong Policy Act. That status, among other things, enabled the US to exempt Hong Kong from Section 301 tariffs since it is treated as having its own autonomous trade regime. In particular, Congress may revoke the status for the sale of high-tech products to Hong Kong (something the US-China Economic & Security Review Commission has recommended). Loss of that status and of Hong Kong’s position in global finance would be harmful to the territory and unwelcome for a Chinese government already internationally embarrassed by the eruption in Hong Kong. As it is, the forced capitulation by the Hong Kong regime has weakened Xi in advance of his expected meeting with Trump and reinforced the position of China hawks in Washington.
An important concession by Mexico
The US president’s tariff threats against Mexico may, however, have successfully strong-armed that country to agree to significantly increase its efforts to halt the flow of immigrants through Mexico to the US. The Wall Street Journal reports that
Mexico released the side agreement made with the U.S. that outlines additional measures it would take if it fails to stem a surge in migration from Central America to the U.S., including becoming a “safe third country.”
The supplementary agreement signed June 7 between the two countries shows that Mexico will require migrants fleeing their homelands through Mexico to seek asylum there. Mexico agreed to examine domestic laws and regulations to identify necessary changes to implement the side agreement….
Mexico has long opposed any calls to designate itself as a “safe third country,” saying it lacks the necessary resources….
Under the terms of the side agreement, if the U.S. determines ‘at its discretion and after consultation with Mexico’ after 45 days that the measures adopted by Mexico haven’t sufficiently achieved results in addressing the flow of migrants to the U.S. southern border, “Mexico will take all necessary steps under domestic law to bring the agreement into force.”
Meanwhile…
Despite President Trump’s forbearance in not going after President Xi’s vulnerability regarding the Tiananmen massacre, widespread international criticism of Beijing’s repression of Xinjiang’s Muslim population, and the massive repudiation of the Xi-backed extradition bill in the streets of Hong Kong, official Chinese sources are maintaining their belligerence.
Chinese officials are telling the press that China believes it has the upper hand and that President Trump is most eager for a deal in advance of his reelection campaign. They are also insisting that the US must give up its hardest demands — those that Beijing claims infringe its sovereignty — and agree to end the Section 301 tariffs already imposed. One official added the demand that the US must ease its export controls on high tech products –a long-standing Chinese demand that no US administration has agreed to. There are reports now that China is developing new regulations to limit the export of its own key technologies and products, including rare-earth metals.
Domestic US opposition
The prospect of $300 bn. In new tariffs is not only getting pushback from China but also from the US private sector. The US Trade Representative’s public hearing on the tariffs will take place between June 17th to 25th. There will be over 300 witnesses on 54 panels, with more having submitted comments. Almost all the comments oppose the tariffs. Companies claim the new tariffs will lead to significant job losses, consumer pain, and the failure of some companies. The goods threatened by tariffs (“List 4”) are weighted toward consumer goods and intermediate goods for which there aren’t easy alternative suppliers. That’s why these items were left off previous lists. Representatives from diverse sectors noted their dependence on China. The healthcare industry, for instance, claimed it is entirely dependent on Chinese medicines and ingredients for drug manufacturing and therefore the tariffs would be a huge problem for hospitals. Separately, pork producers warned this week that they could lose a huge opportunity as China’s market is currently expanding due to African swine fever which is prompting the culling of domestic pigs. If China’s retaliatory tariffs aren’t lifted, they won’t be able to take advantage of the opening.
Over 600 US companies and trade associations sent a joint letter to Trump on June 13th warning of “a significant, negative and long-term impact” if the planned tariffs on List 4 goods are imposed. Among the signers were top US companies and groups in retail, technology, manufacturing, and agriculture. The letter was organized by Tariffs Hurt the Heartland. It projected over 2 million US job losses, a 1% reduction in GDP, and a $2,000 loss for each family of four if the tariffs take effect. It said:
Tariffs are not an effective tool to change China’s unfair trade practices. [They] are taxes paid directly by US companies… not China…. An escalated trade war is not in the country’s best interests, and both sides will lose…. Tariff increases and uncertainty around these trade negotiations have created turmoil in the markets, threatening our historic economic growth.
The letter was a direct rebuke to the claims of the president that the US isn’t hurt by tariffs. But Senator Marco Rubio (R-FL) defended him with a tweet that in essence accused the companies of being unpatriotic: “600 US companies ask Trump to surrender to #China… Basically they ask him to allow China to continue to cheat on trade & steal intellectual property…”
Thomas Lifson, the respected editor of the pro-Trump online publication, American Thinker, is also defending the president’s tariff policy — as hurting China, not the US consumer, contrary to the naysayers. Lifson omits noting the extent to which US producers and farmers have been absorbing the impact of the tariffs and the fact that the Trump tariffs have deliberately steered clear of the consumer sector so far. That would not be the case if the threatened $300 bn. in additional tariffs are levied against China.
Leave a Reply