The world may have to suffer through an extended US-China trade war after Donald Trump signalled he’s happy to wait before making a deal.

By David Walker


Posted on May 15, 2019

US President Donald Trump has signalled he won’t rush to end the developing US–China trade war, after China promised to respond to new US tariffs with higher tariffs of its own.

“When the time is right, we will make a deal with China,” Trump tweeted on Tuesday 14 May. “My respect and friendship with President Xi is unlimited but, as I have told him many times before, this must be a great deal for the United States or it just doesn’t make any sense.”

US media outlets including online journal Axios reported on Tuesday that some administration officials believe the US–China differences are deep enough to keep the trade war going until 2020.

But the US administration says Trump could meet Chinese President Xi Jinping during the G20 meeting in Japan next month.

Xi and his advisers must now weigh whether Trump believes he can win a trade war, as he has previously declared, without hurting the US economy too much.

China said on Monday 13 May that it would raise its own tariffs on around US$60 billion of US imports. Three days earlier, Trump raised tariffs on some US$200 billion of Chinese products to rates of up to 25%. He also started a process to impose further levies on products that China exports to the US. China had reneged on previous trade commitments, he said in explanation.

The US–China trade war is now clearly the largest in world history.

Trump appears happy with the escalation, after tweeting on Sunday that “we are right where we want to be with China”. He has previously tweeted that when the US is “losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win”.

A key adviser, National Economic Council director Larry Kudlow, appeared at odds with this when he told the Fox News Sunday television program on Sunday 12 May that “both sides will pay” for the tariff escalation.

“Both sides will suffer on this,” he emphasised. But he maintained that the possible improvement in trade from the dispute made it worthwhile.

An op-ed published in the official People’s Daily newspaper on Monday was headlined “China will never bow to any extreme pressure” and urged “the elimination of all additional tariffs to resume normal bilateral trade”.

Kudlow also stated that there was a “strong possibility” Trump would meet Xi on the trade situation during the June G20 summit in Japan. “The talks will continue,” he said. Trump echoed that statement on Tuesday 14 May.

Tariffs are generally viewed as creating losses for all parties involved in trade. For instance, US steel tariffs could cause Chinese steel producers to cut production and use less iron ore and coking coal from countries such as Australia and Indonesia. At the same time, prices for imported US vehicles could rise due to the higher cost of steel in the US.

Economists also fear that trade wars can escalate quickly in a tit-for-tat process as each country responds to the other. So far, the current trade battle appears to be following this script.

The US imposed tariffs on billions of dollars of Chinese products last year and Beijing retaliated, before the two countries agreed in December to talks. Trump’s latest action follows the breakdown of those talks.

An extended slowdown in the US and Chinese economies would be expected to hurt other nations as well.

Together, the two countries make up 35% of measured world economic production.