David Goldman
While President Trump seesaws between punishing or not punishing Canada and Mexico with tariffs, he has shown no such hesitation when it comes to China. Upon returning to the Oval Office, he doubled the 10% tariff on Chinese exports to the United States. The People’s Republic retaliated with tariffs on a range of US agricultural products, with the latest People’s National Congress in Beijing warning of a “bitter” fight ahead.
That sounds like a script for a trade war, but it may not play out this way.
Chinese tech stocks have rallied sharply in recent days, and Beijing shows little inclination to escalate relentlessly in response. This is because both Washington and Beijing know well that the old bilateral China-US trade relationship is untenable. Under that arrangement, US consumers underwrote China’s industrial might at the expense of America’s domestic manufacturing sector. It was the product of a neoliberal consensus that has proved deeply unpopular with the working-class and lower-middle-class Americans who form the Trumpian GOP’s base.
In short, the old free-trade regime isn’t coming back, and both sides are making plans accordingly. Trump may reduce tariffs on Chinese goods in exchange for stronger action to curb illegal immigration and opioids, or other concessions. Commerce Secretary Howard Lutnick said on 5 March, “I think [Trump’s] going to figure out, ‘you do more, and I’ll meet you in the middle some way’. And we’re probably going to be announcing that tomorrow”. Hong Kong’s tech stock index, which traded flat until just before Tuesday’s close, jumped 10% in the three sessions after Lutnick’s remarks came across the wire.
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