The United States imposed a 25 percent tariff on 34 billion US dollars worth of Chinese imports on July 6, officially launching a full-blown trade war. Moments later, China retaliated with its own tariffs on US products, accusing the Trump administration of “typical trade bullying.”
There are fears of a further escalation of the trade dispute between the world’s two largest economies, but President Donald Trump has refused to give an inch, and China said it had no other choice but to retaliate.
US Senator Lindsey Graham, who is backing Trump and his actions, said the United States has more bullets than China when it comes to trade. However, the president’s tariffs are still likely to backfire, and concerns have already been raised in farm states.
Asa Hutchinson, the governor of Arkansas, worries that the soybean tariffs will negatively impact farmers and prices. Many red states like Arkansas choose to stick with Trump on a trade war, but they also feel that they cannot take much more pain.
“It’s very clear that it (the tariffs) is hurting them significantly financially, and I think the real concern is what happens if this goes on for months into next year,” said Merrill Matthews, a resident scholar with the Institute for Policy Innovation.
At this moment, the dispute is not only about the trade deficit. It looks like the Trump administration also wants to tackle the intellectual property issue: US businesses have been complaining for some time that Chinese companies, if they are going into a merger or other types of partnership, demand a tech transfer which would possibly steal the intellectual property from the US side.
Matthews said Trump conflates this specific issue with the tariffs, but he has never made any real progress on that. The president has shown himself to be unpredictable in the past few months. While some results finally came out of the negotiating table, suddenly the tariffs kicked in. Sourabh Gupta, a senior fellow at the Institute for China-America Studies, added that China is beginning to make patent law reforms to make positive changes, and yet they are getting punished by the United States.
“China is moving forward in a positive direction on both intellectual property rights and technology transfer, which may or may not implicate international law but will certainly make the regime much more liberal and amenable to American demands,” Gupta said. “I personally feel that by just imposing these tariffs, jumping the gun, moving away from the consultations, the US prejudged the issue, vitiated the issue and made the reform harder.”
Peter Ho, an economist and a research fellow at the London School of Economics, said the intellectual property has also been a big challenge for China itself to deal with in the past decades. The reforms can take a long time to finish and the problem cannot be simplified.
“It’s something that the central authorities and local authorities are very concerned about and also trying to take measures against,” Ho said. “At the same time, what China has been doing over the past 20 or 30 years is gradually trying to change its export-oriented economy towards a more domestic consumption-oriented economy, which in the end will also benefit the United States because American companies will be able to export more to China.”
While the Trump administration is declaring a trade war with China and its traditional allies, Chinese Premier Li Keqiang recently visited Europe where he had trade talks with Germany’s Chancellor Angela Merkel and leaders from Central and Eastern Europe, saying that China is “strongly seeking to open up commercially.”
Countries are now seeking ways to minimize the damage. Ho said this escalating trade war is going to hit both sides hard, and other countries are also aware that this situation will do no good to them.
“In the end, it will hurt all countries,” Ho said. “We are all tied together in this global economy. There is no way how you can try to solve these complex issues by simplifying the complexity of the global economy. It’s still important that we try to stick to multilateral conversations.”