The United States and China find themselves entangled in yet another trade dispute, as China files a lawsuit with the World Trade Organization (WTO) in response to the US imposing 10% tariffs on Chinese goods. The tariffs, described by former President Donald Trump as an "opening salvo," prompted China to retaliate with 10-15% levies on American products, including coal and liquified natural gas. These actions mark a significant escalation in the ongoing trade tensions between the two economic giants.
The US tariffs, which also target Chinese steel and aluminum, remain in effect despite the global controversy they have stirred. In response, China accuses the US of "malicious nature" in its approach and seeks to position itself as a defender of global trade norms, contrasting with the Trump administration's policies. The tariffs are set to take effect on February 10, further heightening the stakes in this international trade conflict.
China’s decision to take the US to the WTO is viewed by many experts as a strategic move designed to highlight its commitment to global trading rules while casting the US in a less favorable light. According to Olson from the ISEAS-Yusof Ishak Institute, China's approach allows it to assess the impact of Trump’s tariff actions, similar to how Canada and Mexico managed their disputes with the US.
"If we can't make a deal with China, then the tariffs would be very, very substantial" – Donald Trump
Despite the lawsuit, it is unlikely that the Trump administration will be swayed by China’s actions at the WTO. Okun from APAC Advisors suggests that the US will not be significantly impacted by this legal maneuver. A previous ruling by a WTO panel in 2022 found that US metal duties contravened global trading rules, yet the tariffs remained unchanged.
"Retaliatory measures are not limited to China imposing counter-tariffs … the situation can escalate very quickly given how strongly China can retaliate" – Steven Okun
China possesses several avenues for exerting pressure on American companies heavily reliant on its market. Firms such as Apple, Intel, and Qualcomm could face difficulties if China opts to leverage its anti-foreign sanctions law to target specific US businesses. For instance, Skydio, a US drone manufacturer, might find itself in China's crosshairs under these circumstances.
"China followed this playbook in 2019 against Trump when it focused its retaliatory tariffs on agriculture and energy goods – two sectors predominantly located in Republican-heavy states" – Steven Okun
This tactic is not new for China; it has previously concentrated its retaliatory efforts on sectors such as agriculture and energy, crucial industries in Republican-heavy states. With its vast market influence, China can also bar exports of critical minerals or unique products, such as antibody precursors essential to pharmaceutical firms.
"China can bar exports to the US of critical minerals, as well as ban exports of products unique to China which will greatly impact the US, such as antibody precursors used by pharmaceutical firms which come exclusively from China" – Steven Okun
The Trump administration remains firm on its position regarding tariffs against China, maintaining its stance since 2022. Despite this rigidity, there is speculation that Trump might reconsider his approach. Roberts suggests there is a possibility for Trump to back off and engage in negotiations with China.
"I do think that there is a real possibility that Trump might back off and try to cut a deal with China" – Roberts
The relatively modest 10% tariff rate and Trump's ongoing efforts to negotiate deals, such as those concerning TikTok, hint at potential diplomatic compromises. Roberts envisions a scenario where a comprehensive deal could emerge, addressing various contentious areas.
"The fact that the tariffs are 10% and not higher, the fact that he's trying to do a deal on TikTok – I could see Trump doing some sort of big deal that would encompass other areas" – Roberts
China's decision to delay retaliation and pursue WTO arbitration is perceived as a tactical move. Observers like Dexter Tiff Roberts suggest that China initially anticipated an opportunity for deal-making similar to Canada and Mexico's experiences.
"I suspect they thought they would get the opportunity to do some deal-making that would delay the Trump tariffs, as did Mexico and Canada" – Dexter Tiff Roberts
However, when no such deal materialized, China opted for retaliatory measures of its own.
"When that (deal) wasn’t forthcoming, they decided they needed to ratchet up the response with retaliatory tariffs of their own" – Dexter Tiff Roberts
In the diplomatic arena, communication channels remain open between Washington and Beijing. Trump is expected to speak with Chinese President Xi Jinping soon, according to his spokesperson. This dialogue could potentially pave the way for easing tensions or even broaching new agreements.
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