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US trade hawks flying high in battle with China

US trade hawks flying high in battle with China

Hours after Donald Trump ramped up trade tensions with China by inflicting higher tariffs on the country’s imports, Lou Dobbs, the conservative Fox Business Network anchor, led his evening broadcast by showering praise on the move. 

“For far too long communist China has been cheating the United States on trade,” he said. “President Trump has made it clear: the failure of previous presidents to aggressively represent US interests in foreign policy and economic policy has ended, and president Trump made believers out of the Chinese today,” he added. 

Mr Dobbs is one of Mr Trump’s favourite pundits because of his hardline views on trade and immigration, and his predilection for conspiracy theories. His satisfaction with the president’s stance on trade reflects the glee among hawks in Washington at the direction of the negotiations with Beijing, even as the stand-off has sounded alarm bells for the global economy. 

For weeks, many American proponents of a tougher line with China feared that Mr Trump might settle for a markets-soothing compromise that would resolve few of the longstanding problems in the bilateral trade relationship. In addition, they lamented that Mr Trump had given up significant leverage by failing to move to higher tariffs on Chinese imports earlier this year, as originally planned.

But last week some of those doubts were swept away. The Trump administration accused China of reneging on its commitments, moved to raise tariffs on $200bn of Chinese imports within five days, and set in motion a process to impose levies on all remaining Chinese imports, worth a further $300bn.

The White House seems to have fully embraced the idea of China as an economic predator which will only change its behaviour if maximum pressure is applied, dismissing the potential damage to US consumers and businesses.

US officials who had been more amenable to compromise with Beijing, including Larry Kudlow, director of the National Economic Council, and Steven Mnuchin, US Treasury Secretary, have now backed a far more confrontational approach advocated by Robert Lighthizer, the US trade representative and Peter Navarro, the White House adviser on manufacturing.

“Some in the Trump administration hoped for altruism from Beijing. But President Xi [Jinping] has now turned the trade ‘doves’ against him by once again reversing past promises. And he underestimated the resolve of President Trump,” Michael Stumo, chief executive of the Coalition for a Prosperous America, a group representing manufacturers and unions sceptical of international trade, wrote in an article on its website this week. 

The shift has not only plunged the US negotiations with China into uncharted waters, but could be a warning for America’s other trading partners that Mr Trump may yet turn against them too.

In particular, it could raise concerns in the EU and Japan that Washington might impose tariffs on automotive imports, and in Canada and Mexico that Mr Trump could move to withdraw from the Nafta trade agreement unless the US Congress speeds up efforts to ratify the USMCA, its replacement signed last year by Mr Trump. That deal is stalled on Capitol Hill amid resistance from Democrats. “These events could be a turning point, or they may just lead to more of the same. But the facts are what they are. For all of President Trump’s rhetoric about deals, to date his only real policy has been to shut down trade. After all of this, his end game may just be tariffs,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics. 

People close to the negotiations say that one of the main factors emboldening Mr Trump has been the improvement in US equity markets — and the economic outlook — which have given him a position of strength.

Other data — including the reduction in the bilateral trade deficit with China and tame inflation figures — have also helped make the case for an escalation, suggesting tariffs were having their intended impact, with little adverse effect on prices.