CHINA, TARIFFS, AND TRADITIONS

"As the Chinese saying goes, it is only polite to reciprocate."

Chinese Embassy in the United States
Statement of April 4, 2018

Today's quote is from the third paragraph of a four paragraph statement issued by the Chinese Embassy on April 4, which is to say after the USTR had made its proposed retaliation list available on the USTR website.  Today the list was published in the Federal Register.  The calm, almost humorous character of the above comment does not, of course, suggest any abatement of China's displeasure with recent developments. That is clear from the statement's first sentence.  Here is the full text:

We are not sure what significance to attach to it, and so we will simply note that the above was a more measured statement than the one the Embassy issued on March 23, in other words, before the list was out.  In that they used "trade war" rhetoric, declaring:

One could read the more recent statement as "the calm before a storm," and certainly a storm is brewing.  On Wednesday (April 4), the Chinese came out with their list of U.S. imports that could be subject to punitive tariffs in China.  Soybeans and aircraft are prominent on that list.

Last night, April 5, President Trump suggested a further $100 billion in Chinese imports could be hit with new tariffs.

That threat was answered this evening, April 6, by China's Commerce Minister, Gao Feng, declaring in Beijing, "China is fully prepared to hit back forcefully and without hesitation."

These issues have a long way to go.  Here we will make just three points.

First, A Legitimate Case.  Doubtless there will be many in the U.S. as well as China who will question the Administration's tactics in this case.  Our impression, however, is that a large swath of American business sees the bedrock grievance of the 301 against China as legitimate.  This comment from the April 3 statement by the U.S.-China Business Council is, we think, typical.  They wrote:

The Council represents an array of American companies with a lot at stake in the U.S.-China relationship.

Second, A War of Words.  The U.S. has a long process to go through before any new tariffs are imposed on Chinese imports, and our guess is that China will not take any action until the United States does.  That having been said, the current war of words could well lead to a spike in U.S. imports of the threatened products from China, as importers try to stock up before the new tariffs hit.  The situation may be a little different on the Chinese side, if only because the state has more control over importations.

Finally, A Close Reading.  We may be parsing things a bit too closely but we were struck by the concluding sentence of that third paragraph in the Embassy's April 4 statement.  As we read it, their reference to the WTO was only a threat to challenge the United States in that forum.  It was not an acceptance of any WTO limitations.  That, at any rate, is how we read the assertion that China would take "corresponding measures of equal scale and strength against U.S. products in accordance with Chinese law."

Searching for Reciprocity:

SECTION 301 AND THE FUTURE OF U.S.-CHINA TRADE