The Rising Powers Strike Back at US Tariffs and Sanctions

Policy Alert #169 | July 5, 2018

Despite international outcry, the United States is continuing its pursuit of protectionist trade policies and dismantlement of the Joint Comprehensive Plan of Action (JCPOA) regarding Iran’s nuclear program. As negotiations over new US tariffs have soured and the Trump administration announced secondary sanctions against countries that continue to import Iranian oil after November 4, 2018, the calls for resistance–and outright retaliation–by the Rising Powers are growing louder.

CHINA

New US tariffs against Chinese products are scheduled to take effect on July 6th, but China’s $34 billion in retaliatory tariffs will only begin after Washington’s move. “The Chinese government’s position has been stated many times. We absolutely will not fire the first shot, and will not implement tariff measures ahead of the United States doing so,” Foreign Ministry Spokesperson Lu Kang announced at a press conference. In an earlier press conference, Kang told reporters that although China does not want a trade war, when “confronted by such short-sighted act that hurts both US itself and others, China has no choice but to fight back forcefully, to firmly safeguard the interests of the nation and its people and uphold economic globalization and the multilateral trading system.” Kang continued that American trade measures not only hurt Sino-American trade relations, but would also affect global trade, which China firmly opposes. Ministry of Commerce Spokesperson Gao Feng reinforced China’s opposition to protectionism and the system of tariffs: “The US has many structural problems of its own, but it always regards other countries as a scapegoat for its own problems and makes unwarranted charges.”

China is also standing firm on the Iran deal. On the sidelines of the Shanghai Cooperation Organization summit in June 2018, Chinese President Xi Jinping met with Iranian President Hassan Rouhani and declared: “The Joint Comprehensive Plan of Action is an important achievement of multilateralism, and is conducive to promoting peace and stability in the Middle East, as well as upholding the international nonproliferation regime.” Spokespersons Feng and Kang reiterated China’s support of the Iran deal as well. Feng told reporters, “The government of China has always opposed unilateral sanctions by any country based on its domestic laws against other countries. China will continue to maintain normal economic and trade ties with Iran under the prerequisite of not violating its international obligations.” Kang, meanwhile, asserted that “the independence, sovereignty and territorial integrity of one country should be fully respected” and that China believed that “the political system and development path a country chooses should be determined by its own people.”

• The state-directed China Daily decried American economic hegemony as a threat to world economy.  The Daily pointed to past instances in which the US had accused China of “unfair” trade practices and claimed the US of starting the trade war in order to keep China down: “It has frequently waged wars against other sovereign countries and made use of the dominant influence of the US dollar in the international markets to fleece other countries. Now it is attempting to resort to an all-out trade and economic war to hold back China’s normal development.” China Daily columnist Chen Weihua criticized US’ withdrawal from the Iran nuclear deal as indicative of the US “going rogue”: “If withdrawing from the Iran deal that was endorsed by the UN Security Council has made Trump’s America a rogue nation, then the fresh threat it issued on Tuesday to impose sanctions against governments that don’t cut imports of Iranian oil to ‘zero’ by Nov 4 would make it a ‘rogue superpower.’” The China Daily also expressed its concerns over Washington’s threats to sanction European companies conducting business with Iran: “It is a threat of extraterritorial sanctions to block trade and financial activities by non-US parties that he has extended to other countries doing business with Iran — something that the international community should resolutely oppose as it breaches the sovereignty of other states.”
• The nationalist Global Times condemned the US tariffs and cited the influence of US President Donald Trump’s “radical diplomatic ideas” in mobilizing American support for a trade war with China. Furthermore, the Times observed that “Trump’s threat of a trade war panders to some Americans’ dissatisfactions and anxieties.” The article also emphasized China’s ability to withstand a trade war: “China stresses principles. It neither escalates tensions nor makes unprincipled concessions. It’s impossible for China to completely shield itself from the trade war, but the country will not be the only victim and will not be a common target.” Regarding the Iran sanctions, the Global Times  interviewed Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, who said that China could find oil easily in Russia or the Middle East to offset the loss without resorting to increasing imports from the US: “The situation is that if the US escalates the trade war, it will hurt Chinese companies; but it will hurt US companies as well. So I don’t think the US will let things worsen significantly.“
• In the independent South China Morning Post, Deng Yuwen, a researcher from the Charhar Institute, contended that China’s reactive measures against US tariffs indicated that China’s readiness to enter into the Trade War. Deng wrote in his op-ed that “China and its leaders have already come to a conclusion about America’s trade war: they see it as the first step of a US plan to curb the rejuvenation of the Chinese nation.”
• The China Daily carried an editorial on the Iran deal from the Beijing Youth Daily, an official newspaper for the Communist Youth League in Beijing. The editorial claimed the US’s ulterior motive to the Iran sanctions was to increase demand for US oil, but that the scheme would fail given the increase in trade tensions: “The rising oil prices and the growing US oil exports are something the Trump administration will be happy to see and also something it has worked for. But once the oil price rebounds above $100 per barrel, the economy’s operating costs will necessarily rise, that’s when the US policies will backfire. Also, if China cuts its oil imports from the US if a trade war breaks out, the development of the global oil market will not be as predictable as the US envisions.”

INDIA

In response to the US tariffs, India filed a complaint with the World Trade Organization (WTO) in May 2018, and on June 21, 2018, announced new tariffs on 29 US products valued at $235 million. The tariffs are not scheduled to go into effect until August 4 to provide time for the two countries to work through an alternative. Meanwhile, the eagerly anticipated “2+2” meeting between Indian Minister of Defense Nirmala Sitharaman, Minister of External Affairs Sushma Swaraj, Secretary of Defense Jim Mattis, and Secretary of State Mike Pompeo that was scheduled for July 6 was cancelled abruptly on June 27. This initially prompted concern that the cancellation was related to the tariff dispute; however, it was revealed that Secretary of State Pompeo cancelled the meeting to travel to North Korea as a follow-up to last month’s summit.

India has also taken a hardline stance against the US threat of secondary sanctions for continuing trade with Iran. In response to a question on the issue at a press conference on May 29, 2018, Minister Swaraj replied, “We only recognise UN sanctions. We do not recognise any country-specific sanctions. […] We don’t make our foreign policy under pressure from other countries.” Following a visit by US Ambassador Nikki Haley on June 29, 2018, MEA Spokesperson Shri Raveesh Kumar responded to questions related to Ambassador Haley’s comments on Iran that India “feel[s] that Iran is a very traditional partner. We have historical and civilizational linkages with Iran. We have also communicated our views on Iran’s JCPO and the withdrawal of the US ambassador. Ambassador Nikki Haley has her views and of course our view on Iran is very clear.” Despite the government’s position, two Indian banks, IndusInd and UCO, have reportedly asked members to finish their business in Iran by August 6th.

• An editorial in the Economic Times regarding the what the Reserve Bank of India should do in response to the devaluation of the rupee, the Economic Times laid some of the blame for the rupee’s plight on US economic policy: “Trade war tensions have sent some capital deployed in emerging markets back to the US, in its traditional flight to safety in times of uncertainty. This has strengthened the dollar, besides the decision of the US monetary policy authority, the Fed, to raise rates.” The Economic Times ultimately argued against the RBI intervening.
• Economic Times contributor Kaustubh Sharma contextualized the US’s protectionist policies against broader trends in global governance in his article: “[T]he world is keenly observing the US’ new approach towards global trade, and the global community’s actions combine to send one signal: the US economy will contract. […] With the US surrendering its political and economic influence, China has an opportunity to dominate the global economy.”
• The center-right Times of India advocated calm in response to the US’s reneging on the Iran deal, asserting that the US would eventually have to back down given international support for the JCPOA: “[W]ith European nations, Canada and China also upping the ante on the trade front – targeting Trump’s core constituencies in middle America – this is a battle the US can’t win. […] India would do well to wait it out and weather the US storm. It should act in concert with the rest of the world and keep reminding the US that playing zero sum games helps no one.” The Times took a sterner stance with regards to the tariffs imposed on India, however: “While US President Donald Trump’s decision to adopt trade countermeasures against China is understandable given Beijing’s track record on intellectual property and non-tariff barriers […] it would be a serious mistake to place a struggling and pacific India in the same category as a hyper aggressive China that works counter to US interests. […] Trump may well be sticking to his ‘America First’ political framework but he should also know that he can’t have a strategic partnership with India and simultaneously engage in a trade war with it.”
• Liberal Hindustan Times flatly stated that the US has exhausted its welcome in India regarding the Iran deal: “Mr Trump should realise that other countries too have the right to put their own interests first. The US should also pause to consider the fact that other signatories to the Iran nuclear deal have chosen to stick with efforts to salvage the accord instead of backing the solitary path it has adopted.”
• Milind Deora, former Minister of State under the opposition Congress government, penned an op-ed for the Economic Times to warn India against unwittingly falling prey to the same economic “anxieties” that fueled Trump’s rise: “The India-China trade deficit is cause for new anxieties and as it widens, it creates a political space that’s up for grabs. It’s not long before ‘Trumpian’ fears translate into a similarly compelling political narrative in India. […]  India needs to learn and grow from China’s experience to rectify its manufacturing paucity if it wants to prevent a boundless ‘politics of the wall’ from being unleashed in the country.”

JAPAN

In a session of the National Diet, Prime Minister Shinzo Abe said of the US tariffs on Japanese goods that “It’s hard for Japan to understand and we cannot accept it.” On the sidelines of the G7 Summit last month, Japanese Minister of Finance Taro Aso responded to media questions that Japan was “considering” filing a complaint with the WTO about the tariffs, and voiced his country’s commitment to free trade: “Inward-looking policies involving one-sided, protectionist measures benefit no country. It’s important to achieve high global growth through free and fair trade.”

On the issue of sanctions against Iran, the Ministry of Foreign Affairs reported that officials from the US and Japan had consulted with each other regarding sanctions against Iran on June 19, 2018, however, given the nature of the report, it does not seem that any meaningful progress was achieved: “Both sides exchanged views on possible impacts of the reinstating of US sanctions on Iran. In addition, both sides also agreed to continue consultation on this issue going forward.” At a news conference on June 28th, Chief Cabinet Secretary Yoshihide Suga explained that the government is working to reduce oil imports from Iran gradually and is attempting to work with the US on the issue: “We’d like to hold thorough consultations with the United States to prevent the move from adversely affecting Japanese companies.”

• The liberal Mainichi Shimbun praised Japan’s promotion of multilateral free trade agreements to “counter protectionist pressure from the United States.” However, the Mainichi noted that the Japanese government was attaching more weight to its Trans-Pacific Partnership (TPP) and dragging its feet on the China-led Regional Comprehensive Economic Partnership (RCEP), and therefore urged its government to “do its utmost to form consensus on the partnership agreement at an early date.” The Mainichi had tough words for the Trump administration’s threat of economic blackmail to motivate more countries to reinstate an embargo on Iranian oil: “If Washington were to be using its huge influence on the global financial market to forcibly try to cause the deal to collapse, the country would deserve criticism that it is too autocratic.” The Mainichi thus urged its government to “resolutely reject the U.S. demand for an embargo on oil imports from Iran, and urge Washington to reconsider its decision to impose sanctions on Tehran.”
• The Japan Times, a center-right paper, criticized the international community for doing little more than retaliating against President Trump’s tariff threats rather than solve structural issues in the world economy, namely addressing the US’s trade deficit: “To denounce such statements as self-serving — which they are — is not enough. Concerned governments must fix problems that all agree exist and which give Trump the basis for poorly conceived and executed policies.” The Times also criticized the Trump administration’s attempts to use secondary sanctions against countries that continue to trade with Iran as such sanctions would “hurt U.S. allies as much as it does Iran” even though “sanctions are unlikely to bring about changes in Iranian behavior.”
• The Yomiuri Shimbun, a conservative paper, referenced the US’s tariffs in two recent editorials. The first hailed the National Diet’s passage of a law to implement the new TPP as a “counter” to “the self-serving United States”: “Reinforcing economic ties with many countries under fair rules and reciprocally enjoying the benefits of free trade […] To transmit this principle of the TPP to the world and exert pressure on the United States is another serious obligation Japan should fulfill.” The second, which addressed the “sluggish” economic growth in the last quarter, reiterated that “The government must continue to explain to the United States the adverse effects of protectionism.” The Yomiuri cautiously called on its government to pursue multilateral cooperation with other countries threatened by the prospect of secondary sanctions for continuing business with Iran, but stopped short of criticizing the US’s own reinstatement of sanctions against Iran: “Although the U.S. government intends not to allow any exemptions [to secondary sanctions], Japan should cooperate with the EU and others in persistently urging the United States to grant them exemptions.”
  

RUSSIA

Minister of Economic Development Maxim Oreshkin warned in late June 2018 that his country would take action against the US in response to the tariffs: “Because the US continues to apply protective measures in the form of additional import duties on steel and aluminum and refuses to provide compensation for Russia’s losses, Russia is using its WTO rights and introducing balancing measures with respect to imports from the United States.” A complaint with the WTO was formally filed on July 2nd.

Russian Ambassador to the US Anatoly Antonov took the opportunity to address his country’s concerns about the US’s exit from the Iran deal at a US State Department event celebrating the fiftieth anniversary of the signing of the Treaty on the Non-Proliferation of Nuclear Weapons: “We’re alarmed by the future of JCPOA. We call on all the [signatory] countries to act on their obligations clearly and unambiguously.” Minister of Energy Alexander Novak vowed that Russia would pursue its legal options with regards to the US’s planned secondary sanctions: “The memorandum [with Iran] that we signed in 2014 is still in force. We will analyze this situation from the point of view of the legal basis.”

• Government-funded RT emphasized the escalating discord between the US and the European Union in its coverage of the tariffs. July 2nd was particularly busy, as RT covered both the European Union’s threat to slap $300 billion in tariffs on American cars and President Trump’s assertion that “the EU is possibly as bad as China” in an interview with US media outlet Fox News.
• Nationalist Pravda Report similarly kept its eyes trained on European leaders’ harsh “ultimatum” in response to the US tariffs.
• State-owned Sputnik News busily interviewed Russian experts on how Russia should respond to the growing divide between the US and European Union. Dmitry Abzalov, director of the Center for Strategic Communications in Moscow, suggested that Russia should take the opportunity to reach out to the EU and use its position to resolve various diplomatic issues in its favor: “The EU could put Nord Stream 2 on the list of its strategic projects. A similar status for the Turkish Stream would not hurt either. If Germany and France want to work closer with Russia and will use their leverage in Ukraine, the very reason for the [anti-Russian] sanctions would be gone.” Director of the Russian Council for International Affairs Andrei Kortunov Russian echoed this prospect: “The very state of international affairs calls for a rapprochement because Moscow and Brussels see eye to eye on things like the Iranian nuclear deal and the relocation of the US embassy to Jerusalem.” Institute of Strategic Studies expert Azhdar Kurtov and Institute of Oriental Studies expert Irina Fyodorova expressed skepticism that Japan, South Korea, China, and India were in any “rush” to accommodate Washington, which would provide further leverage to Russia.
• In an op-ed for the Moscow Times, political analyst Vladimir Frolov meanwhile speculated that “Moscow will work tactically to drive the wedge between the U.S. and the EU even further” rather than take sides in the trade disputes, even though Russia has endorsed the EU’s commitment to the JCPOA. The latter move, Frolov argued in early May 2018, “weakens the U.S. position in the run-up to a highly anticipated Trump-Putin meeting, the details of which are still in the works.”

 

BRAZIL

• The Estadão newspaper published a statement released by the Brazilian government affirming that dialogue and respect, the two most powerful tools of diplomacy, are the only viable solution to the issues arising from the Iran nuclear deal and its termination by the U.S. The Ministry of Foreign Affairs explained that Brazil truly believes that the integrity of the regime and avoiding the proliferation of nuclear weapons are in the interests of the entire international community and must be maintained.
• The Folha de São Paulo newspaper reported that because Trump’s tariffs on steel will not apply to Brazil, the government decided to accept the tariffs on the aluminum and will not impose any retaliatory tariffs against US goods. Brazilian authorities evaluated the situation and concluded that the current tariffs are less damaging to the economy than those that may result in an escalation of the situation.
• A group of scholars and economists interviewed by the Agência Brasil analyzed the impact on Brazil of the the US withdrawal from Iran nuclear deal. Of the many ways the exit from the Iran deal will affect Brazil, the effects on the oil and gas market were of particular concern. The interviewees explained that because of the US’s dominant role in the international economy, such actions will generate instability in global oil and gas supply lines which could be devastating for Brazil, one of the world’s largest producers of oil and gas.