Policy Alert #161 | March 27, 2018

On March 8, 2018, US President Donald J. Trump ordered a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum from all countries which went into effect on March 23. Initial exemptions were granted for Canada, the US’s largest supplier of aluminum and steel, and Mexico, and later expanded to include other US allies such as the European Union, Australia, and Brazil. On March 22, Trump ordered an additional $50 to 60 billion in tariffs against Chinese imports for its alleged lack of action on intellectual property rights infringement, with additional tariffs rumored to be announced on March 27.

The tariffs took disproportionate aim at the Rising Powers. According to the US Department of Commerce, in 2017, 14% of steel imports come from Brazil, 10% from South Korea, 8% from Russia, 5% from Japan, and 2% from China. In 2017, China was the second-largest supplier of aluminum, followed by Russia as third-largest, India as eighth, and Japan as fifteenth. How are the Rising Powers responding to the possible first shots in a trade war?

CHINA

In response to the US’s tariffs, the China’s Ministry of Commerce announced on Friday that it would be imposing $3 billion in tariffs on US products. In its statement, the Ministry said that, “China urges the United States to resolve China’s concerns as soon as possible, resolve bilateral differences through dialogue and consultation, and avoid damage to the broader array of Chinese-U.S. cooperation,” and expressed its intention to take legal action through the World Trade Organization (WTO) (original announcement in Chinese here). Minister of Commerce Wang Shouwen also highlighted his country’s efforts to address intellectual property rights infringement and expressed his hope that “China and the US can sit down and try to resolve trade disputes under the WTO framework.” At a press conference, Chinese Premier Li Keqiang warned that, “A trade war does no good to anyone. There is no winner.” At the annual China Development Forum, Vice Premier Han Zheng similarly cautioned that, “The readoption of trade protectionism leads nowhere.”

• In the official, state-run People’s Daily, “China urge[d] the US to pull back the decision before it is too late and make a prudent and cautious decision, so as to avoid dragging bilateral economic and trade ties, global trade and world economy into crisis. The US should never underestimate China’s resolution and capability to safeguard its legitimate rights and interests” and warned that, “A backfire is what the US side deserves for its reckless move. Under no circumstances will China sit idly and allow its legitimate rights and interests to be undermined.” Another editorial observed that “the White House has seemingly failed to note that China happens to have its own domestic politics,” and emphasized the domestic consequences of the announcement: “Hours after President Trump’s tariff announcement, China Iron and Steel Association issued a statement asking the Chinese government to take measures against US steel products. On China’s more outspoken social media platforms, resentment could be seen rising rapidly.”
• The nationalist Global Times has responded to the announced tariff with a flurry of editorials. One called for readers to “prepare” for a “large-scale trade war with the US” as “Washington needs to be taught a real lesson and such a lesson can only be taught by China, the world’s second largest economy. Some people think China should tolerate trade frictions and let other countries take the lead. But as a world trade powerhouse, China has to strive for its own interests.” Another editorial laid out China’s strengths that will contribute to its victory, emphasizing China’s “unity” against American “division”: “Chinese society will be more united than American society in the face of the trade war. Most Chinese will firmly support every countermeasure the Chinese government makes because they know this is essential to safeguarding their interests. The US is already divided on the issue. This opposition will rise when the US suffers more from the trade war.” One called for China to take the opportunity of the coming trade war to counterbalance against US hegemony: “China should win over Europe when conflicts break out with the US, and try to isolate the US instead of being isolated. The overall objective is to strike a blow to the Trump administration’s reckless trade policy against China, and make Washington think twice whenever it has the urge to act tough against China.”
• In his speech at the Forum on Sino-American Relations hosted by ChamAm in New York, Wang Wen, executive dean at the Chongyang Institute for Financial Studies at Renmin University of China, tried to contextualize the accusations the Trump administration made. Wang acknowledged the existence of a trade surplus, but argued that “The large amount of quality goods imported at modest prices from China not only helps to keep inflation low, but also increases the real purchasing power of the American people, especially the middle and low income groups.” He also highlighted the Chinese government’s efforts to balance the “astronomical trade deficit,” such as its plan to “hold an international import fair in November 2018 to set up an new open platform for cooperation in international trade, which is conducive to promoting balanced development of bilateral trade between China and the US.”
• Lian Peng and He Fei, a chief economist and senior researcher, respectively, at the Bank of Communications, made recommendations of strategies China can use in its coming trade war with the United States. “[I]t’s necessary for China to set the stage for a ‘reasonable, beneficial, and restrained’ battle, adamantly hitting back over US provocation. When it comes to choosing the industries and products for retaliatory moves, China can consider launching antidumping probes into or raising tariffs on US farm producers, aircraft and cars, among other that are highly reliant on the Chinese market. […] Trump might not be able to endure the resulting impact on US exports, employment and votes.”
• Li Haidong, professor at the Institute of International Relations at China Foreign Affairs University, similarly predicted that the tariffs will do little more than damage the US’s own economy. Li asserted that Trump’s tariffs demonstrate that “US government misunderstands globalization and ignores Americans’ demand for better employment and higher personal income. Such short-sighted economic nationalism will cause chaos in the US and hurt global economic order. This may also lead to the stagnation of US economy.”
• Wang Xiangwei, advisor and former editor-in-chief of the South China Morning Post, contextualized the trade spat as only one of many facets in the relationship between the US and China that may not result in negative ties in the long-term: “For the short term, a nasty fight is inevitable but as the Chinese saying has it: out of blows, friendship grows. Hopefully, a period of friction and confrontations can help the two countries find the new equilibrium needed to get their relations back on track and moving forward.”
• Lawrence J. Lau, Ralph and Claire Landau Professor of Economics at the Chinese University of Hong Kong, painted a more nuanced picture of the current trade deficits between China and US and offered alternative courses of action that would benefit both countries, rather than resorting to a trade war: increasing US exports to China, rather than attempting to cut imports, would “lead to genuine improvement in economic well-being in both nations.” “US producers and exporters will benefit, as will Chinese importers and consumers and producers who use the new imported goods and inputs. As long as the trade is voluntary, both countries will benefit in the aggregate,” Lau explained.

SOUTH KOREA

The South Korean government agreed to caps on steel exports to the United States and to open its market to US automobiles in exchange for an exemption to the tariffs on Monday, March 26. “The best result from a negotiation is when both sides leave the table feeling like they didn’t get everything they wanted. If the result is too lopsided in favor of one side, there may be renegotiation later. […] In my view, the risk [for renegotiation] will continue as long as President Trump remains in office,” Minister Kim said following the announcement. The Moon administration, however, was more optimistic, and characterized the outcome as a “perfect win-win.”

• The liberal-leaning Korea Times warned that Trump’s tariffs pose a threat to South Korea not just because of their effect on Korean exports, but also because a trade war between China and the US could wreak havoc on global markets. “The export-oriented Korean economy will find it hard to avoid unpredictable consequences if a trade war becomes reality. The country should find measures to protect its interests and minimize the effects of a tit-for-tat trade showdown.”
• The conservative Dong-A Ilbo criticized Trump’s inclusion of South Korea in the tariffs despite being “blood-bonded allies”: “Considering the significance of South Korea’s contributions to the United States as an ally, it is rather natural that South Korea be excluded from the nations subject to the tariffs” as the US is framing the tariffs as necessary to protect its national security interests. In response to the additional tariffs imposed on China, the paper also lamented South Korea’s position between two of its largest trading partners. “In present circumstances, what South Korea needs is a flexible approach through which it can actively support the international order of free trade while seeking its interest in negotiating with the United States,” the paper advocated.
• The Korea Herald called for South Korea’s steel and aluminum producers to look for other potential buyers and for the government to amp up its efforts to secure a country-wide exemption: “For the moment, the domestic steel industry pins hope on the government seeking to contact the Trump administration for negotiations over the tariffs. In the long term, it needs to push for further market diversification and consider relocating their mills to the US as a way to skirt the tariffs. Though losses appear inevitable, steel mills had better brace for a situation that they cannot but curtail exports to the US, including their transshipment of Chinese products, to be spared the tariffs. […] With the Trump administration expected to keep pushing trade protectionism, the government must beef up its trade diplomacy.”
• The conservative JoongAng Daily lamented that “Korea could get caught in the crossfire” between China and the US: “China exports finished goods based on Korean parts and intermediate materials. Korean producers will take a heavy toll. […] The Trump administration is [also] pressing for concessions on automobiles and other protected areas, using a temporary reprieve on steel tariffs as leverage. The Korean government must come up with a careful strategy to defend national interests from the trade war between the United States and China.” The JoongAng also criticized the US’s decision to include South Korea in the tariffs despite being a close security partner: “[South Korea] is one of the United States’ strongest security allies and a champion of free trade. Moreover, the two nations must not let any difference get in the way ahead of the historical inter-Korean and Pyongyang-Washington summit meetings. The two nations must demonstrate that their alliance is stronger than ever.” The paper featured two political cartoons of the tariffs, one as yet another foreign policy “bomb” for President Moon Jae-In to juggle, and the other as a steel beam borne by the US’s major partners but not Trump.
• The liberal Kyunghyang Shimbun acknowledged the South Korean government’s initial plan to pursue its interests through the WTO, but called on the government to do more, including allying itself with other countries subjected to the tariffs: “The government needs to present various and comprehensive measures. In the case of steel exports, the government could consider cooperation with China, which has also been subject to high retaliatory tariffs. The government also needs to strengthen efforts to engage in direct talks with Washington.” Ultimately, the paper argued, “the Trump administration needs to change its attitude.”
• The liberal-leaning Hankyoreh expressed its frustration with the Trump administration’s efforts to exaggerate the “inequality” between the two countries’ trade relationship and spread misinformation, such as Trump’s “unverified claim” that the shuttering of a GM Korea factory in Gunsan meant jobs were returning to Detroit. “While the Trump administration takes every opportunity to launch attacks about the trade imbalance between South Korea and the US in the manufacturing sector, it disregards the fact that the US has a much greater surplus in the balance on services. Meanwhile, Trump behaves with overt arrogance, making rude remarks without showing any concern for South Korea” despite the countries’ “blood brothers” relationship, the Hankyoreh protested.
• The conservative Chosun Ilbo, meanwhile, placed its critique squarely on the shoulders of the Moon administration for its lack of action. The Chosun Ilbo noted that the US Commerce Department began researching tariffs of this sort in April 2017: “What has the government been doing since then? How much interest does it have in this issue? Perhaps the government should focus more on bread-and-butter matters instead of fixating on grand populist schemes that are fooling nobody.”

JAPAN

On the sidelines of a meeting at the European Commission, Japanese Minister of Economy, Trade, and Industry (METI) Hiroshige Seko expressed cautious optimism that the effects of the tariffs Japanese steel and aluminium would be minimal. “I think there is a high chance that Japanese steel and aluminum products would be exempted from the new tariffs on a per-item basis, as they contribute greatly to U.S. industries and many of them have little substitute,” Minister Seko said, and explained that US companies are being encouraged to apply for item-specific exemptions. However, he vowed that METI “will continuously and tenaciously” seek a country-wide exemption.

• The Japan Times lambasted Trump’s assertion that “trade wars are good and easy to win”: “There are no good trade wars and there are no winners.” The Times characterized the move as indicative of the “breakdown in the White House decision-making process” in the midst of “one of the most chaotic [weeks] of his tenure, with all evidence highlighting dysfunction and scandal in the administration.” The Times expressed hope that “the prospect of a damning verdict in the November midterm elections could sober him and block his worst impulses.”
• The liberal-leaning Mainichi Shimbun called for Japan to take action against the tariffs, not just for the sake of Japanese businesses, but to protect free trade in principle as the United states abandons its “responsibility to initiate and foster global collaboration” as a “world leader.” “Japan […] should not only be concerned about getting its products exempt from stiff U.S. tariffs. It also has a responsibility to maintain the free trade framework as a major power. The Japanese government should join the EU and other parties to urge the U.S. to rescind its new tariffs,” the Mainichi argued.
• The conservative Yomiuri Shimbun echoed these sentiments by criticizing the tariffs as “extremely irresponsible.” The Yomiuri urged the Japanese government to “have the Trans-Pacific Partnership free trade agreement among 11 countries, excluding the United States, take effect,” as it “would provide a foundation for the United States to return to the free trade framework.” The Yomiuri also called upon the government to utilize the US-Japan Economic Dialogue for high-level negotiations to end the tariffs.
• The Nikkei Asian Review, a conservative, business-oriented paper, called for Trump to “drop this plan immediately” as it “is an extremely dangerous move that threatens both rules-based international trade and global growth.” “Unilaterally imposing high tariffs on steel imports as the U.S. intends to do would only undermine the concerted international effort to persuade China to address its unfair practices,” the Nikkei explained. Instead, the Nikkei argued that cooperation between Japan, the US, and other countries to collectively urge China to change its policies would be more effective and less damaging to the global economy.

INDIA

Although India will not be directly impacted by the recent steel and aluminum tariffs, it has been involved in tit-for-tatting with the US over duties for luxury goods and, most notably, Harley-Davidson motorcycles. While India reduced the duties on US-made motorcycles from 75 percent to 50 percent, Trump threatened to institute “reciprocal taxes” on Indian imports if the country imposes any tariffs on US products. The Indian government is proposing its own increases in tariffs on luxury goods and electronics, the latter of which is intended to shield India’s own manufacturing sectors as part of Prime Minister Narendra Modi’s “Make-in-India” initiative. The move prompted disapproval from the US State Department and Republican lawmakers.

• Left-leaning The Hindu expressed its lukewarm support for the recently ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPATPP) that was successfully brokered without the United States. “Amid palpable fears of a global trade war, the survival of a free trade agreement despite the sudden pullout of the U.S. offers some respite to the supporters of free trade,” The Hindu explained. However, the paper urged the CPATPP members to “address” points of concern, such as the involvement of special interest groups and “massive” regulatory guidelines, in order to attract more members.
• Anti-establishment Indian Express argued that although India will not lose much due to the recent tariffs, it should serve as “a wake-up call” to governments worldwide to prepare for instability in the markets due to the US’s sudden policy changes. The Express urged the government to focus on “increased policy support and backing for industry to make it more competitive going beyond the government’s current stance of providing preference to locally manufactured iron and steel products besides aluminium.”
• Pro-BJP Daily Pioneer mocked the counter-intuitive logic of the Trump administration’s protests of India’s tariffs on Harley Davidson motorcycles as “reciprocal stupidity.” “Donald Trump appealed to the nativistic tendencies of those who feel that globalisation is bad. But America has also gained immensely from globalisation and attacking the global trade system will hurt Donald Trump’s base the most in the end,” the Pioneer predicted.
• The centrist Times of India called for calm and for the Indian government to “keep a low profile” as the tariffs fly: “A smart strategy would be to let economic heavyweights like the US, the European Union and China slug it out and allow the dust to settle, instead of taking up an activist position. […] India is a trade midget and would be on the losing side of a trade war with, say, the US. But if the US manages to change China’s mercantilist approach that wouldn’t be a bad outcome from India’s point of view; after all, Beijing imposes stiff barriers to Indian imports too.”
• Davashish Mitra, a professor of economics and Cramer professor of global affairs at the Maxwell School of Citizenship and Public Affairs, Syracuse University, penned an op-ed for The Indian Express, assured readers that India has little to lose in the recent tariff drama: “While WTO rules don’t seem to constrain Trump’s actions, India should feel safe and derive comfort from the fact that it is on the right side of the WTO rules and loses relatively little from the new metal tariffs,” Mitra said, citing the statistic of $0.3 billion in losses that Chad P. Bown of the Peterson Institute for International Economics calculated.

RUSSIA

• Contributor Lyuba Lulko of the nationalist Pravda Report characterized the tariff announcement as a sign that “America’s power is declining,” and that the shift in the balance of power is a boon for Russian business. “Trade wars between the US and China will cause damage to transnational companies. Many production chains will be broken, which will force business to look for new sustainable investment options. It is no [coincidence] that shares of Russian companies are in great demand now,” Lulko asserted.
• Pravda Report also featured an interview with Vladimir Rozhankovsky, an analyst with management company Horizon, about the tariffs. Rozhankovsky claimed that American consumers are uninterested in domestically manufactured goods because they do not offer “innovations,” and thus the tariffs will do little to benefit US manufacturers. “In the last 20 years, America has been engaged in its financial sector, which was thrown off the pedestal in 2008. There was practically no competition in production. It was very painstaking for the Americans to reanimate the dying General Motors. Airbus sells twice as many aircraft as Boeing,” he explained. “The preferences of the American consumer are obvious.”
• State-owned news agency TASS reported that Russian aluminum producer Rusal was confidant that it would be exempted from the tariffs. “Our subsidiary Rusal America in State of Delaware has been operating since 1999. We supply to the US market products with low carbon footprint, which are marketable, though scarce. We assume that Russia should be exempted from tariffs for protecting American consumers from price growth, and for ensuring that the American manufacturing industry remains competitive,” a spokesman told TASS in an interview.
• An earlier TASS article surveyed Russian steel producers Severstal and NLMK as well. NLMK reported that they “will be looking for a way out within the limits of legislation,” while Severstal explained that the US market only accounted for 2 percent of the company’s sales.

BRAZIL

• The right-oriented magazine Veja remarked that many countries promised a hard reaction against the Trump new tariffs after the release of the measures. Among these countries were traditional allies of the United States, such as Canada, Australia and some nations of the European Union.
• The online portal Uol Economia reported that the tariffs on imported aluminum and steel imposed by President Donald Trump came into force on March 22nd. According to the article, after a strong international reaction of its most strategic allies (for instance Canada and Mexico), the US decided to exempt them from the new policy.
• Highlighting the advantages Brazil may gain from the raise of tariffs the Trump administration announced, the Folha de Sao Paulo newspaper mentioned that the export of pork to China may increase. The association of meat producers estimates that the sales revenue of the product may far exceed the $100 million registered on 2017.

RPI acknowledges support from the MacArthur Foundation and the Carnegie Corporation of New York for its activities.