Donald Trump has his sights on US business in tariffs battle

Donald Trump has his sights on US business in tariffs battle

Donald Trump raised the stakes again in the trade war with Beijing last weekend as he followed through on plans to impose a 15 per cent tariff on a further $112bn of imports from China.

The US president is now deep into a tense stand-off with Xi Jinping, his Chinese counterpart, amid dwindling hopes that the two leaders can forge a compromise.

But Mr Trump is also locked into a parallel game of chicken with corporate America, particularly those US multinationals that have big investments in China mainly to serve its growing market of 1.4bn people. Last month, Mr Trump vowed to use emergency powers to force American companies to leave China — and on Friday, he named and shamed General Motors, the US carmaker, for its presence in the Chinese market.

“They moved major plants to China, before I came into office. This was done despite the saving help given them by the USA. Now they should start moving back to America again?” Trump asked in a tweet.

US blue-chip companies’ response has been fairly defiant. The US-China Business Council, which represents many US companies operating in China, said the overwhelming consensus among members was that they would not heed the president’s orders and ditch the Chinese market.

Big importers have been considering and implementing supply chain shifts to other emerging markets, but leaving China now would deprive them of a huge pool of revenues and damage their market share. Some in US business see Mr Trump’s bluster against corporate America as just that: they are gambling that he would not dare to compel them legally to cut their ties with China.

But others are worried: they believe IEEPA, the International Emergency Economic Powers Act of 1977, would allow the president to halt financial transactions with any country in the presence of an “extraordinary threat” to America, even on an economic level. There is also the Trading with the Enemy Act of 1917, which can be used to curb peacetime economic relations. 

And the White House has vast powers over procurement, such as insisting that the federal government should not purchase any more goods from China, no matter the cost.

US businesses also have to worry about a Chinese crackdown on them as the trade war deepens, including regulatory action, immigration restrictions and judicial harassment against visiting executives. And there is always the possibility of a state-directed, or spontaneous, boycott of American goods in China.

Although under fire, US companies with investments in China are not flinching. But increasingly in their minds is the fear that they might at a moment’s notice have to abandon their plants and workers in China — which would be the most tangible sign yet of a decoupling of the world’s two largest economies.

Beto O’Rourke takes up tariffs in presidential fight

The damage done by Donald Trump’s trade war with China is beginning to seep into the 2020 Democratic presidential race.

Last week, Beto O’Rourke, the former Texas congressman and a contender for his party’s nomination, released a lengthy plan on trade issues that included a vow to reverse all China tariffs if he took office.

Mr O’Rourke’s stance is not hugely surprising since he is considered a moderate on economic issues, and hails from El Paso on the Mexican border where international trade is a way of life. But it shows that Mr Trump’s protectionist policies are not destined to remain in place should he exit the White House, even when it comes to China.

Mr O’Rourke was clear that he would rather confront Beijing at the World Trade Organization and in co-ordination with US allies, than simply return to an emollient strategy of engagement.

In reply

Interesting seeing some signs of spine from a Democrat in the presidential race (albeit, as you say, a moderate from the free-trading Texan border) standing up to Trump’s destruction of the global trading system, writes Free Trade co-author Alan Beattie.

Some of the other big economies (notably the EU) are currently essentially attempting to filibuster the Trump administration and limit damage to themselves while waiting for a more multilaterally minded president in the White House. But they should be aware that a trade sceptic — if not in Trump’s destructive mould — like Bernie Sanders or Elizabeth Warren is more likely to get the Democratic nomination than a centrist like O’Rourke.

If the other big WTO members want the US to return to the fold, they need to prepare an offer which addresses some of the US’s complaints about the multilateral system and allows an incoming Democrat to portray themselves as leading a posse to go after unfair trade rather than letting the baddies run amok.

Chart choice

US-China Business Council member survey.

Big number $101bn

The amount of debt Argentina wants to reprofile.

Further reading

● Is Germany going soft on China? (Atlantic Council)

● Lagarde’s IMF tenure offers clues for the ECB (FT)

● Trade war pushes garment companies back to Bangladesh (WSJ)

● Trump vs Trumka on USMCA (FT)

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