Trump fines China with $50 billion a year plus some more…

This is how the trade war started. On March 9, 2018 the American President Donald J. Trump signed the Section 232 Proclamations on Steel and Aluminum Imports, imposing extra tariffs of 25% and 10% respectively (Official White House Photo by Joyce N. Boghosian)

The New Yorker President of ‘America first’, Donald Trump, has figured out the cash China has to pay the US every year, in order to continue exporting her products to the largest market of the globe. It’s something like the ‘protection’ cash New York shopkeepers have to pay the gangs in order to get on ‘peacefully’ with their business.

The Washington administration and, more precisely, U.S. Commerce Secretary Wilbur Ross explained: “It’s not something that’s going to be cataclysmic a 25 percent tariff on $200 billion of goods would only amount to $50bn a year, equal to less than 1 percent of China’s economy”. Ross added “President Donald Trump now feels that it’s potentially time to put more pressure on China to modify their behavior.”

Just…$50bn a year

In detail, the Trump administration is preparing to impose new tariffs on imports of goods from China of a value of $200 billion. Initially, the tariff was expected to be set at 10%, but now the White House has increased it to 25%. The ‘calculation’ of the extortion money is very simple; 25% on $200bn makes $50bn. This is what Trump wants China to pay America every year in order to keep open her US shops/exports. The ‘calculation’ Ross made summing it up to less than 1% of China’s GDP, is similar to the reckoning of the ‘protection’ money New York shopkeepers had or probably still have to pay to Mafia in order to get on with their business. But, let’s get a glimpse of the global picture.

Washington has recently agreed an economic truce with Brussels. On Wednesday 25 July, President Trump and the European Commission President Jean-Claude Juncker, concluded a trade armistice between the US and the EU. According to the ‘European Sting’, “the two sides agreed to lower or even zero the tariffs and the non-tariff barriers on industrial goods and cars and the European Union agreed to raise her imports of US natural gas….and soybeans”.

The EU finally sides with the US

Indirectly, but very clearly, Juncker also reassured Trump that Europe supports America in her trade conflict with China. The two sides included this reassurance as fourth clause in their joint statement. It seems that the European Union and, most probably, Germany, finally gave in to the American demands, but it’s not clear yet if Paris is to follow Berlin in this direction.

The relevant paragraph of the EU-US joint statement goes: “Fourthly, we agreed today to join forces to protect American and European companies better from unfair global trade practices. We will therefore work closely together with like-minded partners to reform the WTO and to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity”. Almost all the American complaints against China are included in the above text, undersigned by Juncker.

Peaceful Atlantic but the Pacific in flames

Washington then, having secured a trade truce in the Atlantic Ocean, has now concentrated her aggression in the Pacific and, precisely, against China. This emboldened the US administration and so it decided to more than double the tariffs from 10% to 25% on the package of the threatened measures against the Chinese imports.

US Trade Representative Robert Lighthizer explained this unprecedented development. He clarified that Trump increased the tariffs because China ‘dared’ to take retaliatory measures and refused to comply with the US demands. It must be mentioned that the US has already imposed tariffs on Chinese imports of a value of $34bn.

Declaration of a trade war

All these American measures and hostile comments are very indicative of Washington’s belligerent intentions towards China. Add to that the above blatant calculation of the sum which practically constitutes a ‘toll fee’ and you end up with an outright declaration of a trade war. The situation has being dangerously aggravated by the fact that there have not been anymore contacts at a high political level between the two countries for a few weeks now, despite the continuation of talks on official levels.

Who opposes Trump?

At this point, it must be noted that within the US the opposition to this White House aggressive Chinese strategy is not too strong. It is authentically expressed by the largest business lobby of the US, the American Chamber of Commerce. The Chamber stated “Escalating tariffs against China is the wrong approach to address legitimate concerns U.S. businesses have with China’s harmful practices”. Obviously, the Chamber accepts that China follows harmful trade practices and disagrees only with the methods to solve the ‘problem’. On top of that, Trump is ready to spend $12bn more on subsidies to the agricultural sector, to make it up to producers for the losses of the Chinese markets.

China retaliates moderately

This brings us to the retaliation China is undertaking to answer the extra American tariffs. Last Friday, Beijing included the American natural gas and crude oil in the list of potential retaliatory measures, punishing US products of a value of $60bn in total. The levies will be implemented if the US realizes her $200bn package. China is the largest world importer of crude oil and the second largest in natural gas. Already, the Chinese energy companies are diversifying their supply sources to Saudi Arabia, the United Arab Emirates, Russia, Iraq and elsewhere. This will badly hurt the American effort to become the largest energy exporter of the world. Last Saturday, Beijing said that the $60bn list of US imports to be punished is a rather restrained response to the American aggression and blackmail. This is how Beijing characterizes the American action.

In conclusion, Washington, having secured Brussels’ backing, has raised the stakes in its Chinese trade assault. China  seems determined to respond moderately but straight away. The whole thing may escalate and turn a serious trade dispute into an all out geopolitical confrontation, between the first and the second largest economies of the world.