Fri, May 04, 2018 - Page 8 News List

The phony trade war’s implications

By Eric Chiou 邱奕宏

The term the “Phony War” is used to describe an eight-month period at the beginning of World War II, when France and Great Britain had declared war against Nazi Germany, but where there was virtually no military conflict. It seems appropriate to apply that situation to the US-China trade standoff.

Since the beginning of this year, the global economy has been overshadowed by the gloomy clouds of US-China trade frictions.

In January, US President Donald Trump imposed punitive tariffs on Chinese solar panels and South Korean washing machines.

In March, the Trump administration announced 25 percent and 10 percent tariffs on imported steel and aluminum respectively, citing national security reasons.

Trump also signed a memo on Section 301 of the US’ Trade Act of 1974, to raise tariffs on up to US$50 billion of Chinese goods in order to punish Beijing for its allegedly unfair practices against US firms operating in China.

In retaliation for US tariffs on Chinese steel, Beijing declared US$3 billion in tariffs on US products.

Last month, immediately after the Office of the US Trade Representative (USTR) publicized the Section 301 sanction list, Beijing announced a list of nearly 1,300 items from the US — worth about US$50 billion — that would face 25 percent tariffs.

Trump responded by asking the USTR to consider further tariffs on up to US$100 billion of Chinese products and Beijing vowed to do the same.

The US-China trade spat seems to have rapidly intensified, which has invoked widespread concern and anxiety in various markets around the globe.

Some critics have said that the worst consequence of the US-China trade disputes could be another Great Depression, because these bilateral trade tensions could easily escalate into a total trade war, which would ignite a frenzy of trade protectionism around the world.

Despite these justifiable worries, the status of US-China trade tensions is more similar to the Phony War than any trade war.

Except for a few tariffs on limited items having taken effect, the reality is that both parties’ long lists of sanctions against each other have not yet been implemented. The two nations have been waving heavy hammers and shouting at each other, but no one has initiated the first strike.

Although Washington issued the tariff list of Section 301 on Chinese products, the final decision for implementing tariffs still needs to go through hearings this month and another few months of consultations and assessments.

As for the Chinese tariff retaliation, the date for the tariffs to take effect is “to be announced.”

This suggests that the two sides remain flexible and intend to maintain leeway for negotiation.

Washington and Beijing have kept communication channels on trade issues open. For example, in late February, Chinese Vice Premier Liu He (劉鶴), an economic adviser close to Chinese President Xi Jinping (習近平), was sent to Washington to ease trade tensions with the US, albeit fruitless results.

Trump last week said US Trade Representative Robert Lighthizer and US Secretary of the Treasury Steven Mnuchin would travel to China for trade talks. [Editor’s note: They arrived yesterday.]

That indicated that Washington had not shut down the window of negotiation, neither has Beijing refused to talk with the Americans.

The reason this trade war is phony is quite straightforward: Neither the US nor China is willing to embrace the catastrophic outcome of a total trade war. Hence, although both sides have a gun aimed at the other, no one is willing to fire the first shot.

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