Trade Isn’t Why Trump Tariffed China

medium120041023With Trump slapping reciprocal tariffs on significant US trading partners, and a 10% baseline tariff on almost all countries, markets across the world are in turmoil. Japan was hit with 24% tariff and is planning to invest more both in US and in the domestic market to counter the impact. Tokyo hopes this will be an effective way to persuade Trump to soften the tariffs.But the US-China trade war, in particular, has sharply accelerated. In Feb, US imposed 10% tariff on all products imported from China. In March, it added another 10%. China had responded to this by raising 15% tariff on coal and LNG from US, and 10% on American oil, agricultural and farm machinery, and large-engine cars. In March, China also raised 10-15% tariffs on agricultural products from US. But things erupted into a full-blown trade war last week when US imposed 34% tariff on China, bringing the total tariff hit on Chinese products to a whopping 54%. China hit back by imposing its own 34% tariff on US exports.The trade war escalation between US and China was bound to happen. For, in US, competition is the main factor organising society. Such competition culture is also reflected in US diplomacy. And over the last 250 years, US has won all competitions and not allowed any of its rivals, including Germany, Japan, and the erstwhile Soviet Union, to survive. This reinforced US pre-eminence in the global order. But today, US is worried about losing its superpower status. From a competition perspective, other countries, including China, have been growing faster than US under the global free trade regime. Therefore, Washington believes if US continues with the same policies, in the near future, it will lose its leading status as the only superpower in the world. So what should US do? It needs to change the current global free trade regime now. And this is what is being reflected in the Trump administration’s MAGA programme.Instead of a multinational framework to protect global free trade, Trump’s diplomatic style is bilateral negotiations to seek a deal by using intimidation. And as last week’s reciprocal tariffs showed, almost no country is safe. However, even within this framework, China is a special case. Because China is the only country that has the potential to win the competition with US. Therefore, the Trump administration is using two types of tariffs. One for China and one for the rest of the world. For example, the White House initially announced increased tariffs on Canada, Mexico and China for the same reason and at the same time. Then, it postponed imposing tariffs on Canada and Mexico in Feb because it was negotiating with these two countries. This means that tariffs on Canada and Mexico are negotiating tools. However, at that time the Trump administration increased tariffs on China even though it postponed increasing tariffs on Canada and Mexico. In March, US resumed tariffs on Canada and Mexico, but it increased tariffs on China again. Indeed, in the case of China, the same situation played out several times when Trump was president from 2016 to 2020. From this perspective, tariffs on China and tariffs on other countries are different. Tariffs on China are non-negotiable, and tariffs on other countries are a negotiating tool. This may also explain why China was the only country to immediately retaliate against the US reciprocal tariffs — Beijing has little scope for negotiations.The trade war is actually a tool of competition for national security with China. When China has enough money, it can rapidly modernise its military. China’s wealth also allows it to invest a great deal of money in smaller countries; the small countries’ indebtedness allows China to expand its influence in those countries. Countries with huge Chinese investment (and debt) are hesitant to criticise China. Thus, if the trade war reduces China’s income, it is the right way to deal with Beijing as a competition tool. What should other countries do? US is still the most influential country to decide the rules of global trade. Those who adjust to the new situation will be the winners of the new global economic situation. In this regard, countries may do well to create distance with China’s economy. If the US-China competition escalates, countries that trade with China will be affected deeply. And if US wins this competition, the Chinese economy will be a sinking ship. We should not be a passenger. Secondly, if other countries cannot rely on China, they need to find alternative markets and supply chains. Promoting the domestic market and diversifying supply chains will be a matter of priority. We must realise that now is the time of competition of great powers. And being flexible in the face of headwinds will be the key to success. The writer is a columnist based in Tokyo, and a non-resident fellow at the Hudson Institute