On Tuesday, the United States Commerce Department issued a preliminary decision to levy an import tax on shipments of aluminum foil from China. This decision comes shortly after China's Shandong province ordered 3.21 million tons of smelting capacity to be cut as Beijing continues in its efforts to curb pollution. Amidst concerns over supply cuts, Aluminum prices skyrocketed to $2,000 per ton, the highest they have been in nearly three years.
As the Trump administration amplifies pressure on Chinese trade more broadly, some commentators believe that aluminum may be the canary in the cole mine for an all-out trade war between the world's largest economies. "(This) takes on more importance now that the Trump administration is ratcheting up pressure on Chinese trade practices," said Peterson Institute Senior Fellow Chad Brown. "This would happen under any administration. I think what's interesting and useful about it, though, is that it does tie into this bigger aluminum and overcapacity issue."
China has taken a steadier course in their messaging on trade. Beijing has long maintained that trade between the U.S. and China is mutually beneficial, and has routinely extended the olive branch to Washington in hopes of improving their trade relationship. Officials also assert that there are no links between North Korean security threats and China-U.S. trade.
Despite China's steady stance, analysts are concerned that DC's continued misinterpretation of trade issues -- and the significance of the U.S. trade deficit -- could be enough to catalyze trade war. Jim McCaughan, CEO of Principal Global Investors, said on Tuesday, "I don't believe that the U.S. trade deficit is as big a problem as many say." McCaughan says that Trump's tough talk on China appeals to the president's base, but he added that Trump would "blame someone else" in the event of a trade war and any negative consequences.
The impacts of trade tension are already being felt in China. Susan Joho, an economist at Julius Baer noted, "Chinese trade data for July disappointed market consensus expectations. Both yearly export and import growth moderated in comparison with the previous month, against expectations for remaining just as strong. Export growth to the U.S. almost halved amidst tensions over China's large trade surplus with the U.S." However, this is not the first time that analysts have feared a trade war under the Trump administration, and China's July 'slump' may not be as serious as some believe. Second-half trade growth is not unusual, and China is still likely to see its first positive growth in annual foreign trade since 2014.
Further Tuesday's preliminary ruling still requires a final decision from the International Trade Commission and the U.S. Commerce Department. It remains possible that the Trump administration could cave to pushback from foreign allies and domestic industries - similar to the delayed decision on steel restrictions following complaints that it would cripple domestic industries and strain global ties.
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