Once upon a time, as told by Liu Zongyuan (773-819), a literary figure of the Tang Dynasty a donkey was brought into a remote village in China’s southeastern Guizhou province. Seeing such a big animal for the first time, a native tiger watched it warily at a distance. It was taken aback when the newcomer suddenly brayed. And it narrowly escaped a head kicking from the infuriated beast when it tried to play. But as the days passed, the tiger learned that kicking and braying were the only tricks the donkey had.
These days, the administration of U.S. President Joe Biden is increasingly finding itself in the donkey’s position. In its three-year trade war against China, the U.S. exhausted practically all the tools in its toolbox. In an effort to exert maximum pressure on China, the former president, Donald Trump, imposed punitive tariffs on nearly all Chinese imports at one point in time. Currently, goods valued at roughly $370 billion, or 66 percent of Chinese annual imports, are subject to punitive U.S. duties. The average rate stands at 19 percent, more than six times what it was before the trade war started in 2018. Now as U.S. Trade Representative Katherine Tai looks to meet her Chinese counterpart, she is pondering an important but perplexing question: What to do with the tariffs?
On the campaign trail, Biden blasted Trump’s tariffs on Chinese-made goods, condemning them as harmful to U.S. consumers and producers. Indeed, the tariffs have in effect served as a tax on U.S. consumers and manufacturers and a drag on the U.S. economy. According to U.S. Customs and Border Protection, they have so far cost U.S. importers more than $82 billion. A report from Moody’s Analytics put the loss of jobs at 300,000. In addition, studies find that the tariffs cost the average household at least $600 a year.
However, to the dismay of many in the U.S. and the rest of the world, the Biden administration decided to keep the tariffs in place. For one thing, it intends to use the tariffs as leverage in its trade talks with China. In an apparent effort to extract concessions from the Chinese side, it has signaled linking an end to the tariffs to issues such as state-owned enterprises and state subsidies. Yet, unlike the hackers of the Colonial Pipeline, who were handsomely rewarded, this extortion will be difficult to pull off, and it requires a price to be paid.
In September 2020, an expert panel of the World Trade Organization ruled that the U.S. violated WTO rules by imposing tariffs on China. If the Biden administration were to “impart the values and rules that guide global commerce,” as US trade representative Katherine Tai said at a Senate confirmation hearing, it ought to end the tariffs without any conditions. Keeping them in place, which amounts to flouting international trade rules, will surely reflect poorly on the U.S. It will call into question the Biden administration’s claim to multilateralism. Worse still, it will — together with other actions it took in the WTO, such as the paralyzing of its appellate body — cause the U.S. to continue to be seen as a villain in the organization. Consequently, U.S. Secretary of State Antony Blinken may one day come to regret urging other countries at the United Nations in April to “judge us by what we do.”
The tariffs have failed to cut Chinese imports and reduce the U.S. trade deficit with China. According to Chinese customs data, exports to the U.S. last year soared to $451.8 billion, an increase of 7.9 percent year on year. As a result, China’s trade surplus with the U.S. jumped by $275.8 billion to $451.8 billion. The upward trend has continued in 2021. While the first four months of this year saw two-way trade shoot to $221.6 billion (roughly half last year’s total), Chinese exports to the U.S. rose to $161.1 billion, which represents a 60.8 percent increase compared with the same period of 2020. Again, China enjoyed a big trade surplus with the U.S., which increased by 58.5 percent to more than $100 billion.
Apart from the market demand in the U.S., the surge of Chinese imports into the country testifies to the resilience of Chinese exporters and Chinese companies in general. After the initial shocks when Trump instituted the tariffs, Chinese exporters adapted quite well to the changed trade environment, seeing life under the punitive duties as the new normal. They are increasingly confident about their ability to weather any storms, including the possible continuation of the tariffs.
Contrary to what Trump expected, the tariffs imposed by the U.S. have not been able to stop the Chinese economic advance in its track. China emerged as the only major economy in the world that recorded positive growth in 2020, achieving a 2.3 percent growth, in contrast with a 3.3 percent contraction of the U.S. economy. Further, China’s economic dynamism appears to be unstoppable, with growth forecast to be around 8 percent by many economists both in and outside China. The country is now better positioned to cope with whatever will transpire in the trade talks. .
Trade had long been perceived by many in China as the anchor of U.S.-China relations. It was believed that a thawing in trade could help stabilize, and possibly improve, overall ties. For this reason, commercial concessions were at times deemed a necessary evil. However, Washington’s intensified attacks on China on other fronts in the aftermath of the phase one trade deal in January last year has largely upended that perception. The notion that better commercial ties could rescue rocky bilateral relations has all but dissipated.
Moreover, having been through the Trump era, the Chinese public is keenly aware of the limitations of U.S. tariffs and their impact. In this context, it would be unrealistic to expect China to be prepared to “structural change” in exchange for scrapped tariffs.
China is more committed than ever to opening the country wider to the outside world. It is convinced that its future lies in further opening-up and reform. But it will do so at its own speed and at a time of its own choosing, rather than in response to Washington’s coercion.
The tiger in the story had a sumptuous dinner once it was clear the donkey had little recourse. To be sure, China is no tiger, and it has neither the ability nor the ambition to conquer the U.S. However, the tariffs have proved ineffective over the past three years and show little potential to be applied to advantage this time around. As such, attempts to employ tariffs as negotiating tactics will, in all likelihood, turn out to be misguided.
