- REUTERS/Mohsin Raza
One of the biggest economic risks of a Donald Trump presidency is his stance on protectionism – and his threats to enact punitive tariffs that could start a tit-for-tat trade war with the world’s second-largest economy, China.
What’s worse, it seemed last week the stage was being set for such a conflict.
Both the US and China took punitive trade actions against each other. For its part, China took a swipe at one of the most powerful lobbies in the US: the corn-ethanol industry.
On January 12, China hiked antidumping duties (now between 42.2% and 53.7%) and antisubsidy tariffs (now between 11.2% and 12.0%) on distillers’ dried grains, a form of animal feed. DDGs are a byproduct of corn/ethanol production and a big source of profit for the industry. China accounts for a whopping 50% of the US’s DDG sales, according to a report from Deutsche Bank.
In a statement after the news, Tom Sleight, the president and CEO of the US Grains Council, said the measures were “effectively stopping a growth market for US farmers and ethanol producers.”
Further, on Tuesday at the World Economic Forum in Davos, Switzerland, Chinese President Xi Jinping urged the Trump administration not to turn away from globalization.
“Whether you like it or not, the global economy is the big ocean you can’t escape from,” Xi said. “No one will emerge as a winner in a trade war.”
As Deutsche Bank pointed out in a recent report, plenty of US industries export billions of dollars’ worth of goods to China, offering several ways for China to retaliate against possible US trade restrictions.
- Deutsche Bank
The US also took action last week and filed suit against China with the World Trade Organization, accusing the country of illegally helping its aluminum industry with subsidies and breaks on energy costs. Additionally, the US seized $25 million worth of aluminum connected to a Chinese tycoon accused of violating antidumping regulations.
The Obama administration has filed more WTO suits against China than any other administration, but it has been able to maintain a dialogue with China. A full-on trade war could jeopardize that – and as Gene Ma, chief economist at the Institute of International Finance, told Business Insider last month, there are still things the two countries need to work on together.
For example, the US-China Bilateral Investment Treaty is currently under negotiation. Ma said he’s concerned that an escalation in this volley of trade spats could impede the treaty’s progress.
So the ultimate question is whether cooler heads can and will prevail and whether the incoming US administration has the ability to de-escalate situations if or when they reach a point that could be damaging to millions of Americans.