What Will Stop Trump From Starting a Trade War With China
If we are to believe President-elect Donald Trump’s Twitter feed, the trade war with China has already started. Trump has laid down the gauntlet about Beijing’s currency manipulation and “unfair” taxation. But beyond the social media front, Trump’s battle plan is hard to discern. His campaign proposals on trade, like slapping 45% tariffs on Chinese imports, have been asserted one day, avoided the next.
So what can the new president actually do in the year ahead?
The nuclear option—withdrawing from the World Trade Organization (WTO), an institution that Trump has called a “disaster”—would allow him free reign to attack China with high tariffs and other restrictions at the border. Not only is this option unlikely to find favor with Trump’s own advisers, especially seasoned businesspeople like his picks for secretaries of commerce, treasury, and state, it will also face fierce opposition in Congress, including among Republicans. Even if Trump has the legal authority to give notice to the WTO of U.S. intent to withdraw, the WTO treaties have already been implemented into U.S. law through legislation in Congress. In practical terms, ceasing to operate within WTO legal disciplines would require that this legislation be repealed.
A much less problematic start would be officially labeling China a currency manipulator—which Trump has already done at every opportunity. (Though Treasury officials in previous administrations have raised questions about China’s exchange rate policies, they have stopped short of using the “m” word.) Under current U.S. trade rules, the main consequence would be to trigger consultations with China about currency practices; if these talks failed, eventually some penalties might be imposed, such as excluding Chinese firms from U.S. government procurement contracts. But slapping duties on Chinese goods is not among the sanctions currently available under law. On the other hand, in fairness to Trump, the timing may be auspicious for talks with Beijing on revaluing the renminbi; China itself is now trying to shore up the currency in the face of capital flight.
Another option would be to impose tariffs based on the Trade Act of 1974, in which Section 301 allows for sanctions against trade practices of other countries that are illegal under current international law or otherwise unreasonable or unfair. To settle a previous WTO dispute, the U.S. made a declaration that it would not use Section 301 in a manner inconsistent with WTO rules. The law also contains a number of procedural hurdles, including requiring consultations with the target countries to attempt to resolve the issue and a thorough investigation, before duties may be imposed.
Some analysts say that Trump might find an easier route to attacking China using obscure legislation about trading with the enemy in a time of war, for example. Abusing this kind of authority is likely to result in pushback from the courts, and possibly Congress as well. On the other hand, the administration could file a range of anti-dumping or countervailing duty (another term for retaliation against unfair subsidies) actions against China, on steel for instance; imposing these kinds of measures would be little more than an intensification of Obama administration strategy—hardly a new trade war.
Even if Trump were to impose punitive duties on China, it is far from clear that Beijing would be eager for battle. Unless framed as a legally justified response to dumping or unfair subsidies, the U.S. duties would almost certainly violate WTO rules on tariffs; but so would any knee-jerk Chinese retaliation in the same form. Heavily dependent on market access for its exports around the world, China cannot afford to threaten the WTO by fighting a trade war outside the rulebook. By contrast, Beijing may well shift the battleground to Geneva by suing the U.S. in the WTO Dispute Settlement Body (DSB). In turn, the Trump administration might be expected to launch a range of complaints there against China, particularly on subsidies. Given the litigation timetable at the DSB, which can involve several stages of proceedings, a clear answer from the trade court in Geneva is unlikely until the end of Trump’s first term in office.
Especially if Beijing takes the high road of litigation before retaliation, Trump is likely to find himself without allies in pursuing a bellicose stance. Japan and Europe may have their own concerns about China’s trade practices (and some of Trump’s own are legitimate). But Trump pulled the rug out from under Japan’s government by assailing the Trans-Pacific Partnership, and his climate denial policy may lead Europe to respond with carbon taxes on U.S. imports, a whole other trade battlefield.
The incoming administration’s trade team may see starting a trade war merely as a means of bringing China to the negotiating table on favorable terms. In fairness, using threats of punitive tariffs to spur trade talks is a longstanding U.S. tradition, and is sometimes successful. But to succeed, commercial negotiations require trust. Much more disturbing than his threats about customs duties is Trump’s blackmail that unless he gets what he wants from China on trade, the U.S. may back off from the “One China” policy on Taiwan. In effect, the president-elect has announced a new foreign policy doctrine: U.S. geopolitical influence is something to be bought and sold, presumably to the highest bidder. If this indeed is the Trump Doctrine, then no U.S. ally or trading partner can feel secure. That’s quite an atmosphere in which to try and practice the art of the deal.
Robert Howse is the Lloyd C. Nelson professor of international law at the New York University School of Law.