COMMENTARY:
The drama in U.S.-China relations is a daily occurrence, and we are witnessing the emergence of a China that can play some very strong cards. Recently, China announced tighter export controls on its export of rare-earth minerals. These are critical elements which are used in the production of electronic components in products such as cars, computers, and military equipment. China produces approximately 70 percent of the world’s mined rare-earth minerals and approximately 90 percent of the world’s refined rare-earth minerals. Other countries, such as Canada, have huge reserves of rare-earth minerals, however, China has invested billions in order to scale up their production. It would take years for other countries to create the production infrastructure to match China’s current output.
By tightening its export control on these products, U.S. national security could be put at risk. In response to China’s action, President Trump announced that he would be imposing 100 percent tariffs on Chinese imports beginning in November. For the past several years, continuing to this day, the U.S. government has used its bully pulpit to restrict the export of the most advanced computer chips and equipment to China in order to make sure that country does not surpass the U.S. in various high-tech industries. This restriction applies not only to U.S. companies, but to foreign companies doing business with China. By restricting its export of rare-earth minerals, China could potentially control the supply chain of all chips and high-tech equipment.
During his 100 percent tariff announcement, Trump also demanded that China purchase more U.S. soybeans and help stem fentanyl flows from that country to North America. According to Trump, China “has to give us things,” in order to de-escalate the ongoing trade war. Furthermore, he announced that he was considering canceling a scheduled meeting with Xi that was to take place during the APEC summit at the end of October. This announcement negatively affected the U.S. stock market, thus creating even more economic uncertainty.
China has imposed reciprocal tariffs on U.S. imports. Perhaps more importantly, China has strategically curtailed its purchase of agricultural goods such as soybeans from the U.S. This is hitting the U.S. farm community, a great many of whose members helped re-elect Trump, hard in the pocketbook. Soybean farmers have relied heavily on Chinese exports to make their living, and shifting exports to other countries has proven to be difficult. Meanwhile, China has started purchasing soybeans from other countries, such as Brazil, to make up for the reduced U.S. imports.
China continued to up its ante by reciprocating port fees that the U.S. is imposing on Chinese ships by imposing fees on U.S.-built or U.S.-operated ships. Even perhaps more damaging, China announced that it will begin charging fees on companies that have a 25 percent investment from American sources. It will also ban Chinese companies from doing business with five divisions of mega-shipper Hanwha’s U.S. operations. Hanwha recently announced that it intends to build tankers that will carry fuel. This latest announcement could restrict the critical components and materials that Hanwha-U.S. needs to launch this program.
In an October 19 interview, President Trump was asked if 100 percent tariffs on Chinese imports are sustainable, he said “It's not sustainable, but that's what the number is.” He also indicated that some tariffs could rise to 157 percent. During the interview, Trump also reversed his position about meeting with Xi, acknowledging that they will indeed meet during the APEC summit.
If the U.S. strategy is based on bullying China to bend to U.S. demands, this strategy seems to be backfiring. Through the second quarter of this year, China’s GDP grew 5.2 percent, down slightly from 5.4 percent last year. In comparison, the U.S. economy grew 3.8 percent through the first two quarters of this year. The Chinese economy does have many challenges, especially overcapacity in its ability to produce goods. However, with these problems and the added problems posed by U.S. tariffs, controls, and sanctions, its economy is still growing.
Trump’s erratic approach to trade and diplomatic policy with China is weakening the leverage the U.S. has with that country. Beijing has to be viewing Trump’s latest tariff threat as a hollow bluff, given his reversals in the past. Xi knows that 100 percent tariffs across the board would gravely affect a wide variety of U.S. industries, which would then put pressure on Trump to repeal the tariffs. Xi must see Trump’s acquiescence to meet with him as the U.S. having backed itself into a corner with nowhere else to go. What we are witnessing is a China that can say no and that fights back hard.
The latest actions by both countries indicate that a trade war can take many shapes and forms, not just tariffs. Indeed, I do not view what is happening between the U.S. and China as just a trade war. It is a war for dominance, with the ability to dictate each country’s vision around the globe. The stakes are the highest they have ever been between these two countries, and it appears that each will go to the mat to win.
Jerry Pacheco is the president of the Border Industrial Association. Jerry Pacheco's opinions are his own and do not necessarily reflect the views of KRWG Public Media or NMSU.