On Wednesday, China added a 25 percent tariff on $16 billion of US imports, including SUVs, motorcycles, and fiber optical equipment. Also included on the new list of Chinese tariffs: coal imported from the US—a kick to the teeth of one of the few bright spots in an industry that’s continued a steady downhill path, despite Trump’s promises.
As CNBC reports, that list from China came following the US announcement of a … 25 percent tariff against $16 billion in Chinese imports. Which followed a previous round of shot for shot blows in this trade war that Trump insists is “good” and “easy to win.” But so far the only good that’s come out of it is rising prices, and the only winning that’s been done is in countries picking up the business that the US is losing.
At least when it comes to vehicles, there is a chance that Chinese dealers will either absorb some loss or mark up prices and continue to sell products. Many of the items that the US sells to China, whether it’s coal or soybeans, are commodities. The only reason to purchase the product from the US is simply that it’s available at a lower price. Once tariffs take away that advantage, Chinese companies simply move their purchases to Brazil, Australia, or South Africa where the same product is available at an only marginally higher price.
Trump has accused China of going after the farmers who he “loves,” and it’s true. Which is exactly the point. Trade wars, like other types of wars, are designed to inflict damage. China, like the United States, is deliberately targeting those areas of the economy where their actions will have the greatest effect and potentially cause both political as well as economic harm. But it’s not clear that Trump understands this point. For him, instituting tariffs seems to have been more about putting on the appearance of “being tough.” In mid-July, Trump moved again to relax penalties against Chinese telecom company ZTE, even though that company had repeatedly violated US sanctions on trading with North Korea and Iran. Trump also watered down the effect of sanctions against Russian aluminum company Rusal. In both cases, Trump made a point of saying he wasn’t trying to put either company out of business.
Except … that’s what trade wars do. That’s what winning a trade war means. It means the other guy loses. It means factories close, businesses fail, workers go without jobs. It’s a war. There are casualties. And even the winning side can expect to suffer.
As press pool reports from last week indicate, Trump is breezily detached from that reality.
Trump: We’re in a little bit of a fight with China right now. And we’ve gone up, and I don’t want them to go down, because I’m big fan of President Xi, a friend of mine, but they’re down 28 percent since we, the last 3 or 4 months, and we want them to do well, but we want them to treat us fairly.
What Trump means by “they’re down 28 percent” is likely connected to a fall in China’s stock market—one that happened before tariffs began, but which was connected to a worsening relationship with the United States. The biggest factor cited in this fall was simple uncertainty, or as one Chinese market analyst put it “You don’t know what Trump is going to do next.”
But that doesn’t actually seem to be the case. Because what Trump will do next is genuinely what Trump said he would do—impose tariffs, then more tariffs, and keep firing back with one economic shot after another, and wonder why his “friend” Xi, who just had himself installed as president for life, isn’t such a reciprocal fan.
In between hurling tariffs that hurt workers and toss whole industries into turmoil, Trump can be expected to hand out the occasional favor, as he has for ZTE and Rusal, to demonstrate to his fellow rich people that he doesn’t really mean to hurt them. It’s just … he said he would tariff, so he’s tariffing. Because evidence, advice, and results be damned.
Meanwhile, the Chinese Ministry of Commerce said it must retaliate against the U.S. tariffs "to defend the nation's dignity."
While Trump is trying to buy off farmers by creating a $12 billion ladder out of the hole he dug for them, he might want to ready another check. Because while coal exports were up sharply in 2017. most of that coal went to China. And as Reuter’s reported at the time …
U.S. coal exports to Asia are almost certainly price-dependent, given they dropped off sharply when Asian coal prices fell for five consecutive years from 2011, but have started to recover as prices rallied in 2016 and maintained strength so far this year.
That price is now 25 percent higher for US coal, meaning that it can’t compete with pricing elsewhere, meaning that the amount the US is likely to export is … nothing. Nothing at all.
But remember, coal miners, the point of this is not to hurt Chinese business.