China Experts Gloomy About Tariffs Going Away on Chinese Imports Anytime Soon
The meeting six weeks from now between the presidents of China and the U.S. is unlikely to change the confrontational trajectory the two countries are on, according to a panel of China experts speaking at the Global Services Summit Oct. 17. "This has been a long, slow burn to this boil," said Charles Freeman, senior vice president for Asia at the U.S. Chamber of Commerce. "It's hard to see how we step down from this without some kind of radical compromise on both sides."
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Ely Ratner, a vice president at the Center for a New American Security, said the dominant view in the administration now is that the tariffs are a way to force a partial decoupling of the U.S.-Chinese trading relationship, rather than a point of leverage to get market access for American companies. While he said he's not sure whether the tariffs on nearly $200 billion in goods will increase in January to 25 percent, as announced, he's doubtful they will be rolled back from the current 10 percent. "I do not think there's a grand bargain that makes this all go away," he said.
Craig Allen, president of the U.S.-China Business Council, expressed the most optimism that the two sides could roll back tariffs, but he said that on his latest trip to China, the Chinese told him they're ready for a divorce or to make a deal. "If tariffs are an end in themselves, and we're happy with decoupling, we've got to think that through. The implications of that are profound," he said. He also asked a bit plaintively, "Aren't companies the right people to determine their own supply chains?"
Scott Kennedy, a Chinese economics expert at the Center for Strategic and International Studies, said there have already been shifts in supply chain decisions, especially for manufacturers of technical products that are not yet on export control lists. If the tariffs escalate in January, expect those shifts to accelerate, he said, and even those who source shampoo, sneakers or diapers from China may find other countries are more economical. If export controls become more severe, he predicted, more companies will leave China entirely.
He also said China will continue to ramp up its retaliation, but he doesn't think it will broaden the target list to all U.S. imports. He said Boeing aircraft are essentially the only items left to be taxed, and China needs them too badly to make them more expensive for its airlines. But he predicted China will hold more goods up at customs, harass U.S. firms with tax audits, and perhaps increase tariffs on the $110 billion already subject to retaliatory tariffs.
Clare Reade, a former assistant U.S. trade representative for China affairs and the panel's moderator, said that small companies may fold because of the tariffs the administration has levied on Chinese imports. She said she's worried that the American political system may not react quickly to change course, even as its leaders learn about these casualties.
But Ratner, who used to work for Vice President Joe Biden, said Democrats and Republicans are united on a tougher approach to China. "If Trump takes his feet off the gas in any significant way, his political opponent [in 2020] is going to outflank him for sure," he said. He was critical of his fellow panelists who reject tariffs, or who say that China wants to reform but cannot do so when it's being publicly pressured by the U.S. "Was the China shock we experienced in the 2000's good for the American people," he asked, referring to an MIT study that explored the enduring pain in labor markets where U.S. manufacturing was devastated by the entry of Chinese goods. "Would it have been better if the United States had done nothing?"