When media outlets say the United States and China are on the brink of a trade war, they mislead. The fact is that these two huge economies have long since gone over that brink. They are involved in a full-fledged trade war that will likely only intensify.
The conflict has been building for at least the past six years. In 2018 and 2019, then-President Donald Trump imposed punitive tariffs on Chinese goods entering the United States. He aimed to persuade Beijing to stop its unfair trade practices, including domestic subsidies, patent theft, and onerous and atypical demands on U.S. firms doing business in China. However, these measures failed to elicit the desired change.
Nonetheless, despite reflexively reversing everything President Trump had done, the Biden administration kept the tariffs in place. U.S. Trade Representative Katherine Tai has insisted that they are the only way to get a change out of Beijing. In more recent years, the Biden White House has gone further. It has cut off U.S. exports of advanced semiconductors and chip-making equipment to China, as well as U.S. investments in Chinese technology. President Joe Biden has subsidized domestic U.S. chip manufacturing to further thwart Beijing’s ambition of dominating the global chip market.
Now, more talk of tariffs and other trade penalties has emerged from both sides. Washington has begun a probe into Chinese shipbuilding. It stems from a complaint from five national labor unions to Ms. Tai’s office, claiming that Beijing uses unfair policies in its effort to “dominate the [global] maritime logistics and shipbuilding sectors.” China’s commerce ministry predictably has countered, claiming that the accusations are false and that Ms. Tai’s office has “misinterpreted normal trade and investment practices.” The ministry has leveled a not very veiled threat of its own probe into what it describes as Washington’s use of discriminatory subsidies.
President Biden, meanwhile, has threatened new and enlarged tariffs. During a campaign stop at a U.S. Steel plant in Pittsburgh, he referenced Chinese subsidies for their steel and aluminum industries and threatened to triple the basic 7.5 percent tariff on these products to 25 percent. If these threats find their way into reality, they will go on top of the 10 percent duties on steel and aluminum put in place by the Trump White House. This latest tariff threat comes only shortly after President Biden suggested new higher tariffs on Chinese electric vehicles, batteries, and solar panels.
Chinese authorities, for their own part, have kept their own council on President Biden’s proposed new tariffs except to criticize “rash behavior” generally. What Beijing has done, however, is impose its own new tariff on American-made chemicals. The Commerce Ministry has singled out propionic acid, a chemical widely used in pesticides, herbicides, and drug development. The ministry has set a steep tariff of 43.5 percent. While the Chinese commentary has failed to mention the two U.S. firms most affected by the levy—Dow Chemical and Eastman Chemical—it has blamed U.S. interests for “dumping the product on Chinese markets.” Since Beijing’s action came just a few days after President Biden threatened new tariffs, what it says, although not in words, is that two can play at that game.
This new Chinese tariff is hardly likely to do much damage to the U.S. economy or even Dow’s and Eastman’s bottom lines. Although propionic acid is widely used, the global market is relatively small, only about $1.3 billion as of a 2022 accounting. With China consuming about one-quarter of international trade and the United States not being the only economic source, U.S. sales have amounted to $300 million at most. But of course, Beijing is less interested in limiting the sales of a particular product than in sending a message to Washington that its threatened tariffs will get a response.
In this ratcheting game of tariffs, subsidies, and probes into unfair practices, Beijing is playing from the weaker hand. Washington has on its side the European Union, Japan, and the UK, all of which have also complained about Chinese trade practices and are also considering tariffs on Chinese goods and other measures against China trade. These are formidable allies for Washington in this contest. And Beijing isn’t hoping that the pressure will ease should the current U.S. administration lose in the November election. President Trump has promised more tariffs against Chinese products if elected.
