What does Trump want to prove with the new tariffs being levied on China?

Nobody really knows for sure. Probably not even Trump.

So far, the administration and Trump have not articulated what is realistic and what China could do that would lead the US to stop imposing tariffs.

It must be said that what Trump is doing with the tariff is not something — strictly speaking — new.

The US have a 25 percent tariff on imported trucks that goes back to the Chicken War” of 1963 with the European Union, where the European Union kept the US chicken out of their market, and in retaliation the US imposed a 25 percent tariff on trucks.

Trump’s tariffs reflect how the US used to advance its case for trade before the World Trade Organization (WTO) ushered in a more brittle regime which worked for nearly 25 years.

Citing WTO rules does not meet Trump’s visceral dismissiveness about the WTO: that’s because Trump knows his demands go beyond what the WTO can deliver.

We have moved roughly in a span of 20 years from using the WTO to open up trade with China through China joining, to then using it to justify punitive tariffs against Chinese goods and to force China to sell its own industrial raw materials.

What the global regime cannot handle however is the existence of massive trade surpluses. There are no rules for that. And what the WTO cannot do is to make China buy more because the WTO just has not addressed this issue: there is not a WTO rule addressing trading surpluses.

Once the rules are agreed by the WTO members, then it is a free market: if a WTO country is unable to compete for a certain set of products, it will sell less and slide into trade deficit.

The last time a round of market-opening global trade talks ended successfully was 1994, before the WTO. That is why Trump now wants to go back in time, to the system we had pre-1994 and, with an excuse, recently back-tracked to commit to a “rules-based trading system” communique already agreed at the last Canada G7.

The Chinese, on the opposite, want to preserve the WTO and so do the American Allies (the EU / all remaining G7 nations) as they have heavily invested in its system of rules (which the US originally created).

For this reason, the Chinese are not likely to negotiate with President Trump because he imposed retaliatory tariffs and national security tariffs on Chinese goods in violation of WTO rules to which the United States, China, and 162 other WTO member countries are bound.

In trade diplomacy governments will not negotiate to stop a country from taking WTO-illegal actions, for two reasons.

  1. The first reason is illustrated by the two guys who walk into a car dealership. First guy tells the salesman, “If you don’t lower the price of that car by $2,000, I’ll take my money down the street.” Second guys says to the salesman, “If you don’t lower the price of that car by $2,000, I’ll break your legs.” The first is negotiation. The second is extortion. Why? Because the first guy is threatening to do something he is legally entitled to do. The second is threatening to do something that he is not legally entitled to do. The United States’ retaliatory tariffs are WTO-illegal because Trump failed to follow the WTO’s retaliation process, to which the US is legally bound. Following that process would have guaranteed that China would not have retaliated against our retaliation. Instead, China would have negotiated for a solution during the process, or the US would ultimately have been granted the legal right to retaliate. Trump’s unprecedented refusal to follow this process precluded the Chinese from negotiating (outside the WTO’s regime), guaranteed that they would retaliate to the US retaliation, and undermines all of the global trade agreements on which the global economy relies.
  2. The second reason is illustrated by the guy and his 12-year-old son who walk into the television store. The guy pays the owner $800 cash for a TV. But when he and his son try to carry it out of the store, the owner and a security guard stop them. “I own this TV now,” says the guy. “That is correct,” says the owner. “You paid $800. So you now own it. But, you have to pay me another $800 cash if you want to take it out of the store.” What are the chances that the guy, in front of his son, is going to just pay another $800? Pretty much zero. He will call the police if he thinks they will be effective. He will try to handle it on his own, if he thinks the police will not be effective. But, there is virtually no chance that he is going to just reach into his pocket and pay a second time. China previously “paid” the United States by making concessions to the US in exchange for which the United States took on the obligations in the WTO’s Dispute Settlement Understanding — which require us to follow the WTO’s retaliation process. China also previously “paid” the United States by making concessions to us in exchange for which we took on the obligations of the General Agreement on Tariffs and Trade, Articles II and XX – which preclude the US from imposing the recent national security tariffs on Chinese steel and aluminum.

Thus, Trump is telling China that, even though the Chinese already paid the US to take on certain obligations, they now have to pay the US again to get them to fulfil those obligations.

What are the chances that China is going to just sit down and negotiate the amount they’re going to pay to secure US fulfilment of obligations China’s already paid for?

Pretty much zero.

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