Trying to keep up with the latest counter offensives in the U.S.-Chinese trade war is dizzying. But all that works to China’s favor, which only has to keep the thumb screws on Donald Trump for a few months longer before he cries “uncle.” The president, in fact, is already doing so.
As to whom can win a trade war is an easy question: no one, because for every action there is a reaction. As to whom can survive a trade war, the answer is even easier: China, because under its system, there are no free-and-fair elections and thus, President Xi Jinping will be in office for much longer than Trump, who is about to go through a brutal campaign: he does not want the American economy or its stock market to gyrate any longer, much less nosedive and into recession.
“The administration is doubling down on a failing strategy,” says the free trade group, Tariffs Hurt the Heartland. “Nobody wins in a trade war, and raising tariffs further on American businesses and consumers will only result in slower economic growth, more farm bankruptcies, fewer jobs and higher prices. These new tariffs will target the products American families buy every day ...”
The International Monetary Fund said earlier this year that, globally, U.S.-China tariffs would subtract about 0.3% of global GDP in the short term, with half of that stemming from a loss of business and market confidence.
But the damages of a failed trade policy and the fallacy of enacting tariffs can cause a lot of pain and do long-lasting damage: just ask American farmers if they favor such a strategy and about the hit they have taken on such products as soy beans. And once China finds new suppliers and enters into long-term contracts with other countries, it will be a while before agricultural markets can heal.
The same is true for U.S. energy markets. Even though U.S.-exported oil has remained sacred, the looming threats have caused its price to drop nearly $5 a barrel to about $53 a barrel.
But supercooled and exported liquefied natural gas may not be so lucky. Absent a trade war, by 2020, the United States could be exporting 70 billion cubic meters of LNG and by 2040, the number could be 110 billion cubic meters, says the International Energy Agency in Paris. Chinese gas demand is forecast to grow by 60% between 2017-2023, all of which is tied to China’s domestic policies to reduce local air pollution by switching from coal to gas.
Chinese Will Power
China imports more LNG than any other country, according to consulting firm Wood MacKenzie. Royal Dutch Shell is the biggest exporter of frozen natural gas to China. Meantime, Cheniere Energy and Exxon Mobil Corp. have been prepping to build 25 facilities because of expected Chinese demand from such companies as PetroChina. Now, everyone is in limbo.
"For the long-term market, the consequences are likely to be felt on new supply developments,” says Giles Farrer, research director for Wood Mackenzie. “It restricts the target market for developers of new US LNG projects trying to sign new long-term contracts.”
A simple history: Trump announced $200 billion worth of tariffs on Chinese goods entering the United States, which began in September 2018. China, meanwhile, responded in-kind, tagging initially $60 billion in tariffs on U.S. products headed to China — now more than $100 billion, all in response to further trade tariffs imposed by the Trump administration. And Trump just said he would impose another 10% tariff on $300 million worth of Chinese goods entering this country, although he pulled back a bit given the hit to the U.S. stock market.
Nothing good can come from this: U.S. exports fell by 5% for the second quarter of 2019, hurting the 900,000 jobs that are tied to our exports to China, says the U.S. Department of Commerce. The Tax Foundation adds that the tariffs combined would reduce the U.S. gross domestic product by $30 billion and eliminate nearly 95,000 jobs. Trade disputes are typically handled through the World Trade Organization or through multilateral trade agreements such as the Trans Pacific Partnership from which the president withdrew.
While the U.S. is becoming more protectionist and isolationist, China, too, is taking actions anathema to free markets that include the devaluing of its currency. That makes its goods cheaper while raising the prices of products coming from the United States that has a strong international currency. In other words, Chinese President Xi Jinping has more tricks in his bag than does Donald Trump.
“China can defeat any challenge and pressure of the US,” tweets Hu Xijin, who is the editor-in-chief of the Chinese and English editions of the Global Times. “The signal sent by this kind of (our paper’s) article is stronger than (the) signal of US senior officials' remarks. The US should not underestimate China's will.”
Trump likes to win. And this trade war with China will take its toll on American businesses and energy enterprises, which value market certainty above all else. Unless the president figures out a way to walk back these tariffs, he will forfeit that conservative base — and likely the 2020 presidential race.
