Trade war, day 77: September 24 escalation forebodes a long and bloody conflict

We’ve been calling it a trade war for a while. “Day 1,” by our counting, was marked by the first tit-for-tat round of tariffs on $34 billion worth of goods on July 6. The amount of goods tariffed then ratched up again on August 23, to $50 billion on each side.

But now that we are four days away from the amount of tariffed goods more than tripling, with taxes to be imposed on nearly half of all traded goods between the U.S. and China, the Economist is saying, “America and China are in a proper trade war” (emphasis added).

• The Economist shares the bleak outlook of many other English-language media outlets, and notes that the Trump administration’s escalating trade war with China coincides with the U.S. undercutting the World Trade Organization by “blocking the appointment of judges to the body’s court of appeals.” Starting in October, “only three will be left — the minimum needed to rule on a case.”
• The Economist concludes that “without the multilateral rules-based system to contain the conflict, the trade war between China and America could get much bloodier.”

More signs it will get bloodier:

• No exemptions will be made to the latest U.S. tariffs, Bloomberg reports (porous paywall), contrasting with previous rounds that allowed for companies to apply for leniency.
• Why? Because shifting supply chains away from China is a major goal of the Trump administration, it is becoming clear. Bloomberg says that officials have built in the September 24 tariffs to start at a rate of 10 percent, then rise to 25 after three months, to give companies time to shift away from Chinese factories.
• But “companies cannot shift their supply chains on a dime,” Jonathan Gold, vice president of supply chain and customs policy at the National Retail Federation, complained, adding, “It takes months, if not years, to find new suppliers who can meet all of a retailer’s sourcing requirements.”
• Nevertheless, Robert Lighthizer at the U.S. Trade Representative, and other officials, are continuing to force a radical change in U.S.-China trade relations.
• A Bloomberg profile of Lighthizer describes him (porous paywall) as an “ascending figure in the Trump administration,” who is “also a longtime China hawk who has spent years preparing for an economic war with Beijing.”
• “Any deal where Lighthizer is not responsible for the architecture doesn’t see the light of the day,” Mexico’s economy minister told Bloomberg, illustrating why China hesitated to — and probably won’t — agree to last-minute negotiations with Steven Mnuchin at the Treasury Department.
• A few weeks into the trade war, Lighthizer told the U.S. senate, “We’re going to have a problem with China that’s going to go on for years.”
• Jack Ma, the Alibaba co-founder who recently agreed with Lighthizer that the trade conflict will last for years — as much as “20 years,” he said — backed down today from a silly promise he made to Trump back in January 2017 that he would create 1 million jobs in the U.S.
• Ma told Xinhua (in Chinese) that “The promise was made on the premise of friendly US-China partnership and rational trade relations…that premise no longer exists today, so our promise cannot be fulfilled.”

More trade war and related reporting:

• Made in China 2025 fears overblown?
  Peter Martin on Twitter: “China’s Made in China 2025 industrial policies aim to see Chinese firms dominate the domestic market for robots, but – despite generous subsidies – Chinese manufacturers are actually losing market share to more competitive Japanese and European alternatives”
  
  Read on The China Project: Made in China 2025: The domestic tech plan that sparked an international backlash
• China continues market opening
  China said to plan broad import tax cut as soon as October / Bloomberg (porous paywall; nonpaywalled Caixin link here)
  “China is planning to cut the average tariff rates on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said, in a move that will lower costs for consumers as a trade war with the U.S. deepens.”
  “China is following through on long-stated goals to boost imports. The move comes as the nation is trying to stimulate domestic consumption to support a slowing economy, and follows similar cuts to tariffs in July on a wide range of consumer goods.”
• Notable commentary
  A new era of U.S.–China competition calls for new rules / Axios
  Kevin Rudd, the Mandarin-speaking former Prime Minister of Australia with friendly contacts in Beijing, writes: “The shift in the U.S.–China relationship is a structural phenomenon, the result of economic, military and technological gains in China that constitute a threat to American dominance — and further reinforced by their radically different political, cultural and ideological systems. This cleavage goes far deeper that the current trade war. Policymakers in both Washington and Beijing will have to decide whether to let the relationship destabilize further or to agree on rules to govern, or at least guide, this new era of strategic competition.”
• Control of public sentiment
  Mum’s the word, as Chinese censors make discussions the first casualty of a market rout / SCMP
  “The China Securities Regulatory Commission, in a memo dated September 7, has asked mutual funds and brokerages from making public comments that hurt the stock market and spread chaos.”
• Why fake products will thrive in trade war
  In Trump’s trade war, China’s fake designer bag makers are winning / Washington Post
  “Knockoffs of famous brands — Coach, Kate Spade and others — are mostly made in China and arrive at U.S. shores through clandestine channels built to dodge authorities. The authentic purses and their components, also made in China, are shipped through official routes and would face Trump’s proposed new duties of 10 percent effective next Monday.”
• Markets
  Dow hits record high as industrials gain on trade relief / Reuters via Nasdaq
  “The Dow Industrial Average on Thursday became the last of the benchmark indexes to regain record territory, boosted by gains in industrial companies on continued relief that fresh US and China tariffs were less damaging than feared.”

Previously in The China Project’s trade war coverage:

Trade war, day 76: Who will win as the Chinese and American economies ‘divorce’?