Experts: US-China Trade War Could Expand

Scott Kennedy, trustee chair in Chinese business and economics at the Center for Strategic and International Studies, said he'd just returned from a three-week trip to China. He said the Chinese are highly anxious that Donald Trump will win reelection and impose 60% tariffs on Chinese exports, or end most favored nation status for China.

But even under the Biden administration, higher tariffs on the vast majority of Chinese imports are likely to stick around, he said.

In response to a question from International Trade Today on the long-delayed release of the Section 301 review, he said: "It just seems like Biden wants to be as small a target as possible" for U.S. critics on trade policy. He said when inflation was high, it seemed like there might be changes to the Section 301 tariffs, but that moment passed. "I would be super surprised if we see anything [on the Section 301 review] before November," he added.

But, if Biden wins a second term, Kennedy said, it's possible there could be a more ambitious trade policy that seeks to integrate innovations in the Trans Pacific Partnership, the Indo-Pacific Economic Framework and discussions that have happened at the G20.

Kennedy said Chinese people he talked to during his trip were concerned that the engagement between U.S. government officials and Chinese officials "is very superficial," and that stabilization of the trade war "won't last long." Treasury Secretary Janet Yellen is scheduled to go to China this week, and to tell officials to stop using subsidized exports to undergird their economy.

Huan Zhu, vice president of China Trade Monitor, a reporting and analysis service, agreed that superficial is an accurate way to describe the engagement. She said that while "engaging is better than not talking," she's not holding her breath for anything substantial coming out of Cabinet members' trips to China.

As Yellen is expected to, Kennedy addressed the global economic effects of Chinese uneconomic overproduction. He said China spent more than $1 billion to build up its electric vehicle sector, and it has 151 EV makers today. Only two make a profit, he said, which is "very difficult to compete against."

He said China is great at "using the rules to its advantage, to stay inside the lines legally," but still harm other economies by exporting its artificially cheap products.

Kennedy expressed mixed feelings about China's EV manufacturing advantage. He said decarbonization is important, and should be weighed against the desire to protect domestic automakers. But he also said that countries naturally have national security concerns, because advanced cars like EVs are like "a cell phone on wheels."

"We could just end up in a massive auto trade war," he said.

Zhu noted the Commerce Department investigation on the data ramifications of EVs made by Chinese firms, no matter what country they're assembled in, which could lead to an import ban or prohibitive tariffs on those cars.

"National security and data security is going to dominate our discussions in trade policy for a while," she said.

Although the panel centered on U.S.-China relations, panelist Henry Gao, a professor at Singapore Management University's law school, talked about how China and the U.S. manage their economic relations with other countries in Asia.

Gao, in response to a question from Asia Society Policy Institute Vice President Wendy Cutler, said that while he thinks China has a point when it says it's supporting the World Trade Organization more than the U.S. is, its message is also misleading.

"I don't agree the U.S. is more of a sinner in terms of not honoring WTO agreements," he said.

But, he added, "The U.S. has really withdrawn its leadership role in the WTO."

He also said the U.S. decision to quit the TPP has led Southeast Asian countries to draw closer to China economically through the Regional Comprehensive Economic Partnership. He called that decision unfortunate. He said: "When the U.S. leaves a void, who's going to fill it? China, obviously."

Cutler asked Gao to discuss how Asian countries are reacting to Chinese manufacturing dominance, and if it's different from the EU and the U.S. He noted that East Asian countries don't tend to impose trade remedies on Chinese exports. "They do not really have direct competition," he said.

Audience member Yeo Han-koo, a former trade minister of the Republic of Korea, and a senior fellow at the Peterson Institute for International Economics, gave a different explanation. He said that while countries in the region are really concerned about Chinese excess capacity in steel, chemicals and critical minerals, they won't open trade remedy investigations because they are afraid of economic coercion.