China’s Tariff Retaliation Will Not Be ‘Life Threatening,’ Says Commerce Chief

Speaking at the National Press Club in Washington on May 14, Commerce Secretary Wilbur Ross reviewed the Trump administration’s approach to trade, giving an update on negotiations with China.

Ross said the strong personal relationship between President Donald Trump and Chinese leader Xi Jinping would facilitate a trade deal between the United States and China.

“It is difficult to handicap the outcome, but my hope is that the strong personal relationship between President Trump and President Xi will facilitate an agreement, just as it seems to be doing relative to North Korea,” Ross said.

Ross attended a two-day meeting in Beijing earlier this month, along with Treasury Secretary Steven Mnuchin, trade representative Robert Lighthizer, Director of the National Economic Council Larry Kudlow, and White House trade adviser Peter Navarro.

“Before landing in China, we sent them an extremely detailed list of our needs, and they responded with a similarly detailed but quite different list of proposals,” Ross said. “The gap is wide.”

To follow up on the trade discussions, China’s Vice Premier Liu He will be in Washington until May 20.

In March, Trump proposed imposing $50 billion in tariffs on Chinese products, as part of a measure to crack down on decadeslong “unfair trade practices” by Beijing that have cost the U.S. economy hundreds of billions of dollars a year.

The administration outlined more than a thousand imported goods that might face 25 percent tariffs. Whether the United States will impose the proposed tariffs or not depends on the outcome of these negotiations.

Ross is confident that the United States has the upper hand and that the impact of retaliation by China will be negligible for the U.S. economy.

“I hope that we can make a fair deal. But if that does not happen, a trade tit-for-tat will not be economically life threatening to the United States,” he said.

If China retaliates with a 25 percent tariff on $50 billion of U.S. exports, it will have less than a three-tenths of 1 percent impact on the $18 trillion U.S. economy, according to Ross.

In addition, China’s retaliatory moves would negatively impact its own economy.

“China buys no products from us if they have cheaper alternatives. Therefore, the tariffs they impose will come at a cost to them,” Ross said.

Ross also criticized China for imposing discriminatory and non-tariff barriers on U.S. goods, mocking Chinese officials for raising the issue of mad cow disease during the negotiations.

“I have pointed out to them that the both president and I eat quite a lot of American beef and that, other than the fact that we are in public office, there are no signs of mental instability as a result,” he said.

‘Not Fair Trade’

Trump administration has been frustrated by the World Trade Organization (WTO), calling its rules outdated.

The United States is constrained by two sides of a WTO pincer, according to Ross. One is the most-favored nation clause (MFN) and the other is the so-called “bound rate.”

The MFN rule requires applying the same tariff to every nation, based on the principle of nondiscrimination. The bound tariff is the maximum MFN tariff level for a given good. Each country makes a specific commitment on bound tariffs when they join the WTO.

The U.S. tariff rates were at low levels when the nation first joined the WTO in 1995, while its trading partners entered the organization with high tariffs.

Today, the U.S. tariffs are among the lowest in the world and are the product of bipartisan policies that have advocated for progressively freer trade since World War II.

According to Ross, the United States is stuck because the low tariff rates and the WTO-imposed bound rate prevent the country from matching other countries’ high tariffs. Ross said trade, and tariffs, should be reciprocal.

An American car going to China pays a 25 percent import duty while a Chinese car coming the other way pays just 2.5 percent.

“This is not fair trade,” said Ross. “Efforts over the last decade and a half to negotiate broad changes to these tariff rates have failed, in large part because of China’s unwillingness to make concessions commensurate with its significant role in the global economy.”

China joined the WTO with beneficial terms, according to Trump.

In 2000, President Bill Clinton permanently granted “most favored nation” status to China, which became a member of the WTO a year later.

China’s economic growth has accelerated dramatically following its admission to the organization. Chinese manufacturing output surpassed U.S. output beginning in 2009–2010, and the gap has widened since then, resulting in millions of lost U.S. manufacturing jobs.

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