New China tariffs leave Trump team in tizz

By Andrew Hammond

The Dow Jones Industrial Average lost over 600 points on Monday, its worst day since Jan. 3, in response to the growing prospect of a U.S.-China trade war.

Beijing's decision Monday to retaliate against new U.S. tariffs from Friday has not only spooked multiple financial markets, but also adds to the foreign policy challenges facing the Trump team.

The White House is already facing significant international problems from Venezuela to Iran this week. Yet, it is Asia that looms potentially largest after recent setbacks in the trade talks with China, and the impasse in nuclear diplomacy with North Korea.

In the past week, it is the Washington-Beijing negotiations that have hit the headlines after Donald Trump on Friday increased tariffs on some $200 billion worth of Chinese goods from 10 percent to 25 percent. Beijing punched back Monday by announcing it will also up the ante by setting new tariffs of between 5 percent and 25 percent on $60 billion of U.S. imports which will kick in on June 1.

While both sides had wanted to do a deal at or before next month's G20 in Japan, this goal is now much more uncertain. To be sure, the talks have made significant progress, with both sides poring over a reportedly 150 page document.

While Beijing has denied it, Trump asserts that the main blockage to a deal ― which he said is "95 percent done" ― is China backtracking on provisions previously agreed on such as state subsidies, intellectual property rights and currency manipulation.

Given Trump's mercurial nature, it remains possible that the current impasse is merely a prelude to a deal being agreed soon that he will shower in superlatives like the "greatest agreement ever." However, there is a growing chance that the talks will fall down which could herald a more unpredictable phase in relations between the world's two most powerful states.

Here, Beijing is well aware there remains the possibility that Trump's rhetoric will get very hostile again, as during much of 2016 and 2017. He has previously asserted that "China … has been very tough on our country … We probably lost last year 500 billion U.S. dollars in trade to China".

And it is this narrative that Trump may yet return to if he judges it again in his political interests, especially in the context of his anticipated 2020 re-election campaign and fulfilling his "Make America Great Again" pledge. This includes seeking to reduce the U.S. global trade deficit and cracking down on trade practices perceived to be unfair.

It is conceivable, in relation to China, that the president could claim to have delivered this agenda by "being tough" on Beijing with tariffs rather than showcasing a new trade deal. Last week, he rehearsed these arguments asserting that China "broke the deal ... They can't do that. So they'll be paying ... nothing wrong with taking in more than 100 billion U.S. dollars a year [in tariffs]".

Yet, it is not just Washington's diplomacy with China that is now much more uncertain, but also with Pyongyang too. Last Thursday, the North Korean regime completed its second missile test in less than a week.

And this came after the U.S.-North Korea summit in Vietnam in February ended in a diplomatic disaster, after months of painstaking negotiations were expected to yield a deal, when Trump "walked" out from talks with Kim Jong-un. To be sure, there are historical precedents for such high-profile negotiations to fall down, and then recover, including the U.S.-Soviet negotiations between Ronald Reagan and Mikhail Gorbachev in 1986 and 1987.

However, it appears the gaps between Trump and Kim remain substantial. And the North Koreans have asserted post-Vietnam that they will not change their position, and also disputed Trump's account that the reason the talks collapsed was that Pyongyang asked for full sanctions roll-back.

If the talks are to be rejuvenated, it is likely that outside powers such as China and Russia will have to row in too to put pressure on North Korea. And it is here that Trump finds himself in a bind given the flailing trade negotiations with Beijing.

Part of the reason Kim originally came to the negotiating table in 2018 was the tightening of the screws by neighboring China on him, especially on the trade front. Yet, especially if a new chill develops between Washington and Beijing, the latter will have less incentive to assist, not least given its long-standing reluctance anyway to take too sweeping measures against Pyongyang for fear about squeezing it so hard that it becomes significantly destabilized.

Taken overall, any decisive breakthrough in U.S.-China talks may now require the personal intervention of Trump and Xi at the G20, or a special summit in China or the United States. Failure to secure a trade agreement will not just be a setback for bilateral relations, but also undermine other U.S. goals in the region, including prospects of getting North Korean diplomacy back on track.

Andrew Hammond (andrewkorea@outlook.com) is an Associate at LSE IDEAS at the London School of Economics.