China Tariffs: Is a Trade War Imminent?

June 6, 2018

By J. Marc Ward

United States and China cargo containers

Throughout the past several months, concerns about a U.S. trade war with China have been escalating, fueled by a back-and-forth exchange of tariff threats by the Trump administration and Chinese President Xi Jinping. On Thursday, May 31, Bob Oberlies, Chair of Fredrikson & Byron’s China Practice, spoke at the Community Bankers of Iowa Ag Conference on the issue. In his talk, Oberlies reviewed the history of trade relations between the two countries and the implications of recent tensions and discussed steps both sides can take to ward off a full on trade war.

Over the past year, we have seen a gradual rise in trade threats and actions in the bilateral relationship. In April 2017, President Trump announced his plan to investigate imports from China and other nations, following up on a campaign promise to be tough on trade. In August 2017, the Trump administration focused on what it considered to be unfair Chinese trade practices concerning “theft” of U.S. intellectual property. In March 2018, the administration imposed heightened tariffs on steel imports. On May 29, the U.S. stated that it will move ahead with its tariffs targeting Chinese goods. China responded, “We want to reiterate that we don’t want a trade war, but we aren’t afraid of fighting one.”

According to Oberlies, many longtime observers are concerned about the tactics being employed by both governments, which seem to only be exacerbating trade tensions. Oberlies stated that while it is essential to find a balanced trade relationship with China for the long term that is fair for the two countries, both sides need to put the threat of sanctions on hold and focus on constructive negotiations to resolve these important issues. Tariffs and restrictions on commerce will not help U.S. companies and will negatively impact the economy and jobs.

Oberlies questioned whether either country is using the right strategy in addressing these issues. And it is important that we ask our leadership to ensure that this level of engagement with China on rebalancing the trading relationship and evening the playing field for U.S. companies in China does not come at the expense of opportunities for U.S. businesses.

There is hope that trade tensions between the U.S. and China will be eased by President Xi Jinping’s promise to open China’s markets wider to foreign competition this year. However, it is unclear how quickly this will happen and whether market liberalization efforts that Beijing has planned will be broad enough and come soon enough to mitigate the current tensions. Oberlies’ opinion is that any reform for foreign investment will be gradual, and it will be aligned with China’s three core policy priorities, which include reducing its debt problem, the disparity between the rich and the poor, and the environment.

China exports are very important to Iowa’s economy. One third of Iowa soybeans are exported to China, and Iowa exported $11 billion worth of agricultural product last year. Iowa banks with agriculture loans supported by cash flow may see farmers hard-pressed to make payments if threatened tariffs are imposed.

For more information on Fredrikson & Byron’s China practice or to subscribe to updates related to China news, visit our China Practice page

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