March 8, 2018 / 10:03 PM / 9 months ago

Breakingviews - U.S. metal tariffs may not be biggest trade worry

Steel coils at the ThyssenKrupp Steel USA factory are pictured in Calvert, Alabama November 22, 2013. REUTERS/Lyle Ratliff

NEW YORK (Reuters Breakingviews) - American metal tariffs’ status as the most worrying element of the Trump administration’s trade policy may soon face competition. The president’s steel and aluminum levies, announced on Thursday, helped persuade Gary Cohn, his top economic adviser, to resign this week. A probe into Chinese intellectual property policy could prove more devastating, though.

Unlike duties on imported steel and aluminum, targeting China would probably win Donald Trump some friends in Washington and on Wall Street. Politicians, policymakers and think tankers have become much more skeptical about Beijing’s trade practices in recent years – even openly wondering whether letting China join the World Trade Organization in 2001 was a smart idea.

They will shortly have a channel for their discontent. The United States Trade Representative is conducting an investigation to determine whether Chinese policies are harming American intellectual property rights and technological development. The probe is known as a “Section 301,” a reference to the U.S. law on which it is based. It is infrequently used and regarded as among the most aggressive trade weapons in the American arsenal.

News reports suggest the administration is preparing steep tariffs on a wide range of Chinese imports. Electric machinery could be one target: The United States imported $129 billion of it from China in 2016. By contrast, the country’s global steel imports last year were just $29 billion.

What’s more, such duties might be paired with restrictions on Chinese investment, expanded export controls and curbs for some visas. If even some of these measures were implemented, officials in Beijing would probably launch a counterattack. A full-on trade war could impact a big chunk of the $650 billion of trade in goods and services between the two countries, on 2016 figures.

Beijing has dispatched two top-level officials to Washington over the past month to try to calm trade tensions. Chinese negotiators have been asked to create a plan to reduce the two countries’ trade imbalance, which amounted to around $375 billion last year, Trump recently wrote on Twitter. He added that the United States is “acting swiftly on Intellectual Property theft.”

It’s a not-so-subtle reminder to Beijing of what is coming down the pipe. Investors might be banging on about metals at the moment, but they should take the China hint as well.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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