Beijing sees Trump’s December call to congratulate Tsai Ing-Wen on becoming “president” of Taiwan as a violation of China’s national sovereignty and a break with diplomatic protocol. This is believed to be the first time in four decades that a US president or president-elect has spoken to a leader of Taiwan.
Trump’s inflammatory comments on the “One China” policy triggered a backlash from the Chinese government, which views Taiwan as a province.
“I don’t know why we have to be bound by a ‘One China’ policy unless we make a deal with China having to do with other things, including trade,” Trump told US broadcaster Fox News.
He has also threatened aggressive action, including tariffs and retaliation for perceived currency manipulation.
“Did China ask us if it was okay to devalue their currency [making it hard for US companies to compete], heavily tax our products going into their country [the USA does not tax them] or to build a massive military complex in the middle of the South China Sea? I don’t think so!” Trump said via social media network Twitter on December 4.
There are plenty of US manufacturers which would like China to be taken to task. A new trade deal with China must be negotiated to “end [China’s] trade war on the USA,” said Scott Paul, president of Alliance for American Manufacturing.
The USA would benefit from a decrease in imports from China and the end of Chinese currency manipulation, he added.
The western world has already brought forth a slew of anti-dumping cases against China over steel and aluminium. In aluminium, for example, the US Commerce Department ruled that China Zhongwang Holdings Ltd circumvented US duties on exports of heat-treated extrusions that meet the chemical specifications for 5050-grade alloy. The Chinese company has denied acting improperly.
US anti-dumping rules now cover 19 categories of Chinese steel. Duties on Chinese cold rolled steel imports at 266% have halted Chinese steel exports to the USA, a BMI research analyst said.
“Over the past few years, both the USA and the EU have implemented import tariffs on Chinese steel under the guise of anti-dumping measures,” BMI said. “Given [Trump’s] strong anti-China and pro-industry rhetoric […] and rising populism in western countries in general, we expect to see continuing protectionist measures in these markets.”
There could be changes to takeover rules that would make it more difficult for Chinese companies to buy US companies. Trump has also talked about imposing a 45% import duty on all goods from China if they are unable to agree to better trade terms.
“That would be bad for China. But whether that will happen in the end is still uncertain,” a Shanghai-based trader said.
The magnitude of China-USA trade – the US trade deficit with China was $365.7 billion 2015, up from $343 billion in 2014 – means a blanket tax on all imports is impossible, the trader said, adding that a trade war would be damaging to both parties.
Chinese steel export volumes to the USA fell to 977,127 tonnes in January-October 2016, from 2.14 million tonnes the previous year, for example. The USA accounted for a little more than 1% of the 92.74 million tonnes of steel exports by China in the first ten months of 2016.
But that naturally limits the effectiveness of any attempt by Trump to drive exports down further.
“Even if Trump later implements tougher trade-protection measures, the effect on China’s steel industry would be very low with the current low export rate,” a steel analyst said.
The Chinese government’s determination to remove excess capacity in steel, stainless steel and aluminium could play a more significant role in determining prices in 2017 and beyond, sources said.
And Chinese officials are unlikely to passively accept sanctions or public rebukes, others warned.
“Keep in mind that [current US President Barack] Obama was very negative on China [when] coming into office,” Gordon Johnson, md at Axiom Capital Management, said.
Obama quickly implemented an “across-the-board” tariff on vehicle tyre imports from China in 2009, but China in turn put tariffs on US poultry and certain car parts.
“This quickly caused Obama to completely reverse his tariffs and pull it back, and never hit China with tariffs again,” Johnson said.
“China has said very clearly that, if Trump is aggressive, they are going to be aggressive on putting tariffs on imports of Apple products and cars into China. That will directly and quickly affect US jobs,” he added. “So I don’t think this is as easy as Trump expects, and as the [stock] market is pricing in.”
The success or failure of Donald Trump’s presidency of the USA could very well be determined by his relationship with China – a relationship that is already off to a rocky start.