A Point of No Return for China-US Trade Relations

From the slew of executive orders signed on the day of President Donald Trump’s inauguration, the second Trump administration is already leading a groundswell of change across the United States. The impact of policies to be pursued by the White House will reverberate far beyond U.S. borders, however, with global trade relations being no exception.

Trump’s focus on trade and raising tariffs as a means to boost the U.S. economy is hardly new. But while his first term’s initial focus was on addressing the trade deficit of goods, especially with China, the second term will clearly use tariffs as a tool for political as much as economic gain across the board. Already, the administration has declared it will impose a 25 percent tariff on imports from Mexico and Canada as well as Canada from February 1. The rationale behind the move is not, however, to deal with trade imbalances. Rather, it is to retaliate against the flow of illegal drugs, especially fentanyl, as well as illegal immigrants. In addition, China is expected to be slapped with additional 10 percent tariffs unless its fentanyl exports drop.

Without a doubt, drug and human trafficking are threats to U.S. national security, but just how effective imposing tariffs on the three countries will be in stemming smuggling flows is still unclear.

Washington’s actions come at a time when the United States is grappling with a systemic economic challenge from China. The introduction of the Restoring Trade Fairness Act by the House Select Committee on the Chinese Communist Party during the first week of Trump’s return aligns the longer-term goals of the administration to stem China’s economic expansion with Congress’ bipartisan position on pushing back against Beijing. Specifically, the bill to revoke China’s permanent normal trade relations (PNTR) status is not only consistent with the administration’s “America First Trade Policy” executive order, but it also highlights the continued U.S. focus on grappling with the China challenge in the longer term – an issue that transcends political divides.

Should the United States revoke China’s PNTR status, it would build on the Biden administration’s move to impose export controls (introduced in October 2022 and expanded repeatedly thereafter) to ban the export of advanced semiconductor manufacturing technology to China. The lifting of China’s PNTR status would clear the way for Washington to impose greater tariff barriers against Chinese goods across the board. The bill would codify proposed minimums of 35 percent tariffs for non-strategic goods imported from China and 100 percent tariffs for strategic goods. Under the proposed Restoring Trade Fairness Act, the plan is to phase in these tariffs over a five year period: 10 percent in the first year, 25 percent in the second year, and 50 percent in the fourth year, and finally to 100 percent by the fifth year.

As the Republican chair of the House Select Committee on the CCP, Representative John Moolenaar, stated in introducing the bill, it is effectively a recognition that China’s accession to the WTO and international efforts to bring China into the fold to abide by global trade rules have failed.

The hostile Chinese response to the bill is hardly surprising. If there were any doubts about a new Cold War between Washington and Beijing, the bill is effectively a declaration of economic war against China.

To be sure, expectations for China to join the U.S.-led economic order and adopt to the status quo have all but collapsed over the course of the past decade. Nevertheless, the fact remains that China has formally requested to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) while the United States has refuted the trade agreement, even though it was instrumental in getting the deal together in the first place. The trade pact includes close U.S. allies Australia, Canada, Japan, and the United Kingdom. 

Should the Restoring Trade Fairness Act become law, its effectiveness will be determined in part by other key advanced economies adopting a similar measure to effectively block Chinese exports. At the same time, China is also expected to continue pursuing entry into the CPTPP and becoming accession ready. The way ahead for China-U.S. trade relations remain unclear, but its direction will reshape the global trading order.