Leibowitz: Trump 2.0 signals Cold War 2.0 trade and China policies

First, trade is one of the issues that got President Trump elected in 2016 and 2024. It nearly got him elected in 2020, save for the pandemic. If President Trump had won in 2020, I might be writing chronicles about the end of his eight years in the White House now instead of projecting what the next Trump administration would accomplish or break. Oh, well, that’s life. Trade will necessarily be a key feature of relations with China for the next four years.

Second, China policy is about much more than trade. China remains the competitor of the West not only economically but also geopolitically. China presents numerous challenges to the post-World War II order. US strategy must deter China from conquering Taiwan by force, from gaining sovereignty over large swathes of the South China Sea, and from using its chokehold in several critical areas (critical minerals, steel, aluminum, electric vehicles, pharmaceuticals, and chemicals). It must also stop China from gaining influence and bases – including strategic ports.

Trump 2.0 China policy must also address the expansion of China’s exports to the rest of the world, which present strategic challenges to the West. In 2023, China exported about $3.4 trillion worth of goods to the world. Almost a third of China’s exports went just to the US and the EU. The challenge to manufacturers is obvious and urgent.

60% is not a bargaining chip

For this second reason, the Trump administration’s strategy probably won’t be swayed by the inevitable analyses that consumers and certain businesses will suffer if a 60% tariff is imposed on all imports from China. I do not believe that the Trump policy is solely designed to blunt the impact of Chinese trade growth. It is more basic, and more important, than that. Again, China must be dissuaded from causing more trouble in Taiwan, from supporting Russia’s war against Ukraine, and from causing havoc in the South China Sea.

The US faces daunting challenges in its efforts to keep the world at peace in these uncertain times. I compare it to the closing years of the Cold War. When Ronald Reagan first became president in 1981, he convened a meeting of all his national security specialists. The meeting included not only the White House, the Defense Department, and the State Department but other agencies as well. The goal: to set strategy to deal with the Soviet Union. After three days, President Reagan asked the group for recommendations. There was no consensus among the experts. Reagan said, “Let me ask another way: What have we got that they don’t?” The answer came: “We have more money.”

“Let’s use that,” Reagan said, and he left the room.

The result: a US defense buildup that the Soviets could not ignore but could not meet. Because we had more money than they did.

The contest with China is very different and much more difficult. The US might have more money than China. But we also face a serious debt situation as well as continuing concerns about inflation. China contends with a more serious situation than the US. But the disparity in economic strength is nowhere near where it was in the 1980s with the USSR.

In trade, China is very powerful indeed. It remains the world’s largest exporting nation by far. And it exports far more than Germany and Japan did in the 1980s. (Recall, they were then the world leaders in exports.) Ratcheting China’s exports down will be hard because much of the world now depends on them.

Both wealthy and developing countries continue to be addicted to China’s exports of consumer goods and industrial products, such as chemicals, steel, and textiles. As an example, more than 90% of the clothing sold in the US is imported from abroad. China is the leading supplier. While we all want manufacturing to increase here at home, the measures needed to bring apparel production back are literally impossible. It’s one area where re-shoring will not happen.

10-20% on allies might be negotiable

For friendly trading partners, the threat of unilateral action could, however, be effective in making deals. For example, Mexico may avert a US threat to impose new tariffs on Mexican imports by working with the new administration to stem the tide of unlawful immigration across the southern border.

Speaking of skillful positioning and negotiating, the Trump transition team has already done an amazing job of garnering news coverage. President Biden’s trip to Peru and Brazil to attend the APEC summit and the G20 meeting, respectively, and the COP29 meeting in Baku, Azerbaijan, are major world events. These conferences with world leaders would normally capture a great deal of media attention. But Trump appointment announcements drove them to the back pages.

It is very clear that the Trump team will have different priorities than the Biden team. Climate change will move down the list of priorities. And world peace will move up because the world order is under unprecedented threat. Like it or not, the world situation will occupy a lot of time after Jan. 20, 2025.

Selling the 60% tariff on all imports from China could be difficult politically. Selling the across-the-board tariffs on all other countries (10-20%) will be much harder because the geopolitical considerations are not there for Canada, Mexico, East Asia, and Europe.

Legally too, the administration will have a tougher time showing that friendly imports are a threat to national security or a “national emergency.” Trump can defend action against China as a matter of national security. Congress might acquiesce in administrative tariffs against China. But it should (and, I believe, will) insist on legislation to impose new tariffs on friendly nations outside the trade remedy field.

The Trump team is busy creating the promise of uncertainty for the entire world. The strategy will likely involve reducing uncertainty for the world in exchange for concessions. For example, China reducing oil purchases from Russia. Or, in Europe, building infrastructure to end Europe’s dependence on Russian natural gas. All these issues could be on the table in the next few years. To steal a boxing metaphor, the Trump team has captured a lot of attention in the preliminary bouts. Just wait until the main event.

Editor’s note

This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.