Donald Trump is about to fire an opening salvo in what may become a US-China trade war.
Will Trump’s China tariffs spark a trade war?
Later on Thursday, President Trump is set to unveil up to $60 billion worth of tariffs on Chinese imports, as well as a raft of other investment restrictions against Chinese firms.
The Trump administration has long complained about China's lack of progress in shrinking its trade deficit with the US, and its resistance to opening its markets.
The tariff program is Trump's most aggressive move against China to date. It is expected that China will retaliate.
What is expected?
The US government is likely to impose tariffs worth between $30 billion and $60 million on Chinese goods. The exact amount is still being discussed.
As many as 100 categories of Chinese goods will be targeted, ranging from electronic products to shoes to clothing, the New York Times has reported.
It’s likely to start with technology and telecommunication products.
Restrictions limiting investment in the US from Chinese enterprises, especially state-owned firms, are also on the table.
What is behind the tariff?
Trump is unhappy with China for two things: alleged intellectual property theft and a staggering trade deficit.
“This is a signature issue that he’s not going to let go of. He’s like a dog with a bone on this trade issue,” former White House Chief of Staff Reince Priebus told the South China Morning Post.
In August, Trump ordered a review of China's trade practices, known as a Section 301 investigation.
Foreign business have to form joint ventures with Chinese firms if they do business in China. The Trump administration believes that this process forces American companies to transfer important technologies to China.
The investigation concluded that the Chinese government was leading efforts to steal US technologies and intellectual property. The results are serving as the foundation of the upcoming tariffs.
Trump has also been voicing his frustrations over the US trade imbalance with China. Last year, the US ran a trade deficit of $375 billion.
China is America’s biggest trading partner.
Washington has asked Beijing to work on cutting the trade deficit by $100 billion, but the White House hasn't disclosed the exact demands made.
Do Americans support the plan?
“Although some of the Trump administration’s protectionist policies are controversial in the US, China-targeted measures are much less so; they command a reasonable degree of support in Congress,” writes Louis Kuijs, the chief Asia economist of advisory firm Oxford Economics in a research paper.
But the tariff plan has prompted concerns in the business community.
More than 100 US companies, including Walmart, Macy's, Sears and JCPenney, have asked Trump to reconsider imposing tariffs on China.
“It would hurt American households with higher prices and exacerbate a US tariff system that is already stacked against working families,” they wrote in a letter to the president.
How has China reacted so far?
China is calling for restraint.
“We don't want to see two countries engage in a trade war. That wouldn't bring fairness to trade. Both countries will be harmed,” said Premier Li Keqiang during a press conference on March 20.
“The Chinese side hopes that, no matter the hurdles, China-US relations will move forward.”
But China also hasn't dismissed the possibility of retaliation. “If someone forces us to engage in a trade war, we won't be afraid nor hide,” said Hua Chunying, a Foreign Ministry spokeswoman.
How can China retaliate?
In response to expected tariffs, China will likely target America's agriculture sector. The Farm Belt was a strong base of support for Trump during the 2016 election.
In an editorial, the Chinese state-owned tabloid Global Times suggested that China could easily restrict the import of US soybeans. In 2016, China bought $14 billion worth of soybeans from the US.
But this isn’t the only measure China could take against the US.
“It is often missed that the US runs a small services trade surplus with China, featuring tourism and education,” Derek Scissors of American Enterprise Institute tells Inkstone. “As it did with South Korea, China could divert tourists away from the US in retaliation.”
After South Korea agreed to the deployment of the THAAD anti-missile defense system on the Korean peninsula, China forbade travel agencies from organizing trips to South Korea.
The number of Chinese tourists visiting South Korea dropped by 48% in 2017, costing about $11 billion.
In 2016, the US had a $38 billion surplus in services with China, which could be eaten up in the same fashion.
Trump is due to fire first: then all eyes will be on China.