Why Trump’s Reagan-era tariffs won’t work on China

If Donald Trump’s tariff threats against China seem familiar, it may be because of Ronald Reagan. 

In the 1980s, Reagan imposed massive tariffs on Japanese cars and electronics to cut the Asian country’s trade surplus with the US.

The tariffs were considered a success by American manufacturers after Japan was forced to control semiconductor prices and restrict the sale of steel and cars to the US.

Trump has praised the late president’s protectionist policies and appointed former Reagan administration official Robert Lighthizer as his chief trade negotiator.

When it comes to his own nemesis – China – Trump is also following Reagan’s footsteps.

Last year, US launched a Section 301 Investigation – a tool Reagan had used against Japan – into what it called China’s discriminatory industrial policy and intellectual property theft.

After the investigation ended this year, Trump proposed $50 billion worth of tariffs on Chinese goods.

However, experts say that Trump’s Reagan-era tactics are unlikely to work on China.

Here are three reasons why:

#1: China is no US ally

Washington rebuilt Japan’s economy and political system during its occupation of the Asian country after the World War II.

Since then, Japan has relied on US for security and shared Washington’s goal of curtailing China’s growing influence.

As a close ally, Japan was willing to listen to US’s trade complaint. But China, with an ambition to rival US on the international stage, may not want to appear weak.

#2: The Chinese economy is bigger and more diverse

As the world’s second-largest economy, China does not rely on its trade with the US as much as Japan did in the 1980s.

The country’s growth is increasingly driven by its robust consumer market, while Beijing is also looking for trading partners in Europe, the Middle East, Africa and Latin America.

“China is able to cultivate a domestic market for its 300 million middle-income class,” said Lu Xiang, an expert on US affairs at the state-run Chinese Academy of Social Sciences. “It is much more capable than Japan of bolstering domestic consumption.”

Chinese consumers also buy much more from the US then the Japanese did in the past, leaving Washington more vulnerable to retaliatory measures from Beijing.

#3: China has a different political-economic system

While Japan has a similar market economic system as the US, China follows a completely different, state-sponsored model.

Analysts say Trump’s complaints about Beijing, such as what he deems intellectual theft and unfair treatment of US businesses, are results of China’s state-powered economy.

The Chinese government is known for subsidizing domestic tech and industrial sectors and keeping a firm grip on its currency’s exchange rates.

“China has a very different political system. It is determined to go along with its own development model and believes in that model,” said Julian Evans-Pritchard, senior China economist with consultancy Capital Economics.

“People should not expect China to abandon the model easily just because of the US pressure on trade.”

Import impasse

While the tariffs on Japan resulted in a bundle of new trade agreements in favor of the US, the threats against China have only led to a tit-for-tat stand-off.

Hours after US proposed tariffs on Chinese goods, Beijing fired back by announcing duties on American soybeans, beef and cars. Trump then threatened to impose additional tariffs on $100 billion more Chinese imports.

“China will not retreat from its industrial policy goals, and the US will not be fobbed off with the usual concessions,” said Arthur Kroeber, co-founder of China-focused think tank Gavekal Dragonomics.

Last week at the Boao Forum for Asia, Chinese President Xi Jinping vowed to embrace free trade and called on developed countries to remove limits on China’s high-tech exports, without naming US or Trump.

Days later, Trump proposed to consider rejoining the Trans-Pacific Partnership, a multinational trade agreement initially designed to counter China’s growing influence.  

Unlike in the 1980s, it’s going to be hard to predict the winner this time.