Region/Countries: Asia, China Industry: Multiple Sectors Date: September 2017

Why this is important to Wisconsin businesses: Actions by the administration and U.S. trade bodies prompted retaliatory measures from China.

During the past month, friction between the U.S. and China on trade became apparent, as on Aug. 14, the U.S. government initiated an investigation into China’s alleged theft of U.S. intellectual property under Section 301 of the Trade Act of 1974. Many believed that this is the beginning of a trade war between the two countries.

China strongly condemned the Trump Administration, considering the use of Section 301 as an act of aggression because it allows the American president to act without consulting the WTO. Gao Feng, spokesperson for the China Ministry of Commerce, said: “This undermines the WTO rules and is destructive to China-U.S. trade relations. We express strong discontent to the rise of unilateralism and protectionism, and China will do what is necessary to defend our legitimate rights and interests.” Hua Chunying, spokesperson for the China Ministry of Foreign Affairs, said: “There is no winner in a trade war. China is looking for a proper way, based on mutual respect and mutual benefit, to forge ahead with the lasting and healthy development of the ties between China and U.S.”

Trade friction between China and the U.S. has been intensifying throughout this year, and even more so since the Section 301 investigation was initiated. In August, President Trump twice rejected China’s proposal to cut steel capacity by 150 million tons by 2022, against the advice of his top advisers. Instead, he urged the advisers to find ways to impose tariffs on steel imports from China. On Aug. 30, USITC initiated a 337 investigation related to alleged IP violations on some of China’s fish oil products; on Sept. 6, the U.S. Department of Commerce initiated an anti-dumping and countervailing duty investigation of imports of stainless steel flange from China and India; on Sept. 11, the Department of Commerce announced the preliminary results of a countervailing duty investigation of imports of certain tool chests and cabinets from China; and on Sept. 19, DOC announced the preliminary results of a countervailing duty investigation of cold-drawn mechanical tubing from China and India.

In return, China is adopting retaliatory measures against the U.S. Recently, China’s Ministry of Commerce initiated three anti-dumping investigations on U.S. imported products. If the trade friction continues, there are likely to be more.

This escalating trade friction is discouraging news for companies seeking to do business in both China and the U.S. From 2001 to 2016, U.S. imports from China increased by 3.5 percent, and U.S. exports to China increased by nearly 6 percent. China is the largest market for U.S. soybeans and airplanes. It is the second-largest market for U.S. cotton, automobiles and semiconductors. A trade war between the U.S. and China will hurt not only Chinese manufacturers, but also upstream suppliers and downstream consumers, distributors and retailers in the U.S. For example, the increased tariff could make the final U.S. retail prices of Chinese goods much higher. Another example is that some U.S. industries that rely heavily on steel may suffer if an additional tariff is imposed on steel coming from China. Similarly, if China retaliates, the prices consumers pay for U.S.-made goods will rise, hurting their sales in the large and growing China market.

As very valuable trading partners for one another, China and the U.S. must recognize that ongoing trade friction could end up hurting both economies. Wisconsin companies can monitor the situation and express their policy preferences to legislators.