Moreover, a large share of China’s imports from the US consists of agricultural commodities such as soybeans, which the country could easily import at a similar price from Brazil if necessary. The US would then presumably export more soybeans to markets formerly served by Brazilian producers, including in Europe. (This would reduce America’s trade deficit with Europe and might ease US pressure on the European Union in that regard.)
The US has also ratcheted up non-tariff barriers as part of its aggressive trade policy toward China. Most notably, Trump has put Chinese tech giant Huawei on the list of entities to which US firms are forbidden to sell American products. True, Trump has also said that for the time being, US suppliers should obtain the necessary licenses to continue to supply Huawei. But from now on, US technology companies will clearly think twice before entering long-term contracts with Huawei or other prominent Chinese firms that might be at risk of being included on the “entities list.”
In parallel, China’s government and businesses will redouble their efforts to become independent from the US in sourcing key technological components. The mere threat of the entities list will henceforth act as a significant hidden barrier to US-China trade. And because this barrier is also discriminatory (directed only at China), it will have the same high costs as country-specific tariffs.
Economic analysis suggests that bilateral trade wars are unwinnable in an interconnected world. By firing his latest tariff salvo against China, Trump has further raised the stakes in an increasingly damaging dispute. And America is likely to emerge as the bigger loser.
Daniel Gros is director of the Centre for European Policy Studies.