While trade relations between the two economic powerhouses have not always been smooth, they changed dramatically Friday, when Washington imposed the first wave of tariffs on $34 billion in Chinese goods, prompting an immediate retaliation from Beijing. If President Trump’s threats throughout May and June are to be taken seriously, nearly a third of Chinese imports to the United States could be affected by tariffs in coming months.
The period leading up to this week has been “very significant,” said Mary Lovely, a nonresident senior fellow at the Peterson Institute for International Economics and economics professor at Syracuse University. "[This period] represents a fundamental retreat by the leader of the global trading system,” she said, “It will be seen as a turning point.”
Even as a candidate, Trump made clear that he planned on significantly renegotiating trade relations with China. In a 2015 speech announcing his candidacy, Trump mentioned China 21 times, arguing that the country was taking American jobs and “ripping” the U.S. economy. Throughout his campaign, he pledged to correct the growing trade deficit between the two countries by levying high taxes, though, for a period, this seemed more like tough talk than action.
On Friday, the endless threat of tariffs became a reality. It is not clear what will happen next, but the fallout from this first round of tariffs is already starting to emerge, analysts say. “The key is whether there will be more — a second round of revenge and retaliation and a third round,” said Shi Yinhong, a professor of international relations at Renmin University in Beijing, to The Post.
For anyone looking to learn how this became a “code red” situation, as Lovely described, here is an overview of major events:
In his first major trade-related move of the year, Trump introduced tariffs on solar panels and washing machines. For solar panels, the tax will start at 30 percent for the first year before falling to half of that over four years. The decision was not received well by China, which produces 65 percent of the world’s solar modules.
After months of threatening to do so, Trump raises import taxes on steel and aluminum by 25 percent and 10 percent, respectively. While only 6 percent of these U.S. imports come from China, the country responds with a stern warning: A Chinese spokeswoman says at a news conference that Beijing “will take proper measures to safeguard its legitimate rights and interests.”
On April 2, China issues tariffs on $2.4 billion in U.S. exports. This list of 128 goods rivals the $2.7 billion worth of Chinese steel and aluminum imports that the Trump administration decided to tax in March. The list also targets agricultural products such as pork, which would disproportionately affect U.S. farmers.
The Trump administration retaliates April 3 by unveiling a list of 1,300 Chinese goods that could be hit with 25 percent tariffs. The list, which has a value of about $50 billion, includes goods such as semiconductors, medical devices and flat-screen televisions. These are nearly all examples of the kind of sophisticated technology that China is targeting through its “Made in China 2025" plan.
On April 4, China responds to U.S. tariffs by producing its own list of 106 American goods, including soybeans, cars and airplanes, that could be subject to tariffs of 25 percent.
A day later, Trump orders his chief trade negotiator, Robert E. Lighthizer, to consider expanding tariffs to an additional $100 billion in Chinese imports but stops short of confirming any new duties. China’s Commerce Ministry says the next morning that China will fight Trump’s proposed tariffs “at any cost.”
The United States implements a seven-year ban on exports to the Chinese telecom company ZTE after learning it did not abide by the rules of a previous settlement agreement.
The company had first been penalized in May 2017 for illegally exporting U.S. goods to North Korea and Iran, in violation of trade sanctions. It agreed to a settlement with the United States, which required it to pay $1.19 billion in fines and punish the employees involved in violating the sanctions. After learning that ZTE had not actually punished those involved, the Commerce Department says it will bar all U.S. firms from selling key parts such as microchips to the company.
Early in May, ZTE announces it plans to “cease major operating activities” because of financial losses caused by the U.S. ban.
In response, Trump tweets May 13 that he is working with Chinese President Xi Jinping to get ZTE back into business. “Too many jobs in China lost. Commerce Department has been instructed to get it done!” he said.
Reports emerge around this time that the Trump administration was working to obtain trade-related concessions from China in exchange for helping ZTE, but the abrupt shift in Trump’s position still catches trade advisers off-guard. Some national security officials also raise concerns that selling U.S. technology to ZTE might pose cybersecurity threats.
“America’s national security must not be used as a bargaining chip in trade negotiations,” Democratic senators wrote in a letter to Trump. “Offering to trade American sanctions enforcement to promote jobs in China is plainly a bad deal for American workers and for the security of all Americans.”
Less than a month after it went into effect, the seven-year ban on selling U.S. goods to ZTE comes to an end. Commerce Secretary Wilbur Ross tells CNBC that in place of the ban, the company will pay a $1 billion fine and accommodate a new compliance team staffed by U.S. experts.
More than 90 percent of the items in this list are intermediate inputs or capital equipment, meaning they are items U.S. firms import to assemble end products. In other words, the tariffs slated to go into effect will adversely affect American businesses and raise prices for American consumers, experts at the Peterson Institute warned.
China responds by issuing a revised list of $50 billion in U.S. products that will be subject to tariffs starting July 6, as well. The list disproportionately targets the U.S. agriculture sector, particularly in places where there is a strong Trump voter base. As Ted Mellnik and Kevin Uhrmacher mapped out for The Washington Post, “tariff-exposed jobs are more than twice as likely to fall in counties that voted for Republican Donald Trump in 2016 than in counties won by Democrat Hillary Clinton.”
Trump says in a statement that the United States is compiling a list of Chinese goods that will face tariffs of 10 percent unless China agrees to the trade concessions laid out by his administration. If implemented, this would add a further $200 billion in import taxes for the country, meaning nearly all of the $505 billion in Chinese products coming into the United States would be placed under tariffs. The Post’s David Lynch and Heather Long point out that such “a step would be virtually unprecedented in U.S. history.”
China’s Trade Ministry responds by calling Trump’s statement “blackmail.” Meanwhile, the Senate backtracks on Trump’s ZTE decision, voting 85 to 10 to reinstate a ban on the sale of U.S. components to the company.
In late June, reports emerged that the Trump administration was planning to bar Chinese firms from investing in U.S. technology. The government stopped short of doing exactly that, announcing instead that it would work with Congress to tighten the regulations around foreign investment.
The U.S. starts implementing duties of 25 percent on $34 billion in Chinese goods at 12:01 a.m. on Friday, prompting a swift reaction from China, which introduces an equivalent 25 percent tariff on $34 billion in American goods. U.S. markets seem relatively unfazed in the lead up to the tariffs, with the Dow Jones industrial average rising around 0.8 percent on July 5. Analysts describe the events as a "dark day" for global trade.