World Views | China’s rejoinder shows no one wants a trade war, really

Is the phony trade war over? With its plans to levy 25 percent tariffs on USD50 billion of U.S. products including soybeans, cars and aircraft, China looks to have stepped the simmering trans-Pacific economic battle up a gear.

The initial parries between Washington and Beijing resulted in little more than flesh wounds. There were a series of levies on steel and aluminum exports to the U.S., which largely excluded the countries that export steel and aluminum to the U.S.; an impost on China’s infinitesimal imports of U.S. pork, and on a scrap trade that Beijing is already trying to stamp out; and then Tuesday’s heftier $50 billion tariff list from Washington, which was nonetheless carefully crafted to be almost invisible to Joe Sixpack.

Pick apart Beijing’s latest list of countervailing duties and you’ll see that in many areas there’s once again less than meets the eye.

To be sure, the list deals a few headline-grabbing blows to select political constituencies. There’s a special levy on cranberries, which these days are mainly grown in Wisconsin, the home state of House of Representatives Speaker Paul Ryan. Another hits the whiskey industry associated with Senate Majority Leader Mitch McConnell’s base of Kentucky, borrowing a move from the European Union’s tit-for-tat trade war game plan. And let’s not forget those levies on fresh orange juice, calculated to hit growers in the electorally pivotal state of Florida.

Beneath that, though, many of the details suggest a more moderate approach. The duties on aircraft exclude all planes with an operating empty weight above 45 metric tons, a provision that looks to spare every aircraft that matters to Boeing Co. – and, in any case, aerospace companies can get around tariffs by deferring orders to China and bringing forward deliveries to lessors elsewhere in the world.

Seven of the trade categories affected relate to beef, which China resumed importing from the U.S. only last year – in minute quantities – after a 14-year ban due to fears of mad cow disease. New 25 percent duties on wheat and corn won’t do much additional damage to a trade that’s minimal given the 65 percent import tariffs that China already charges on those crops.

The weight of the retaliation comes down to six categories: Cars, soybeans, plastics, tobacco, sorghum and chemicals. There’s a canny political strategy buried in that list: The first three sectors are heavily concentrated in Midwestern states stretching from Ohio to Wisconsin that flipped from supporting Obama in the 2012 election to Trump in 2016. Tobacco and sorghum farms, too, tend to be in traditionally conservative areas of the South – Texas, Virginia and North Carolina – where Democrats have been making increasing inroads.

That politics-first approach makes more sense. For all the big talk, each side knows that it has more to lose than gain if the situation spirals out of control. Turning Trump’s base into advocates for de-escalation and offering a few concessions on issues like technology transfer, automotive joint ventures and finance that Beijing had already been mooting seems like the perfect way to back off from these tensions.

With the latest skirmish imposing duties on roughly a third of Chinese imports from the U.S. and a tenth of the trade in the opposite direction, each side now has its hands on some real weapons – but for that very reason, conditions are ripe for a ceasefire.

Beijing and Washington don’t really want to bring each other to heel, but to the negotiating table. David Fickling and Shuli Ren, Bloomberg