Trump vs China

To address these problems, Trump has three objectives. The first of these is to increase risk to manufacturing firms moving from the US to China. Originally that risk was removed by stabilising the level of tariffs. By merely moving around the level of tariffs of Chinese imports the odd States, Trump re-establishes and reintroduces that risk. That immediately makes the sunk costs of a US firm moving to China so potentially great that US firms simply stop moving.

The first objective of stopping more American firms moving to China has already been achieved by increasing uncertainty of US tariffs.

The second objective is motor vehicle tariffs. In April, the White House noted that if the US imports a motor vehicle from China, the US charges a tariff of 2.5%; but if China imports a motor vehicle from the United States, it charges a tariff of 25%, 10 times as much.

The intermediate objective is to get the Chinese to reduce their motor vehicle tariffs for imports from the US. The result of that reduction would be to generate more employment in the eastern heartland that is the Trump base.

The third objective is much more dramatic and much more aggressive. The source of this is Peter Navarro, who is the Director of Trade and Industrial Policy and Head of the White House National Trade Council. In 2011 Navorro wrote a book called "Death by China". More importantly for this discussion, in June this year Navarro also issued a document titled How China's Economic Aggression threatens the Technologies and Intellectual Property of United States and the World. In this he lists 27 things that China currently does which are against the rules of the World Trade Organization in dealing with intellectual property. These are show in Figure 1 drawn from that document.

There are five big sections and I'll just refer to a few of them. The first is physical theft and cyber enabled theft of technology and IP. Well, that is pretty straight up, isn't it? There are five sub items: physical theft of technologies and IP through economic espionage, cyber enable espionage and theft, evasion of US export control laws, counterfeiting and piracy and reverse engineering.

The document list four further major issues. These are coercive and intrusive regulatory gambits; economic coercion; information harvesting (I think that means spies); and State-sponsored technology seeking investment.

Conclusion

This is big power rivalry at its best. The initial objectives that Trump wanted to achieve of stopping US firms making an investment has already been achieved by increasing the uncertainty with respect to tariffs.

The second objective will be a negotiation about Chinese automotive tariffs. I think that there will be some kind of resolution made in the next year.

The major issue is the Chinese theft of US technology. This matter will take many years to negotiate. These issues will be with us for some time to come.