Don’t underestimate US tariff’s spillover effect on Chinese politics

It is even worse than a protectionist tariff and has been announced at the wrong time. The latest steel and aluminum tariffs White House announced Thursday came at an important moment for China — the Two Sessions. As a result, this controversial move has stirred up controversy among China’s lawmakers and the public. On politically sensitive issues like trade, too much public attention is not necessarily a good thing.

In remarks before signing the proclamations, President Trump tried to make it clear that the move is not only economic, but also political. Such rhetoric is useless as no one would fail to understand the real intention of the move. Moreover, economists have long argued that trade is not the real cause of cutting jobs in American metal industries.

However, the White House has seemingly failed to note that China happens to have its own domestic politics. Hours after President Trump’s tariff announcement, China Iron and Steel Association issued a statement asking the Chinese government to take measures against US steel products. On China’s more outspoken social media platforms, resentment could be seen rising rapidly.

So far, reaction of the Chinese government has been more muted. In his two sessions press meet a few hours before White House finalized the tariff move, China’s Foreign Minister Wang Yi said that in a globalized world, trade war is particularly unhelpful, as it will harm the initiator as well as the target country. China hopes the two sides will have a calm and constructive dialogue as equals, and find a win-win solution.

This moderate response does not mean the US move will not affect politics inside China. For one thing, over the past few years, China has been striving to deal with the overcapacity in the steel industry. A report published in July 2016 predicted that about 1.8 million jobs would be lost in the steel and coal industries as a result of capacity reduction. Traditionally a strong base for steel production, Hebei Province is at the front line of the change. In Hebei, survey showed that more than 40 percent of workers whose lives would be affected by the new policy had been working in the same plant for more than 10 years. In other words, China’s effort to reshape its steel industry comes at a political and social cost.

In a statement justifying the steel and aluminum tariffs, U.S. Secretary of Commerce Wilbur Ross wrote that since 1998, more than 75,000 steel jobs have disappeared in America. If this amounts to justification for a trade war, one doesn’t really need to compare the numbers to imagine what kind of measures those laid-off workers in China will want their government to take.

For bilateral relations, underestimating the spillover from domestic politics can be destabilizing. For China-US ties, it is more so, given the long existing mutual distrust. For the moment, it has been widely reported that China is confused about the Trump administration’s trade objectives. To some extent, this is true as the White House thinks more about domestic politics when it chooses a trade stance. One should also note that the White House can only think prudently before the real trade war breaks out.