Does Trump Have the Authority to Start a Trade War with China?
What powers will Trump really have?
So far in this series, we’ve discussed how US President-elect Donald Trump has promised to impose a 45% tariff on Chinese (MCHI) imports and how this could disrupt world order. Such a move may not be welcomed by other countries, and it begs the question as to whether the US President has that much power.
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In reality, the only circumstance wherein the US President can impose a tariff higher than 15% on all Chinese imports is when a national emergency is declared. The President can only impose a tariff of up to 15% on all imports—and only for a period of 150 days. He can only impose a higher tariff on select imported goods and can not do this for all imports from China.
Former President George W. Bush exercised this power in 2002 by imposing 8%–30% tariff on cheap imported steel, but this was declared as a violation of WTO (World Trade Organization) commitments. According to the WTO, a nation can only impose heavy tariffs if imports have a material impact on the domestic industry.
Trump’s proposed tariff on all Chinese imports would thus likely be a violation of the WTO rules and would be strongly opposed by the organization and other trading partners. In a worst-case scenario, the US could even be removed from the WTO. And the US President does have the power to withdraw from the WTO.
Impact on the US
If Trump starts a trade war with China, many US industries would be impaired. While he might succeed in bringing back some industrial jobs, the cost of manufacturing would increase significantly, thereby increasing the price of goods. This way, American companies like Apple (AAPL) would lose competitive position in the global market, which would significantly reduce their growth and may push some companies to losses.
Trump also plans to renegotiate the NAFTA (North American Free Trade Agreement) with Mexico and Canada. Any tension between these countries would impact Japan (EWJ), which assembles its cars in Mexico for export to the US.
Would Trump really impose the 45% tariff?
A recent editorial in the Global Times stated that after becoming the US President, Trump might switch to a more cautious approach to trade with China, rather than launching an all-out trade war. Such caution was visible in Trump’s first conversation with China’s President Xi Jinping. According to media reports, the two presidents vowed to have a strong relationship and co-operate with each other.
In the next part, we’ll look at Trump’s other plans with potential impact on the technology sector.