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Hello, I'm Lucy Hockings.
From the BBC World Service,
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this is The Global Story.
This week,
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economic warfare broke out between
the world's two biggest superpowers.
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President Trump announced
a new tariff,
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essentially a tax
on Chinese goods coming into the US.
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And now Beijing has hit back.
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So can anyone really win a trade war?
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And what will the impact be
on the rest of the world?
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With me today is Ritika Gupta,
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who is our
North America Business correspondent,
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joining us from New York and the BBC
World Service Asia/Pacific editor,
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Michael Bristow.
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Well, if there's one thing we know
about Donald Trump,
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it's that he loves tariffs.
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The word tariff, properly used,
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is a beautiful word, one of the
most beautiful words I've ever heard.
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It's music to my ears.
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I always say tariffs is the most
beautiful word to me in the dictionary.
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They are at the heart of his
economic plan for the United States.
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During his first term, and also
throughout the presidential campaign,
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he was very clear. He thinks tariffs
are going to help make America
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and American people richer.
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And he also thinks
that they're a useful tool
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in helping to get other countries
to do exactly what he wants.
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Before we go any further, though,
I think, Ritika, we need to cover some basics,
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like what exactly is a tariff?
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Do you see a tariff is a tax on
imported goods from foreign countries.
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So Trump had proposed a 25% tax
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on Canada and Mexico,
which have now been paused.
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But as an example,
say you had a product that was worth
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$4 that would result
in a $1 additional charge,
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so the total product costing
some $5 or so.
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President Trump repeatedly says that
a tariff is a tax on a foreign country.
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He's said that time and time again.
Is that true?
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No, it's not necessarily the
country that pays for the tariff.
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It's the importing business that
typically pays that extra charge.
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However, many economists have warned
that these costs will be passed on
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to the American consumer because your
businesses, your Walmarts, your Targets,
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for instance,
may be facing margin pressure.
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So ultimately it will be
the consumer that pays.
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And that shows up again
on their receipts
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when they go into
their big box chain stores.
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So although there's been a lot
of talk about the negative impacts
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of tariffs
for the Trump administration,
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there has been
one big success already this week.
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When Donald Trump threatened to
impose tariffs on Canada and Mexico,
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he said it was largely because of
concerns about border security.
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Now, both Mexico
and Canada have made big commitments
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to increase security
at their borders.
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So Ritika, can this be seen as a big win then
for the use of tariffs?
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In some ways,
Lucy, it's worked.
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He's showed in some ways the kind
of the art of negotiating a deal
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because, as you say, Canada
and Mexico did cede to Trump's demands
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when it came
to adding extra border security.
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Um, but there's also
the US trading off too in some ways.
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And many experts have said that you
didn't need necessarily the threat
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of tariffs
to get some of those things done.
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And it also does cause concern
and uncertainty about tit for tat
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and the escalation
of a global trade war as well.
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And that's what many experts
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and economists have been warning are
the dangers of this.
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The biggest target of Trump's tariffs
so far, though, has been China.
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And economists are worried
that we could be on the brink now
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of a real trade war between China
and the US.
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This isn't a new war, though, because
President Trump began this economic war
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with China during his first term
when he was in office.
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Micky, why does Donald Trump see
China as such an economic threat?
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Yeah, it's a really good question.
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And it's not necessarily obvious why
China should be an economic threat.
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I think first and foremost,
it's just a very, very big economy,
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which does a lot of trade
with the United States.
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We're talking about half a trillion dollars.
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Also, the United States is in deficit
in that trade with China.
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So essentially the United States
imports far more goods,
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hundreds of billions more goods
than it exports to China.
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So I think President Trump,
what he does is he sees
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that, um, he saw that big deficit
and he wants to do something about it
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because it appears as though China's
winning and the United States is losing.
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Also, in his first term in office,
there was some very specific things
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which President
Trump complained about
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China for, which previous
American officials have complained
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before, specifically stealing
intellectual property,
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forcing American companies to
transfer technology to Chinese firms.
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If they wanted
to set up operations in China,
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they could only do it, say,
with a joint venture.
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They had to transfer
their technology.
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Also, he accused China
of currency manipulation,
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essentially keeping the currency
at a particular level
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to make those exports cheaper.
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Micky, China has always said it doesn't want
a trade war with the US.
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And then we also back in 2017,
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I remember Donald Trump speaking
at the World Economic Forum.
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He said, we don't want to start
a trade war with China.
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But we did then see China responding
with tariffs of its own
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in a kind of tit for tat way.
What were they?
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China doesn't want a
trade war at all.
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The economy is based primarily
on exports.
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So if there's some barrier
to those exports,
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going to other countries,
then it doesn't want them.
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I had a look back at the list of, uh,
reactions that China made
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when President Trump was
in his first term in office,
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and there was a whole series
of them. Raising tariffs by 10%, then
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10% again, 25% in some cases.
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They also reported the United States
to the World Trade Organization.
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They stopped buying some products,
agricultural products
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particularly, outright, which
really affected farmers in America.
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So a range of tools, uh,
which China used,
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which, incidentally, is the kind
of tools which it's already using now
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with these latest, um,
tariffs imposed by President Trump,
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similar kind of tools,
not just tariffs,
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but also non-tariff measures to try
and harm the American economy.
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Now, although this trade war
has been simmering for several years,
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it really is hotting up now that Donald
Trump has returned to the White House.
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Ritika, can I ask you a bit more
about these latest tariffs
Donald Trump has introduced?
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What are the new tariffs on Chinese
goods that he's introduced this week?
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So some of the biggest tariffs
are going to be on electronics, toys
and appliances.
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Consumer electronics being one of the
top goods imported from China to the US.
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If you look
at data that includes cell phones,
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TVs, your laptops, game consoles.
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China is also a major supplier
of home appliances as well.
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And also footwear.
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You see a lot of footwear products also
being imported into the US from China.
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And what new tariffs, Ritika, have
China announced in return?
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The tariffs from China
are actually rather minimal.
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They're seen as not
such an aggressive approach.
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A 10-15% levies
on selected goods.
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So part of China's countermeasures
include import taxes
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on US coal and LNG.
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That's 10% and
a 15% charge on crude oil.
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And as well as fuel,
China has also slapped a 10% tariff
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on agricultural machinery and
pick up trucks and some large cars.
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And they've also announced
some non-tariff measures as well,
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one of which is a probe
into Google
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and an anti-monopoly investigation
into that tech giant.
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And Micky,
is there any indications yet as to
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how these US tariffs are going
to affect the Chinese economy?
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Just at the moment, when the Chinese
authorities need their economy,
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need people to be spending
more money,
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it's going to hit
those manufacturers that sell
to the United States.
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So it's definitely an unwelcome thing
when it comes to China.
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But because they've been through this
before, because Trump did this
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to them in his last term.
Are they better prepared in a way?
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Have they got a strategy
of how to deal with it
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sort of decoupling from the US a bit
diversifying their markets as well.
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I don't think decoupling is
is remotely possible.
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We're talking about trade, hundreds
of billions of two-way trade
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between these two countries
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Um, every year there has been
some attempts by America,
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particularly President Biden,
to try and not sell
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certain technology products,
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high-end technology products to China.
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But the two economies are so integrated
that decoupling is really impossible.
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In fact, under
the Biden administration,
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later on, officials stopped talking
about decoupling
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and started using other words to
suggest they're just targeting, um,
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targeting specific areas
of the Chinese economy.
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Is China more prepared?
I think it was expecting this.
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So before President Trump came
into office,
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Xi Jinping, the Chinese leader, um,
the ambassador,
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the Chinese ambassador in Washington,
all went on the charm offensive,
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tried to persuade President Trump
before he was coming into office.
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Just don't do this.
Nobody will win with a trade war.
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We can both win if we keep tariffs
out of the equation.
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So they knew something was coming.
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And also to a certain extent, as you
suggested there, they could prepare.
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There are many ways
in which China can hurt
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the American economy,
which don't involve tariffs.
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Well, we know
that Donald Trump sees tariffs
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as a way of rebalancing global trade
in a way that he hopes
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that America can stay on top and remain
the world's economic superpower.
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So is he going to be successful
in stopping China's economic rise?
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Micky, China is selling goods,
as you've mentioned, everywhere,
not just to the US.
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It has been the main driver of growth
in the past few decades.
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Surely there must be
really deep concern now in China
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about these tariffs
and that more could be coming.
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This could just be the start.
I mean, of course there is.
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I mean, the Chinese economy
really isn't doing awfully well.
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It needs impetus.
It needs a boost from somewhere.
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But to a certain extent,
there's not a lot the Chinese
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can do about President Trump
if he decides to use tariffs.
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And you've already touched on it,
that tariffs are sometimes used again,
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are used in ways which are
for non-economic reasons.
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We talked about Mexico and Canada
sending, uh, reinforcements
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to their borders
to stop illegal immigrants and,
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and illegal drugs from,
from getting over that border.
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So really he's using economics
to solve political problems.
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Perhaps, and President Trump
has mentioned this previously,
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China can help with the war in Ukraine
because it has influence with Russia.
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China's trade with Russia is
is really just gone through the roof
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since Russia invaded Ukraine, um,
hundreds of billions of dollars
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worth of trade, um,
between those two countries.
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So perhaps President Trump could
persuade China to use its influence
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with Russia over the war in Ukraine,
um, in return for dropping tariffs.
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So that's politics
being changed through economic means again.
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Everyone talks about President
Trump being very transactional
and he likes a deal.
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What's Xi Jinping like? Like,
if the two of them are on a call?
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Well, in some respects, quite similar.
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I mean, I think China, China
doesn't always, uh, say out loud
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what its policy is, what its foreign
policy aims, what it's trying to do.
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In fact, very rarely does it say.
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But I think
if there is an overarching philosophy
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when it comes to China and Xi Jinping,
and the Communist Party generally,
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it's trade with the rest
of the world. Trade has made us rich,
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and trade will make you rich as well
if you trade with us.
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So in that respect,
it is transactional.
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You know, we benefit, you benefit.
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Win-win is a constant refrain
from Chinese officials.
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Trade is, as the Chinese see it,
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and most economists,
most traditional economists,
would agree with the Chinese,
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it benefits both sides.
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I trade with you.
You win, I win.
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Ritika, one of the things that economists say
about tariffs
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all the time is
that it creates price rises
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that ultimately end up being bad
for consumers.
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Do you think that
these new tariffs and the potential
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of a tariffs war with China could
really impact consumers in America?
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That is something
that economists warn of,
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is that ultimately the consumer pays
the price for these higher tariffs,
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even if the companies initially pay
for the tariff.
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There's a lot of pressure
on margins for companies
as their costs rise.
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And then ultimately
the consumer ends up paying.
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So there is a likelihood that is
what economists have been warning.
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And it is also seen
as counterproductive in some ways
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to one of the key objectives
that President Donald Trump had,
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which was to keep the cost of living
for Americans low.
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And then there's also the issues
of the monetary policy side and what
it means for the Federal Reserve.
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If inflation rises and then it means
that their interest rate policy
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would be impacted,
whether they have to lift rates
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and how that could impact the economy
and economic growth.
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Ultimately, Micky, we've got President
Trump and Xi Jinping on the phone together.
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Do you think that Xi Jinping will bend
at all, will give in to Donald Trump?
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They will give something.
Definitely.
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China will give something because of
all the reasons I explained before.
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The export economy is vital
for the Chinese economy as a whole.
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They will not want that disrupted,
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particularly to one
of their biggest markets.
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And if you look back at what,
um, China did previously
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in the first Trump presidency,
they did make concessions.
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Some kind of deal,
uh, was enacted in the end.
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Now, you could argue
whether China didn't renege
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on those terms of
that deal, it might well have done.
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And that's certainly
what President Trump would argue.
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But China is just as determined
when it comes to politics.
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And it too, I think, would be
prepared not to go to the whole hog
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to appease President Trump.
They have got their red lines.
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And I think they've got some really,
um, good measures
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or some measures which could
potentially hurt America in a way
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that President Trump wouldn't want.
And they're in it for the long haul.
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They don't have, um,
a limited time frame.
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They've got a longer time frame. So
I think they will give some ground,
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but not as much
as President Trump would want.
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And I know it's been a holiday in China,
so we haven't seen the full response
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to this, but has there been any sort
of increase in nationalism?
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We saw it immediately
in Canada with
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Justin Trudeau coming out
and big signs coming out, say,
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buy Canadian, and Canadians booing the
Star-Spangled Banner at sports matches.
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Any kind of nationalistic fervour
in China as a result of this?
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In this case, they won't want to,
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the Chinese Communist Party, try
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and drum up nationalistic fervour
at this early stage,
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because they'll hope it's all
resolved without too many problems,
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without getting everybody angry in
a way which makes it then difficult
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for the government to back down
and do some deal with Donald Trump.
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But I think in the future,
if this continues,
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that nationalist fervour
will certainly play a part
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and stiffen the resolve of the
of the Communist Party.
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Ritika, thanks so much.
Thank you.
00:16:06
Thanks, Micky.
Thank you.
00:16:08
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