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The trade battle with China keeps escalating. What’s at stake for the U.S.?

For months, the U.S. and China have traded tit-for-tat trade threats, but the battle between the world's two largest economies escalated to new levels Tuesday. Most recently, President Trump warned that he may impose tariffs on 90 percent of everything China exports to the U.S. Nick Schifrin examines the potential consequences with Edward Alden from the Council on Foreign Relations.

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  • Judy Woodruff:

    The trade battle between the U.S. and China, the world's two largest economies, is escalating to new levels today.

    President Trump has directed his administration to prepare major new tariffs on Chinese imports.

    Nick Schifrin looks at the potential consequences of this move, including how China may retaliate.

  • Nick Schifrin:

    For months, the U.S. and China have traded tit-for-tat trade threats, and they have escalated again in just the last few days.

    On Friday, President Trump authorized tariffs on $50 billion of Chinese goods, such as industrial machinery. Those are set to take effect next month.

    In response, Chinese officials vowed to retaliate with their own $50 billion of tariffs on American goods, such as beef, cars, and soybeans. That response prompted President Trump to threaten an additional $200 billion of tariffs.

    And now the president is warning the U.S. may impose tariffs on a total of $450 billion of Chinese goods. That's 90 percent of everything China exports to the U.S., from electronics, clothing, toys, tools, you name it.

    Edward Alden watches all this closely for the Council on Foreign Relations, and joins me now.

    Edward Alden, thank you very much.

    The administration says that China is trying to maintain a permanent and unfair advantage. China protects its companies in many sectors, especially high-tech. China forces the U.S. to — U.S. companies to give some of its information to China.

    So, doesn't the administration have a point?

  • Edward Alden:

    Yes, no question.

    I mean, if you look at the document that the U.S. trade representative's office put together that is at the heart of this investigation, it makes a pretty much compelling case on all of these.

    U.S. companies that are trying to invest in China have to work with joint venture partners. They are often forced to transfer their best technologies to their partners. The Chinese use licensing and other regulatory discrimination to make it hard for U.S. companies to operate freely in the Chinese market. China has a very restrictive investment regime, which is intended to help its companies get the next leg up in terms of the technologies of the future.

  • Nick Schifrin:

    Is your notion, though, that the means by which the U.S. is addressing that is less effective than it could be?

  • Edward Alden:

    Oh, I think it's much less effective.

    I mean, the United States has spent the last 75 years building a system of global trade rules, culminating in the creation of the World Health Organization. There are a lot of tools available through the WTO that the U.S. hasn't used fully in trying to go after some of these Chinese practices.

    And we're not working with our allies to put pressure on China. These are problems that face not just U.S. companies, but Japanese companies, German companies, British and French companies. But, instead, President Trump has been picking trade fights with those countries as well.

    So, tactically, this is highly questionable and I think undermines a lot of the credibility of the United States as a leader in setting and maintaining global trading rules.

  • Nick Schifrin:

    Well, as you say, this isn't only about China. The administration says that it's trying to rebalance trade deficits and also trying to seize advantages that it says the U.S. has given up.

    So what's wrong with trying to seize those advantages, as the administration puts it?

  • Edward Alden:

    Well, I don't think there is anything wrong, but you have to pick your battles. OK?

    So, President Trump doesn't like the large trade deficits. Fair enough. There are things that can be done to correct that, at least to help it, a lot of those outside the realm of trade policy.

    The China issues we have been talking about are kind of very real and very front and center, but if you're going to deal with those, you need allies. If what you get into is fights with all your trading partners because some of them run trade surpluses with the United States, then you are going to have no coherent strategy to actually get anything done.

    You can see this in the talks with China. The United States is lurching back and forth between saying, look, we need a real response to the technology transfer issue, to the intellectual property theft issue, to cyber-espionage, to regulatory discrimination. It lurches back and forth between that position and saying, well, if China would just buy more soybeans and natural gas and reduce the trade deficit, then the United States will be fine.

    That's not a coherent strategy, and it is not going to be effective.

  • Nick Schifrin:

    The president's trade adviser, Peter Navarro, told us in a phone call today that China has more to lose than the U.S. because China exports, four times more, than the U.S. exports to China.

    Does China have more to lose than the U.S.?

  • Edward Alden:

    No, I don't think that is true at all.

    That's a kind of simple arithmetic that says, because we buy more from them than they buy from us, they're more vulnerable. China has a lot of ways to hurt the United States, to hurt U.S. companies that are invested over there. They hold a huge amount of our treasury holdings. They could reduce those and cause U.S. interest rates to rise.

    They can manipulate their currency, as they did in the 2000s, to hold down the value, which would increase their export advantage into the United States. And they can target their retaliation, as they're already planning to do, against sectors that are going to hurt the president, go after farmers, go after, you know industries in swing states.

    Both sides will hurt, but I think China can actually in many ways do more damage to the United States than vice versa.

  • Nick Schifrin:

    Edward Alden, thank you very much.

  • Edward Alden:

    Good to be with you.

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