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What are the ripple effects of a U.S.-China trade war?

President Trump set into motion on Friday a 25 percent fee on more than 800 Chinese imported goods and China hit back with tariffs of its own on products like soybeans, pork and corn, which target areas that voted heavily for Trump. Amna Nawaz talks with David Honig of Indiana University McKinney Law School and Yasheng Huang of MIT's Sloan School of Management.

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  • Judy Woodruff:

    The world's two largest economies have moved beyond rhetoric and threats to a trade war.

    Both the U.S. and China launched new tariffs against each other today. The Trump administration imposed its new fees on Chinese goods at midnight. China retaliated immediately.

    Amna Nawaz looks at the strategies of both sides and the potential consequences.

  • Amna Nawaz:

    President Trump set into motion 25 percent tariffs on more than 800 Chinese imported goods, including aircraft engines, industrial machinery and parts for electronics, to name just a few.

    Now, China hit back with tariffs of its own on more than 500 U.S.-made goods, some of which target areas of the country that voted heavily for Mr. Trump. That includes exports like soybeans, pork and corn.

    Let's break down how both sides are positioning themselves, and where the impact of the tariffs will be felt first.

    David Honig is an attorney who teaches negotiations at Indiana University. And Yasheng Huang is a professor who studies the Chinese economy and global business at the MIT Sloan School of Management.

    Thank you both for being here.

    David Honig, I want to start with you.

    Talk to me about the negotiating style that we have seen so far with President Trump. You break them down into a couple of categories. One is called distributive bargaining. That's what we're seeing here. What does that mean?

  • David Honig:

    Distributive bargaining is really exactly what it sounds like.

    The people in the negotiation are simply deciding how they're going to distribute a limited pool. And, otherwise, they have no interests in common. They're just trying to figure out who gets more slices of the pie or how much a cabinet-maker is going to get paid off his invoice for the person who put cabinets in a casino.

  • Amna Nawaz:

    And the flip side of that is integrated bargaining. How are the two different?

  • David Honig:

    Integrative bargaining is everything else.

    Integrative bargaining exists when there is not a complete lack of interest between the two, where they may be able to help each other, where there may be a future relationship, where they may be able to hurt each other, or where they simply may be back at the negotiation table another time.

  • Amna Nawaz:

    So, make this real for me in the context we're talking about. When we're talking about a trade war with China, what have we seen from President Trump that speaks to you about distributive bargaining?

  • David Honig:

    Well, what I have seen from the president is treating just about every negotiation as something that is distributive. It's complete win-lose. It is take it or leave it, without the appearance at least of a recognition that we're going to come back to the table another time and that we have mutual interests.

  • Amna Nawaz:

    Professor Huang, let's talk about the flip side of this now.

    We see where President Trump seems to be coming from in negotiating style and tactics. From what we have seen from China's action and response, what seems to be their strategy to the trade war?

  • Yasheng Huang:

    I think their strategy is the integrated bargaining, as Mr. Honig described.

    They did signal that they wanted to reach an agreement with the Trump administration. First, they talked about making concessions on the trade front, buying more goods from the United States to narrow the trade imbalances between the two countries.

    Then they actually took the step of lowering tariffs on goods critical to American companies, automobiles, and trucks and the whole range of products.

    They also at least signaled that they were willing to talk about I.P. issues, intellectual property rights issues, the entry by the foreign firms in the Chinese market, financial sector, and other issue areas.

    But they didn't get a positive response from the Trump administration, precisely because the strategy pursued by the Trump administration is kind of a take it or leave it. That doesn't really leave the Chinese with much room to maneuver.

  • Amna Nawaz:

    David Honig, now that we are where we are, in the sort of tit-for-tat with tariffs, talk about the ripple effects. The U.S. imposes tariffs, it leads the Chinese tariffs, just with soybeans as an example, right?

    Now, China, we know, has canceled those soybean orders. They are nearly a third of the entire soybean crop purchasing power there. That's a big hit to the U.S. economy. What next? Where does the ripple effect go from there?

  • David Honig:

    It is a big hit, and it shows the danger of treating something that's distributive that truly isn't.

    So what we see is, we not only see damage to American farmers, because they're not able to sell their soybeans, but what happened next is, China bought their soybeans from Russia, they tripled their purchases from Russia.

    The ripple effect beyond that is not only is Russia now buying selling soybeans — selling soybeans, and American farmers are losing them, but Russia is now getting hard currency. So if you go outside trade and look at America's ability to project its power, now sanctions are going to be less effective, because our sanctions addressed at Russia go to limiting their availability for hard currency, and we put them in a situation where they can get more of that from China.

  • Amna Nawaz:

    Professor Huang, you seemed to be saying earlier that the two sides are coming at it with very different approaches.

    But, look, President Trump is basically he's doing what he promised he would do. He's taking that tough style of bargaining and applying it to what has been an uneven relationship in the past, right, when it comes to the U.S. and China trade balance there.

    If nothing has worked to even it out before, maybe could this work now?

  • Yasheng Huang:

    Well, I disagree with the view that the trade imbalance, in and of itself, is about uneven relationship between the two countries.

    The trade imbalance is driven by deep structural economic factors within these two countries. One country has a very high savings rate. The other country has a lower savings rate.

    But I do want to make it clear that there are objective problems between China and the United States. I will view I.P. as an issue, entry of foreign firms into a Chinese market as another legitimate issue.

    The problem that I have with the Trump administration is not so much that they invoke trade war as a tactic to get the Chinese to come to the negotiating table. The problem I have is that they are now presumed as an end in and of itself. And that's very reckless.

    To escalate the trade war is going to be bad for the Chinese economy, for sure, but it's also going to be bad for the U.S. economy, because much of the consumption in this country is produced by Chinese companies. A lot of the components sourced by U.S. companies are produced by Chinese companies.

    It's going to have a huge ripple effect on the U.S. economy as well. So it's OK to threaten China with a trade war, but to actually use it is reckless.

  • Amna Nawaz:

    David Honig, now that they are actually using it, where is the off-ramp? How does this end?

  • David Honig:

    I don't know.

    I'm not sure that they have anticipated an off-ramp. The same thing happened when they shut down the agreement with Iran and told everybody, OK, stop buying oil as of November 1, and all of the countries said, we can't, we can't replace it yet.

    And, this week, the U.S. State Department said, OK, well, go ahead and keep buying oil, because they didn't anticipate an off-ramp. So I don't know where we get off. And I think that's why some of us who observe negotiations and certainly Professor Huang, whose expertise is much deeper in China and trade, are concerned.

  • Amna Nawaz:

    Professors David Honig and Yasheng Huang, thank you for your time.

  • David Honig:

    Thank you.

  • Yasheng Huang:

    Thank you.

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