The DC gambler rolls the dice again on global growth with new tariff threat

(Originally published Feb. 28 in “What in the World“) Trump said he plans to slap another 10% tariff on imports from China.

No, you’re not experiencing déjà vu. This would be 10% on top of the 10% tariff he already imposed earlier this month to the cost of Chinese imports.

Trump’s move earlier this month eliminating exceptions to the 25% tariff he imposed on steel in his first term is also hitting China—even though China was already subject to the full 25% steel tariff. How?

Because steelmakers in other countries still enjoying the tariff exception had been re-exporting cheap Chinese steel to the U.S. One of the worst offenders, according to the Trump administration, was Mexico. Foreign mills would simply buy Chinese exported steel on the cheap, do some minimal finishing work on it, slap a “not made in China” label on it, and ship it off to the U.S. Reuters estimates that roughly 8% of China’s surging steel exports last year were re-exported to the U.S.

Another culprit? Vietnam. As explained in this space yesterday, Chinese steel exports to Vietnam last year rose by almost 41%, to 12.7 million tons. That made Vietnam the top destination for Chinese steel, gobbling up 11.5% of all Chinese steel exports, according to Reuters. And like magic, U.S. steel imports from Vietnam last year more than doubled.

Though they may have been re-exporting some of that steel to the U.S., Vietnamese steel mills complained so loudly that they were being priced out of their own market that Hanoi imposed temporary, 120-day tariffs of up to 28% on hot-rolled steel imports from China. South Korea has also imposed tariffs on Chinese steel imports.

Why did this happen? China’s steel mills responded to weak domestic demand and a glut of supply by shipping more steel overseas in 2024 than they have in nine years. Now Canada, the European Union, and India are all investigating charges that China is dumping steel into their economies.

The next question is what will happen to China’s economy if Trump’s tariffs trigger a wave of restrictions on its exports. With investment and consumer spending anemic, exports have been helping hold up China’s 5% economic growth rate: net exports last year made their largest contribution to growth since 1997. China’s exports rose 7.1% last year to 25.45 trillion yuan, but imports only grew 2.3%, to 18.39 trillion yuan. That resulted in a nearly $1 trillion trade surplus with the rest of the world.

The other question, of course, is what happens to the rest of the global economy if this stops. The soaring value of Chinese imports masks the sheer quantity of Chinese products the world has been importing in the past year, because prices for its goods have been falling. Chinese exports grew 7% in value, but 12% in volume. And in volume terms, China’s imports are shrinking. That suggests that China is exporting deflation into a global economy still wrestling with inflation. If the flow of cheap Chinese goods is cut by new tariffs, inflation might be exacerbated, forcing central banks to choose between maintaining economic growth or keeping interest rates high to combat rising prices.

A new term has been given to the complex implications for China posed by Trump’s rapprochement with Russia over Ukraine: a “reverse Nixon.” Former U.S. President Richard Nixon famously drove a wedge between Communist allies China and the Soviet Union in 1972 when he visited Beijing. The result was improved relations between the U.S. and both at the cost of the ever-uneasy Beijing-Moscow alliance. Whether he intended to or not, what Trump has done is not drive a wedge directly between China and Russia, but rather fracture the Western alliance and thereby diminish the value of the modern-day Beijing-Moscow alliance.

Is there more than “animal cunning” to Trump’s diplomatic moves? Maybe. His strong-arming of Ukraine into a mineral-rights deal is also starting to look like a way to sidestep one of China’s chief economic levers against the U.S.: its domination of key minerals such as antimony, cobalt, gallium, germanium, graphite, and lithium.

Rather than resulting in closer ties with both Beijing and Moscow, however, the result of Trump’s tactics may be a more isolated and dangerous Beijing, one that feels increasingly snubbed by Moscow and cornered by Washington. But some see Trump’s madness—both his threat of further tariffs and his warmth for Russian President Vladimir Putin—as a means to push Beijing into making more significant concessions on trade. But Trump’s lust for deals may come at the expense of the economy—and global security.