Trump’s moment of truth on China has arrived

It’s looking like President Trump might finally follow through on his threats to get tough with China on trade.

Earlier this month, Trump administration officials told Politico that the White House is preparing to roll out hard-hitting policies designed to punish China for its “unfair” trade practices. Last Monday, Trump told Chinese President Xi Jinping during a phone conversation that the trade deficit between the US and China was “not sustainable.” And Trump told Reuters last Wednesday that he’s planning to unveil some kind of action against China over trade during his State of the Union address at the end of the month.

If Trump does decide to take action against China, he’ll finally be fulfilling one of his boldest campaign promises.

On the campaign trail, he promised to avenge China’s “rape” of the US economy and its “theft” of coveted manufacturing jobs from the American heartland. He pledged to punish China for devaluing its currency to give itself a special advantage in global trade. And he threatened to impose enormous 45 percent tariffs on goods from China to protect American industry from competition.

But after he took office, none of that happened. Trump reversed his position on blacklisting China as a currency manipulator and failed to issue any big tariffs.

Trump has argued — convincingly, some experts say — that he’s avoided getting aggressive with China on trade because he wants China’s help with reining in North Korea’s nuclear program.

China is North Korea’s main source of energy and biggest trading partner; the US needs Beijing to sign on to any US-led campaign to isolate North Korea if it wants a chance at squeezing the hermit kingdom’s economy.

But Trump is now facing pressure to fulfill his fierce campaign promises to protect American manufacturers from Chinese competition: A series of upcoming legal deadlines on trade policy means that Trump simply has to decide if he’ll finally take action against China — or abandon his pledges.

In late January, Trump has to decide whether to protect the US solar energy sector from foreign competition. The US imports most of its solar panels from China, which leads the world in solar power production.

If Trump decides to impose big tariffs (border taxes that make imports more expensive) or quotas (caps on the total number of solar panels that can be imported into the country) on foreign solar panels, that could deal a serious blow to China’s solar panel industry.

Trump will also have to decide soon whether he’ll take steps to reduce or block imports of foreign steel and aluminum. China is the world’s largest producer of both of them, and US barriers to their imports will hurt Chinese companies, many of which are owned by the Chinese government.

US Commerce Secretary Wilbur Ross submitted recommendations for steel-related penalties to the president on January 11, and reportedly sent in recommendations for aluminum as well, although the exact date of the submission isn’t clear. Trump has 90 days from those submissions to act, but administration officials have suggested it may happen sooner.

Finally, the administration’s big investigation into China’s theft of intellectual property from American companies will be wrapping up, and Trump will face a deadline to act on the investigation’s findings. Analysts and the American business community contend that China forces many foreign businesses to hand over their most prized technology in exchange for access to their market. China denies this practice and has called the US’s investigation “not objective.”

This is potentially the most explosive issue, because it punishes China for a policy that’s key to making it more competitive in the global tech sector. By appropriating cutting-edge technology, China is able to take a shortcut to producing innovative services and products.

And the penalty itself could be especially severe: In addition to tariffs, the Trump administration could impose tight restrictions that bar China from making investments in the US market, a move that would infuriate Beijing. According to Inside US Trade via Politico, US Trade Representative Robert Lighthizer is in fact pushing for those kinds of restrictions.

While the deadline for a decision on this one isn’t until August, analysts say that Trump is likely to move on it more quickly, and may announce a decision along with other tariffs during his State of the Union address. Trump told Reuters last week that a decision on China’s intellectual property theft would be coming “soon.”

If Trump does decide to act against China, how he goes about doing that in practice could mean the difference between a symbolic victory and actual, substantive moves that will protect US workers.

Take, for example, the decision on whether to block Chinese steel imports. The reality is that the US already subjects Chinese steel to a variety of penalties for violating trade rules, and these have slowed Chinese steel imports to a trickle. China is only around the 10th biggest contributor of steel imports to the US — the US gets a majority of its steel today from countries it considers allies, like Canada, South Korea, and Mexico.

This poses a dilemma for Trump: If he just singles out Chinese steel, he won’t really be slowing the flow of steel into the US. It would be symbolic, but it wouldn’t actually do much to help American steel manufacturers.

In order to really deliver on his promise to shield American steel, he’d have to institute across-the-board tariffs that would prevent all those other close US trading partners of the US, not just China, from being able to export their steel to the US.

Philip Levy, a former senior official on President George W. Bush’s Council of Economic Advisers, pointed to a case from the Obama era to illustrate how this can play out in practice.

In 2009, the Obama administration put 25 to 35 percent tariffs on Chinese car and light-truck tires to boost American production of them. But in the end, that only saved around 900 jobs, Levy told me. “And that’s because other countries make tires,” he said.

When Obama’s tariffs on China kicked in, imports of tires from South Korea, Thailand, and Indonesia went up to meet American demand — more than offsetting the reduction in Chinese-made tires sent to the US.

But Levy explained that while that wasn’t particularly effective economically, it did allow Obama to claim he was getting tough with China.

“If the Obama administration did it, I certainly wouldn’t put it past the Trump administration,” Levy said.

Analysts say China is unlikely to turn the other cheek if Trump lashes out by putting big tariffs of its own on American products.

“The Chinese will retaliate,” William Reinsch, a trade expert at the Stimson Center, a nonpartisan think tank, told me. “They have a lot of experience with this game — and they are very, very good at coming up with things that will cost them nothing and cost us a lot.”

Reinsch said Beijing could decide to stop huge US agricultural exports to China like soybeans. It could hit high-tech US manufacturing by halting the purchase of Boeing aircraft that it’s ordered in recent months, or by slowing or shutting down the assembly of Apple iPhones, which are manufactured in China.

China could also make life harder for US companies looking to get a foothold in the Chinese market — for example, by being more generous in giving European businesses licenses to operate in China, thus giving them a leg up over American companies.

Finally, China could lash out in ways that go beyond the US economy — for instance, by deciding to stop helping the US put economic pressure on North Korea to try to rein in its nuclear program. That would be a major blow to one of the fundamental pillars of the Trump administration’s approach toward North Korea — one of the most dire foreign policy crises the administration is currently facing.

Chad Bown, a trade expert at the Peterson Institute for International Economics, told me that Trump administration officials are likely weighing the domestic political benefits of taking action against China versus the potential economic costs of Chinese retaliation. The White House thinks of the strength of the economy as one of the greatest features of Trump’s presidency so far.

“What they’re also thinking about is: Do we want to upset that apple cart?” Bown said.

And with multiple deadlines looming, the time for weighing those decisions is running out.