World Economy

Trump is 'determined to bite somebody, and China is the most likely target,' trade expert says

Key Points
  • Many are holding out for U.S.-China trade war in 2018
  • But trade between the two major economies have grown both ways over time
  • U.S. imports into China could grow in 2018, easing tensions
Trump tackling China's trade dominance will not alienate rest of the world: James Rubin
Trump tackling China's trade dominance will not alienate rest of the world: James Rubin

A year after President Donald Trump took office, the United States' trade deficit with China looms larger than ever.

Although both countries calculate the gap differently, the latest data from Beijing indicates a trade differential at a record high of $275.81 billion in 2017. That figure does not bode well for bilateral relations, which many expect to take a turn for the worse in 2018 after a year of relative inaction from Trump.

"The prevailing view in Washington now is that, this year, he is determined to bite somebody, and China is the most likely target," William Reinsch, the former president of the National Foreign Trade Council, told CNBC.

Trump himself told Reuters in an interview on Wednesday the U.S. was considering a big "fine" as part of a probe into China's alleged theft of intellectual property.

Experts in China are also widely expecting trade tensions to ratchet up.

Tu Guangshao, vice chairman and president of China Investment Corporation said he expects "trade friction," but not a "serious trade war," between the two major economies.

"The basic premise is that China-U.S. trade is not just benefits China, but in fact benefits the U.S. as well," Tu told delegates at The Asian Financial Forum on Monday, according to transcriptions of his comments.

Trump has consistently deemed trade with China unfair to America, but he's indicated that he had held back from further action as he sought Beijing's help in bringing North Korea's nuclear ambitions under control.

Any broad-based action could be detrimental for both sides, as trade between the world's two largest economies has been growing in spite of differences — China is America's largest single trading partner.

Is President Trump ready to 'bite' on trade with China?
Is President Trump ready to 'bite' on trade with China?

"The Chinese's usual tendency in matters like this is to retaliate so we could get into one of these back and forth, tit-for-tat things where each side takes measures against the other side's imports or investments and it kind of spirals downwards," Reinsch said on Tuesday.

Despite the threat of an imminent trade war, there may be some reprieve: China has been taking positive steps to improve market access for products such as American agricultural exports and certain financial services, Rajiv Biswas, IHS Markit's chief economist for Asia Pacific told CNBC.

What the trade tiff could really be about

Trump may be talking trade when he says he's going to be tough on Chinese President Xi Jinping, but the tension comes amid an important shift in the countries' political relationship, according to James Rubin, who served as the U.S. assistant secretary of state for public affairs during Bill Clinton's presidency.

As China becomes increasingly emboldened in its global ambitions, Xi is now taking "a much more aggressive approach to most issues" than previous leaders had, Rubin said.

"Now the new leader, President Xi, is flexing China's muscles militarily in the South China Sea. He's flexing them by denying America's place in the world and saying China's taking over. That's a competitive relationship we haven't seen before and it's risky," he told CNBC last week.

Against that backdrop, trade is the "easiest" place for the two leaders to act and communicate — and for Trump to get some results, Rubin added.

"Neither of them want to see a military confrontation develop and escalate, but a trade dispute is a good way for Donald Trump to implement what he said he would do in the campaign and also send a signal to China," he said.

In fact, Rubin said, the U.S. is unlikely to hurt its international standing with any trade actions against Beijing because "China violates international trade rules all over the world — everybody knows that."