China is looking for ways to wean itself off its dependence on US exports.
China seems to be positioning itself to deal with the fallout of a bruising trade war with the US.
On Thursday, China’s commerce ministry announced that the country had agreed to lower or cancel existing tariffs, or border taxes, on thousands of goods from India, South Korea, Sri Lanka, Bangladesh, and Laos starting July 1.
Trade experts say that the move is plain evidence that China is looking for alternative sources for goods that it imports from the US. China is currently planning on imposing sweeping tariffs on numerous goods from the US, retaliating against Trump’s tariffs on Chinese goods that are scheduled to begin next week.
For example, China plans to lower tariffs on soybeans imported from those five Asian countries — all of which are party to the Asia Pacific Trade Agreement (APTA). That should help Chinese consumers find alternatives to soybeans imported from the US, which are going to become much more expensive when China hits them with tariffs.
“There’s no question that China is preparing for a trade war,” Edward Alden, a trade scholar at the Council on Foreign Relations, told me.
China is currently planning on placing tariffs on $34 billion worth of US goods in response to Trump’s plan to hit $34 billion in Chinese goods with tariffs next week. Beijing is attempting to dissuade Trump from considering additional tariffs in the future by matching the scale of the US’s first batch of them.
While China and its Asian trading partners began to work on an agreement before the recent escalations in trade tensions between the US and China, analysts say the timing of the announcement is politically charged.
China’s plan to impose tariffs on soybeans is going to hit the US hard. China buys about a third of the US’s soybean exports, making it far and away the largest importer in the world for the American crop. The biggest soybean producers in the US include Ohio, Iowa, Missouri, and Indiana — states in the heart of Trump country where neither the president nor his party wants to see economic instability or job losses in the run-up to the 2018 midterm elections, or the 2020 elections.
Experts say that China’s move will also help it foster closer ties with its neighbors at a time when US influence in the region is ebbing.
“These tariff cuts will also help to strengthen China’s relations with its Asian neighbors, even as the United States has turned its back on the region economically, by walking away from the TPP,” Alden told me.
Trump pulled out of the TPP — a free-trade agreement with 11 other Pacific Rim countries — in his first week in office. At the time, trade analysts feared that China, which was not a member of the agreement, would have a unique opportunity to consolidate power in the region. That seems to be exactly what’s happening.