Trump's new tariffs put China at centre of 2020 re-election bid

Washington

US President Donald Trump is making a high-stakes bet on his 2020 re-election with his decision to impose new tariffs on China: that the US economy is strong enough to absorb an all-out trade war - and might even benefit.

Mr Trump set out his rationale in a series of tweets on Friday morning after raising tariffs to 25 per cent on US$200 billion in goods from China and threatening more.

Chinese and US officials held brief talks in Washington that were unproductive, according to people unfamiliar with the matter.

"Tariffs will make our Country MUCH STRONGER, not weaker," the president predicted in a tweet. "Just sit back and watch!"

Should the president's instinct prevail, he'll enter next year's election with the most powerful asset for an incumbent - a strong economy.

As of now, he can boast of historically low unemployment numbers, positive economic growth and stock market highs. He'd also vindicate a more aggressive approach toward China than his predecessor Barack Obama - and by extension, former Vice President Joe Biden, whom Mr Trump said Friday is likeliest to emerge as next year's Democratic presidential nominee.

Mr Obama and "the Administration of Sleepy Joe" allowed China to get away with "murder", Mr Trump said in another tweet.

But Mr Trump's bet carries obvious risks. China has said it will retaliate, and may target the US agriculture heartland that is a wellspring of political support for the president.

If Beijing declines to make the concessions the Trump administration is demanding and the tariffs remain in place through November of 2020, some of the worst economic damage may be concentrated in communities in the Midwest and Rust Belt that put Mr Trump in the White House in 2016.

US importers and economists say it is their businesses and American consumers that will pay Mr Trump's tariffs, not Beijing.

Daniel Ikenson, a trade policy expert at the libertarian Cato Institute, which has opposed Mr Trump's tariffs, calculated that an across-the-board 25 per cent levy on Chinese imports may amount to a tax on American consumers of as much as US$135 billion, based on the US$543 billion in goods imported in 2018 as a baseline.

"That's a cost of about US$400 for every person in the United States," he wrote in a blog post on Thursday. "That's a lot."

US stocks closed higher on Friday, clawing back from heavy intra-day losses, but the S&P500 index still registered its worst since just before Christmas. Economists at Moody's Analytics last week warned that an all-out trade war between the US and China would lead to a recession around the time of the 2020 election.

Mr Trump explained in his tweets why he doesn't believe a recession will happen. He wrote that China would be hurt worse than the US, and also cited the soaring value of 401(k) retirement accounts "since the bottom of the market", although much of those gains came during the Obama administration and from a decade of employee contributions.

He promised to protect farmers, including a plan to buy surplus agricultural products with taxpayer dollars and send the goods abroad as humanitarian assistance.

As a result, he said, "there is absolutely no need to rush" to make a weak deal with China.

Messages in support of his trade policy were among a few dozen retweets posted by Mr Trump early on Saturday.

Mr Trump's China policy isn't an easy target for the Democrats angling to challenge him in 2020 because their own party is divided on the issue. In Congress, many Democrats say Mr Trump's confrontation of China is one of his few policies they support. That includes the Senate Democratic leader, New York's Chuck Schumer, who has urged Mr Trump to not to cave in the trade talks.

Representative Brad Sherman, a California Democrat who is a longtime China hawk, said he backs Mr Trump's plan to substantially raise tariffs on Chinese goods and spend the proceeds buying farm and other products hurt by Beijing's retaliation.

"Of all the Trump policies, if I had to cheer one, this would be it," he said in an interview. "President after president has done nothing."

Representative Dan Kildee of Michigan said that after speaking with US Trade Representative Robert Lighthizer on Thursday he's "pleasantly surprised" Mr Trump isn't settling for Chinese offers to buy more American soyabeans and other goods without making structural changes in its economy.

But he and other Democrats said Mr Trump would do better to engage US allies in confronting China.

The president, though, is a sceptic of multilateralism and has expressed disdain for international institutions such as the World Trade Organization.

"While the administration is right to take on the serious trade challenges our country has with China, I have long been sceptical that the president will deliver for American workers without coordinating with our economic and political allies," Senator Ron Wyden of Oregon, the top Democrat on the Finance Committee, said in a statement on Friday. He lamented that Mr Trump has "spent the last two years alienating our allies".

At a recent rally in Macomb County, Michigan, for Bernie Sanders, the Vermont senator making his second run for president as a Democrat, some voters complained that Mr Trump hasn't delivered on promises to upend US trading relationships. The North American Free Trade Agreement (Nafta) remains in place, and an overhaul of the pact Mr Trump negotiated last year called the US-Mexico-Canada Agreement (USMCA) faces opposition in Congress.

"There's still a lot of anger," said Roger Jablonski, a retired 60-year-old from Royal Oak, Michigan. "Nafta absolutely killed us. And we've been getting the same old song and dance."

Some Democrats have belittled the USMCA as little more than a repackaging of Nafta.

"At this point it's Nafta 2.0," Senator Kamala Harris of California, another presidential candidate, said last week in Detroit. "And I'm not supportive of it in its current form."

The deal needs "a number" of changes, she said, including stronger protections for labour and the environment. BLOOMBERG