China Responds After U.S. Follows Through On Tariff Threat
NOEL KING, HOST:
It is being called the start of a trade war. Just after midnight last night, the U.S. slapped 25 percent tariffs on $34 billion worth of Chinese goods. China responded with equivalent tariffs on U.S. products. A spokesperson for China's Ministry of Commerce says the U.S. has ignited the largest trade war in economic history. So what does this mean for China, the U.S. and the global economy? We're going to get some answers from Jeremy Haft. He's been building companies in China for the last 20 years, and he wrote the book "Unmade In China."
Jeremy Haft, good morning.
JEREMY HAFT: Good morning to you.
KING: All right. So you are very familiar with how things work in China. Are there things that China can do to retaliate against the U.S. beyond just tariffs?
HAFT: Yes, there are several weapons in their arsenal, and they're already using these weapons. So you know, once we reach a tipping point where the tariffs are exceeding the amount that we export to China, China can hit us with making it much more difficult to operate on the mainland. So for example, they can quarantine products for a long time. They can make products difficult to clear customs. And, you know, my anecdotal evidence and the stuff that I'm seeing on the ground is showing that this has already happened. So they're making operations much, much more difficult for U.S. companies.
KING: Well, give me an example of a U.S. company that's being hit.
HAFT: Well, one example we keep hearing about is the pork industry. You know, China is the world's largest market for pork. They are also our second-largest market for pork. Our first-largest market in Mexico.
So what already began happening after the first round of tariffs happened before was making pork much more difficult to clear customs. Now, the customs agents on the ground have a tremendous amount of latitude in terms of what they allow into the country. And normally, if your papers are in order, the pork proceeds smoothly through customs and into the country. But what happened increasingly was, suddenly, it became much, much more difficult for pork to clear customs. And that becomes very expensive, especially with a perishable product where the product can spoil in the port if it's not kept in the right refrigeration conditions.
KING: All right. So there we have a concrete example. The U.S. administration has said that the aim of levying these tariffs is to level the playing field between the U.S. and China. Do you agree that this is the right move?
HAFT: Well, I don't. And many business people and economists agree with me that, you know, the folly of these tariffs is that they wind up killing many more jobs than they save. And, you know, we've seen this movie before. In 2010, when the Obama administration imposed tariffs on imported Chinese solar panels, a very interesting dynamic happened. So in 2010, the United States was actually a net exporter to China in solar, which sounds strange - right? - because we import lots of solar panels from China.
HAFT: But we were actually selling China $247 million more in raw materials than we were buying in solar panels. So those raw materials are called PV polysilicon, which also goes into semiconductors. Now, after we raised tariffs on panels, China raised tariffs on PV polysilicon and just decimated the PV polysilicon industry. So after the Chinese tariffs were levied, many, many jobs were killed. Many companies went out of business. There are only three companies still standing in the United States that produce PV polysilicon, as a result of those tariffs. And, you know, in 2010, the United States was a major global producer of PV polysilicon. We produced about 30 percent of the world's PV polysilicon. In 2010...
KING: And so what you're talking about is tariffs...
KING: ...Having the exact opposite effect of their intended outcome.
HAFT: Right. Exactly. Exactly, exactly - and...
KING: Let me ask you about the view from China.
HAFT: ...Actually decimating the entire industry.
KING: Let me ask you about the view from China. Is there a sense there that the U.S. is concerned about China's rapid growth and is just trying to contain its economy?
HAFT: Certainly, China views it that way. But, you know, if we can take a step back, you know, this whole trade is framed as a battle between the world's two largest economies.
HAFT: And that's highly, highly misleading. We're using a number called GDP here, gross domestic product, which effectively measures spending across an economy. So you add up the spending of households, businesses and government, and you get a GDP number. Now, if you were to apply for a loan at a bank, you know, would they ask you what you spent last year? Or if you were looking at a company to invest in, would you look at what they spent last year? You know, the answer is no. You'd look at the balance sheet - right? - how much do you own minus how much do owe. So if we look at the national balance sheet of the United States - so the balance sheet of all the households and businesses and government, including all the government debt, and we compare that to China's national wealth, the U.S. is $50-60 trillion wealthier than China.
KING: I think what you are trying to say here, basically, is that the U.S. is perhaps more concerned about China than it should be. Is that right? Just briefly.
HAFT: I believe so. Actually, you know, we have a tremendous lead, and that gap is rapidly growing, not shrinking. But China is not about to overrun us.
KING: Growing, not shrinking.
Jeremy Haft is the author of "Unmade In China." We're going to have to leave it there. Thank you, Jeremy.
HAFT: Thank you so much, Noel.
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