From March to May, there was a steady stream of visitors to Washington making the case why they should be exempt from the steel tariffs that the Trump administration has now decided to levy. Those tariffs were meant to be directed mainly against China but those caught up in the crossfire included a wide variety of companies based in countries regarded as the closest allies of the U.S. -- or in the U.S. itself.
Among the casualties was an American group with extensive operations in China, facing a 25% tariff for imports into its home market of the steel products it makes in or obtains from the mainland. "Just a few years ago, we were considering sourcing more from China," says its country head, speaking in Beijing last week. "But now the calculus has changed. For us to import from China, the price has to be 25% more competitive which is impossible." Going forward, some of the orders that would have gone to China will go back to the U.S., he adds.
On the surface, the bullying tactics of the administration of U.S. President Donald Trump appear to be effective, as corporate executives redo their calculations and shift their sourcing. But what appears to be a temporary victory is in fact both costly and counter-productive, likely to hurt other countries as least as much as China and distort resource allocation globally.
The Trump administration's latest measures are only partly about trade and unhappiness with the rules that govern trade relations between it and the rest of the world; rules which no longer seem to be supportive of growth at home. They also reflect the angst of a country that senses its status in the world is being challenged. These measures have as much to do with geopolitics as with trade. The Trump stance is also about differing ideologies and the recognition that previous assumptions that China would come to resemble the U.S. with free market economics and more democratic politics have proved erroneous. The administration itself says its actions are taken in the name of national security.
Yet some of the targets and causes of the Administration's concern are quite puzzling.
The steel tariffs are only part of the picture. Imposed alongside a 10% levy on aluminum imports, they are being imposed globally, not just on China, with key American allies, including EU states and Japan also hit. This might make sense commercially since key metal products - such as pipes and rods - are easily sourced in different countries, so sanctions against China alone would leave Chinese producers in a position to switch to other markets, while producers in, say, Japan, filled the gap in the U.S. But politically, hitting close political partners at a time of global tension makes little sense.
Meanwhile, making clear that China remains the prime target, Trump is also proposing 25% tariffs on a wide range of Chinese products ranging from robots to snowblowers. From a macro point of view these measures will barely register in China itself. The $50 billion worth of imports affected by the measures which are expected to come into force in late June amount to just 2.5% of the mainland's global exports.
But the decision to go ahead with tariffs has nevertheless succeeded in demonstrating that China does have certain vulnerabilities.
For example, the mainland depends on the U.S. for some of the high tech components that are essential to many of its tech companies. Even as the U.S. aims to turn the clock back and live in a self-sufficient world, the effect of the policy will be to force China to embrace the self-sufficiency it criticizes China for by threatening to withhold the high-tech inputs of electronic parts such as high-end semiconductors.
In response China has been striking a more conciliatory tone with its neighbors in South Korea precisely because two of the most important high-end chip makers, Hynix and Samsung, are domiciled there. But in the long run, China will simply be incentivised to allocate ever more resources to moving up the semiconductor value-added chain itself.
In addition, if China does chose to respond in a tit for tat fashion, it has powerful potential leverage. A wide swath of American corporate icons from General Motors to Starbucks depend on China as either their most or second most profitable market in the world. By contrast, no single Chinese company depends on the U.S. market to the same extent.
Meanwhile the great Chinese global electronics supply chain is especially dependent on companies based in Japan, Singapore South Korea and Taiwan-the closest Asian allies of the U.S. -- according to research from ANZ. They are likely to be collateral damage in any escalation of the trade tensions.
And finally, if China does accede to demands to import more from the US, that means importing less from elsewhere, which will further damage countries once friendly to the US. Chinese imports of soybeans from the U.S. Midwest means less business for Brazil, while demand for U.S. machinery and equipment will divert orders that in the past went to Japan and Korea.
So far China has been restrained in its response to the Trump measures. But that may soon change, especially if the Trump administration goes after telecoms equipment maker Huawei, one of China's national champions. Part of the righteous anger of Trump officials comes from the actions of another telecoms firm, ZTE, which has shown scant regard for the promises it made to the U.S. in order to source the high tech parts it needs from the U.S. Many Chinese say they consider ZTE foolish and irresponsible. But Huawei is another matter.
Given that this is an administration that doesn't speak with one voice, there could be a reversal of policies at any time. But business leaders cannot count on that. Their decision-making is all about reducing uncertainty and planning for the worst. "We have to look elsewhere even if these measures ultimately are not implemented," says the Beijing steel executive.
Henny Sender is the Financial Times' chief correspondent for international finance, based in Hong Kong, and contributes occasional columns to the Nikkei Asian Review. She has extensive experience of covering international finance.