US, China should seek a consensus to avoid further economic damage

Donald Trump’s 'Make America Great Again' policies are a tacit acknowledgement of the erosion of American exceptionalism. It is obvious to the perspicacious that the USA is in the throes of a decline in numerous aspects, including ascendancy in trade. Trump, making good on his pre-election promise to put “America First,” seeks to reverse this state of affairs.

Trump has instituted reciprocal tariffs with America’s trading partners. Starting with a baseline of 10 per cent, he has levied taxes on all goods coming into the US from foreign countries with China bearing the brunt of such taxes at 145 percent. This has precipitated a vicious tit-for-tat spat.

A video clip featuring a Chinese national attributes America’s decline to “a hollowed out middle-class, a crashed working class, and a future sold for profits” for the benefit of American oligarchs. These oligarchs are blamed for outsourcing American manufacturing to much cheaper jurisdictions.

But China is not without some blame. Trump’s trade advisor Peter Navarro has previously spoken about exploitative trade practices. In researching on how China was able to price products more cheaply than the rest of the world, his key finding was that, “it wasn’t just cheap labour driving prices, but a suite of predatory practices including import subsidies, currency manipulation and a lack of protections for workers and the environment.”

Tit-for-tat tariffs are inimical to both China and the US. Nowhere is this clearer than in the aviation industry. China’s retaliatory 125 per cent tariff on US goods means aircraft deliveries and the supply of components become too expensive to make commercial sense for the Chinese airlines. An article in The Guardian Weekly says, “China’s government has asked Chinese airlines to pause purchases of aircraft-related equipment and parts from American companies like Boeing.” The article further says, “a Chinese airline taking delivery of Boeing jets could be crippled by the tariffs” and that “Beijing is reportedly considering ways to support airlines that lease Boeing jets and are facing higher costs.”

It is instructive to note that China has stopped the delivery of planes and parts from America. It has not cancelled its orders. Nor can it afford to at this point. The commercial airline industry is a “duopoly” of Boeing and Airbus. Open positions are marketed to all airlines on a first come, first served basis. Should Chinese airlines cancel their orders, these aircraft positions would come up for sale in an industry where demand far outstrips supply.

State-owned Commercial Aircraft Corporation of China (Comac) is building aircraft to compete with both Boeing and Airbus. However, only one Comac variant has been successfully certified for use. Even then, only in Asian airspace as it is yet to receive certification from the Federal Aviation Administration of the US and the European Union Aviation and Safety Agency. Without these, Comac is precluded from flying into the US and Europe. In addition, Comac uses engines and avionics from the US, meaning it still can’t escape the scourge of reciprocal tariffs.

Trump’s revanchist vision is an attempt to curb American dependence on imports and force factories back to the US. But he must come to an understanding with China on a more structured pullback that obviates damage to the world’s two biggest economies.

Mr Khafafa is a public policy analyst