Potential Trade war Under Trump Administration

       

China, the world's second-largest economy, is already capitalizing on the U.S. Congress' failure to vote on a Trans-Pacific trade deal. It has announced plans to propose a rival trade pact at the Asia-Pacific Economic Cooperation CEO Summit in Peru that would create a Beijing-led regional trade zone in Southeast Asia excluding the United States.

"If we don't take the lead in writing the rules for the economy of East Asia, the Chinese will, and we are not going to like the outcome," said Bill Galston, a senior fellow at the nonpartisan Brookings Institution, referring to President Barack Obama's argument for creating a level playing field for Pacific trade.

Trump, who once called China "a cheat" and a currency manipulator, has threatened to raise tariffs on Chinese-made goods by 45 percent to correct the trade deficit between the two countries. Beijing responded quickly with its own threats, raising the possibility of an all-out trade war. Galston said the possibility of a damaging trade war has never been higher, and he outlined a number of options China could take.

"To start, they could cancel the orders they placed with Boeing and redirect those orders to Airbus, and that would have a large effect on the economy of the Pacific Northwest," he said.

Beijing could also impose tougher regulations on companies that do business in China, or severely limit iPhone sales, for example, to Chinese customers.

"The idea that this is a one-way street, that we can threaten China and China can't threaten us back, I think, is too simple," Galston said.

If a trade war were to break out, Galston said, there would be no winners. However, given the asymmetry between Chinese exports to the U.S. and American exports to China, Galston said Trump might be gambling that both sides would have enough to lose to come to the table to work things out.