Superpower Showdown by Davis Bob & Wei Lingling

Author:Davis, Bob & Wei, Lingling [Davis, Bob]
Language: eng
Format: azw3
Publisher: Harper Business
Published: 2020-06-08T16:00:00+00:00

For Savannah Luggage Works in Vidalia, Georgia, one of the few remaining American luggage makers, the impact of the tariffs4 was devastating. Savannah produces luggage for brand-name companies that want Made-in-America products. The wheels, hand assemblies, and plastic parts Savannah used came from China, where nearly all American luggage makers had moved their factories. After these components were hit by tariffs—or simply threatened with tariffs—Savannah’s biggest luggage customer dropped the firm in the summer of 2018.

“They needed a certain margin,” says Allen Rice, the company’s president. “Once the tariffs came in, they couldn’t get the margin.” Savannah leased out one of its three factory buildings that it no longer needed.

China’s retaliatory tariffs also hit hard, especially in farm states. Soybean prices dropped 20 percent as sales to China fell by more than 90 percent after the tariff decision. Pork sales also fell sharply. In Minnesota, soybean and corn farmer Keith Schrader said in July that depressed prices had soured his outlook at his 5,000-acre operation. “When the trade stuff hit—boom—we went back to unprofitability,” Schrader said.5

Trump looked to cushion the blow for his farm state supporters with a $12 billion program of farm payments, which the Agriculture Department calculated would equal the impact of the Chinese tariffs. However, the United States had no answer for other forms of Chinese retaliation.

China’s antitrust regulator delayed for so long its approval of Qualcomm Inc.’s planned $44 billion purchase of Dutch company NXP Semiconductors NV—a deal widely seen as critical for the U.S. chip maker—that the acquisition fell apart. In late May, when trade talks between the United States and China looked promising, the Chinese regulator hinted it was ready to wrap up the review and clear the transaction. But after the United States imposed tariffs, President Xi expressed reservations about approving the deal for fear the combined company would be too tough a competitor for Chinese firms. Xi didn’t return Trump’s favor when the president took political heat for sparing China’s ZTE Corporation from a death sentence.

“No U.S.-related deal could be cleared without approval from the higher-up,” a Chinese official says.

By the summer of 2018, some lessons should have been clear to Beijing, though China’s leaders still didn’t seem to get the message. The road to a deal with Trump led through Lighthizer, not Mnuchin, whom Trump and his trade guru Lou Dobbs saw as soft on China. Trump saw little reason to back away from his tariff strategy, which was hurting the Chinese economy, but hadn’t so far frightened U.S. markets. The Dow Jones Industrial Average rose 1,500 points in the two months following the July 6 imposition of tariffs.

And China could no longer count on its U.S. business allies to be effective lobbyists in the White House on trade issues. Trade groups formed coalitions to halt the tariffs and failed. The most they received was a pledge by the trade representative to hold hearings on the impact of tariffs, which gave businesses the chance to state their case. Lighthizer, a careful lawyer who fretted about the trade offensive being overturned in U.

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