How North Korea Explains Trump's Trade Policy

Since the 2016 campaign trail, President Donald Trump has summarized his foreign policy initiative in two words: America first. At the forefront of Trump’s economic policy and global security initiatives lie the United States’ relations with China.

Since announcing his run for the presidency,Trump has taken aim at China’s trade practices.Trump accused the People's Republic of China (PRC) of devaluing its currency, dumping exports into the United States, and taking away American jobs. Acknowledging the China-US. trade deficit and vowing to put America back on an equal playing field,Trump has stated that he “will take very, very strong action” against nations who take advantage of the American economy. Throughout the year, we saw the Trump administration take aim at the Chinese through attempting to label China as a currency manipulator and pushing for higher tariffs on Chinese imports.

Throughout his presidential campaign,Trump insisted that the Chinese central bank was devaluing its currency to attract foreign investment and gain trade advantages. A few years ago, this was true—the impression was based on the fact that from 2005 to 2015, the People’s Bank of China (PBC) was constantly intervening to keep the value of its currency, the yuan, low. The Chinese government was buying foreign currencies, mostly the US dollar, to hold in reserve which would raise their value against the yuan. In 2014 the PBC held nearly $4 trillion in foreign reserves; in comparison, this amount is more than Germany’s GDP in 2014. In addition to formally lowering the exchange rate of the yuan in 2015, the PBC was able to artificially keep its currency below market value, producing a more attractive currency for investment—Chinese products to the United States became cheaper while American products to China became more expensive. However,Trump is late to the party because China is no longer devaluing the yuan. In fact, currently, the Chinese government is boosting the value of its currency. In 2016, the yuan dropped nearly 7 percent against the US dollar as the PBC spent $279 billion (USD value) to buy back its own currency aimed at slowing the yuan’s current depreciation.

Although his initial claim was outdated and eventually reneged,Trump’s proposition held some weight; the damage from China’s monetary strategy had taken a toll. Benefits from the rates of foreign exchange and government subsidies had given Chinese corporations an upper hand in cost efficiency over global competitors, distorting not only US industries, but also the global markets. For example, the highest US trade deficit with China was posted at $367 billion in 2015 and China’s highest international trade surplus was achieved in 2007 having a surplus of 10.1 percent of its 2007 gross domestic product. In response, the Trump administration had looked to impose tariffs on Chinese imports to the United States, serving as a two-pronged initiative aimed at protecting domestic industries and forcing Beijing to stand stronger against Kim Jong-un’s nuclear weapons program.

Directly taking aim at Sino-US trade inequalities,Trump has blamed the dumping practices of Chinese competitors for the decline of the United States’ steel industry. The administration has since backed such rhetoric with a wave of federal investigations and tariffs. In April 2017, the Trump administration launched an investigation into whether Chinese aluminum imports are damaging the US steel and aluminum industry. Last August, Trump followed up with the authorization of a probe into alleged intellectual property theft, stating projected losses up to $300 billion. Pin-wheeling off Obama administration duty of over 500 percent on Chinese cold-rolled steel, the administration handed the same tariff over to Vietnam—cold-rolled steel is used to make appliances, automobiles, and electric motors. The duty was aimed at preventing Chinese firms from circumventing domestic export duties through selling steel to Vietnamese manufacturers, who would, in turn, export to US consumers at a cheaper rate. In an ensuing direct measure, primarily targeting Chinese imports, Donald Trump announced a 30 percent tariff on imported solar panels and a tariff of up to 50 percent on imported washing machines after the US International Trade Commission found evidence of harm caused to the domestic industry.

The actions towards Chinese imports were, more importantly, indicative of the Trump administration’s reluctancy to press China as much as they had initially hoped. Signaled mostly by rhetoric and federal investigations, the administration had largely held off on taking drastic trade measures to avoid both a trade war with the Chinese and the souring of relations, hoping to leave room for Beijing and Washington to come to equal terms on how to deal with Pyongyang. However, the Chinese did not receive the message.

In the midst of North Korean sanctions levied by the UN Security Council, between January and June of 2017, China-North Korea trade collectively increased 10.5 percent, including a nearly 30 percent hike in Chinese exports. China’s General Administration of Customs spokesperson, Huang Songping, explained, "UN Security Council sanctions are not a total ban on shipments. Trade related to DPRK people's livelihood, especially those that reflect humanitarianism should not be influenced by the sanctions.” Giving Washington a little of what they wanted to hear, the Chinese announced in September 2017 that they would ban the export of textiles, some petroleum products, natural gas, and would force all North Korean businesses to close by January of 2018. Despite the UN security council capping the DPRK’s crude and refined petroleum products at five hundred thousand and four million respectively, and to Washington’s distaste, Chinese companies continue to export banned fossil fuels. Since October of 2017, US spy satellites have detected about thirty instances of Chinese vessels transferring oil to North Korean tankers.

Evidenced by the evolving rhetoric of the Trump administration as they have attempted to get “tough on China,” diplomatic initiatives have proved to be more difficult than initially alluded to on the campaign trail. As arguably the most challenging problem inherited by the Trump administration, de-escalation on the Korean peninsula emerges as the underlying top priority, even when looking at Sino-US relations in terms of trade. Although industries and subsequent competition are continually evolving, forTrump, challenging Chinese trade practices, particularly in the United States., appears to be the most obvious method of forcing China’s cooperation in restricting North Korea’s abilities to develop nuclear ICBMs. The only problem is Washington and Beijing's ability to see eye to eye. Reluctant to fully adhere to international outcry and sanctions on North Korea, China remains Pyongyang’s main source of food and energy. In the eyes of the PRC, a crippling North Korean regime change tops the fear of a developing nuclear weapons program. China already has a North Korean refugee problem, any further destabilization could prove to be a major issue for the PRC who also is already dealing with poverty and overpopulation amongst its own citizens. As witnessed by the Trump administration, carefully nudging Beijing to take a stand against the DPRK has landed Washington nowhere in its attempts to stop Kim Jong-un. Washington is now left with the decision to fully commit to either targeting Chinese exports or ramp up the sanctions on North Korea.

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