NOEL KING, HOST:
Markets in Asia were rattled today after the latest threat in the U.S.-China trade dispute. Now, that threat comes from the United States. The Trump administration says it's considering raising tariffs on $200 billion worth of Chinese goods. It is considering a 25 percent tax on those goods. It had originally planned 10 percent. Now, the U.S. trade representative says this move is intended to provide the administration with additional options to encourage China to change its, quote, "harmful policies." A spokesperson for China's foreign ministry urged the Trump administration to return to rationality.
I'm joined now by Derek Scissors. He's a China scholar at the American Enterprise Institute, and he occasionally consults with the Trump administration on trade matters. Good morning, Derek.
DEREK SCISSORS: Good morning.
KING: All right. Tariffs on a huge chunk of goods could be raised from 10 percent to 25 percent. Why is the administration making this threat? And why is it making it right now?
SCISSORS: Well, that - those are - it's well said because they're making the threat in general because the president wants to reduce the bilateral trade deficit with China. That's always been his overarching goal - during the campaign; really, going back decades. Now, why they're making it right now is a slightly different story.
In the past six months, especially in the past two months, China has allowed its currency, the renminbi, to depreciate. It's depreciated a total of 8 percent since the spring. If you're going to apply 10 percent tariffs and their currency is getting 8 percent cheaper, you've lost most of the effect of the 10 percent tariffs. So you need the option to go to 25 percent, one, to really apply the tariffs but also to signal the Chinese that their depreciation strategy isn't going to work.
KING: Because the idea is to make Chinese goods coming into the United States more expensive. And if China fiddles with its currency, which it does from time to time, it could make it so those goods coming into the U.S. are not, in fact, more expensive.
SCISSORS: Exactly. So we're already - again, we haven't applied the 10 percent tariffs yet.
KING: Right.
SCISSORS: We were thinking about applying them in September. We could find ourselves in September, and China's depreciation of its currency is more than 10 percent. So we're trying to make the goods more expensive with a 10 percent tariff, and they've made them more than 10 percent less expensive even before we started. The administration would realize it would then get criticized as wasting everyone's time with that tariff.
KING: True.
SCISSORS: They want to have an option to go higher.
KING: So a sign that China obviously is responding to what the U.S. is doing - do you think that this threat of 25 percent is realistic? Or is it just so that the U.S. can have some leverage with China?
SCISSORS: Oh, I think it's realistic.
KING: Yeah.
SCISSORS: The president has tweeted and said many times that he loves tariffs. He's not - doesn't have a lot of company in that regard, but I think it's an honest opinion of his. I think the U.S. government as a whole - Ambassador Lighthizer and others - would like flexibility. In other words, people are treating this like it's either 10 percent or 25 percent for the whole 200 billion. But let's take cellphones. Cellphones are the biggest part of U.S. imports from China. We could decide we really don't want to put a 25 percent tariff on cellphones because people will be upset.
KING: Yeah. Americans will be upset.
SCISSORS: Exactly. But textile products - we have a lot of other producers we could get textile products for - clothing, shoes, etc. We can put a 25 percent tariff on a lot of Chinese textile products. So what the move yesterday allows the United States to do is chop up that 200 billion whatever way it wants. This can be zero. This can be 10 percent. This can be 25 percent. Cellphones are sensitive. Maybe they're at zero to 10 percent. Clothing - less sensitive because we can get it elsewhere - that could be at 25.
KING: Let me ask you something. The Trump administration has already had to take action to subsidize U.S. farmers, to the tune of around $12 billion, who have been caught up in this trade war. I mean, is the U.S. - is this administration just causing us economic pain?
SCISSORS: Well, there is some economic pain. I think - you know, I've long been a critic of Chinese economic practices and wanted the U.S. to change policy. This is not the way I would go. But no matter what you did - if you took the most brilliant response to China that you could find, there's going to be some economic pain because, for example, soybean farmers - they can't export as much to any place else as they can to China.
So if you want to change the economic relationship, the Chinese aren't going to go along with it. And they're going to retaliate, which means some Americans are going to feel some pain. I think it's worth it because I don't like our economic relationship with China, and I want it to change. But even - you know, whether you agree or disagree, there's no doubt some Americans are going to be hurt in the process.
KING: And some Chinese, to be fair, will be hurt as well. How much economic pain can China endure? Is this hitting them hard?
SCISSORS: It's not doing so yet. You know, there tends to be an exaggeration of how fast these things work. All the U.S. has done so far is put 25 percent tariffs on $34 billion of Chinese exports to the United States. China reported GDP last year of 12 trillion. So what the U.S. has done so far doesn't really matter. But there is a lot of concern in China exactly about what we're talking about, that instead of a 10 percent tariff, it's a 25 percent tariff.
KING: Yeah.
SCISSORS: The president has said, I'll put tariffs on all Chinese goods, not even - 200 billion is already big enough. But he'll go to 500 billion. So what you have in China is a lot of concern about where this is going. They don't really - not really feeling a lot of pain today. They're worried about feeling, you know, a great deal of pain six months from now or a year.
KING: You say you would not use the tariff strategy yourself. In the couple seconds we have remaining, what do you think the administration should do to change our economic relationship with China for the better?
SCISSORS: Yeah. I mean, I do think we have to push the Chinese. They're not going to change it for the better. They like the way things are now. I would target very large Chinese state-owned enterprises. We did that for a national security reason in April when we targeted ZTE, the Chinese telecom company. We can do it for economic reasons on a much broader scale. We can target their energy companies, their construction companies and so on.
KING: Derek Scissors is a China scholar at the American Enterprise Institute. Thanks, Derek.
SCISSORS: Thank you. Transcript provided by NPR, Copyright NPR.
