What are the ripple effects of a U.S.-China trade war?

JUDY WOODRUFF: The world’s two largest economies
have moved beyond rhetoric and threats to a trade war. Both the U.S. and China launched new tariffs
against each other today. The Trump administration imposed its new fees
on Chinese goods at midnight. China retaliated immediately. Amna Nawaz looks at the strategies of both
sides and the potential consequences. AMNA NAWAZ: President Trump set into motion
25 percent tariffs on more than 800 Chinese imported goods, including aircraft engines,
industrial machinery and parts for electronics, to name just a few. Now, China hit back with tariffs of its own
on more than 500 U.S.-made goods, some of which target areas of the country that voted
heavily for Mr. Trump. That includes exports like soybeans, pork
and corn. Let’s break down how both sides are positioning
themselves, and where the impact of the tariffs will be felt first. David Honig is an attorney who teaches negotiations
at Indiana University. And Yasheng Huang is a professor who studies
the Chinese economy and global business at the MIT Sloan School of Management. Thank you both for being here. David Honig, I want to start with you. Talk to me about the negotiating style that
we have seen so far with President Trump. You break them down into a couple of categories. One is called distributive bargaining. That’s what we’re seeing here. What does that mean? DAVID HONIG, Indiana University: Distributive
bargaining is really exactly what it sounds like. The people in the negotiation are simply deciding
how they’re going to distribute a limited pool. And, otherwise, they have no interests in
common. They’re just trying to figure out who gets
more slices of the pie or how much a cabinet-maker is going to get paid off his invoice for the
person who put cabinets in a casino. AMNA NAWAZ: And the flip side of that is integrated
bargaining. How are the two different? DAVID HONIG: Integrative bargaining is everything
else. Integrative bargaining exists when there is
not a complete lack of interest between the two, where they may be able to help each other,
where there may be a future relationship, where they may be able to hurt each other,
or where they simply may be back at the negotiation table another time. AMNA NAWAZ: So, make this real for me in the
context we’re talking about. When we’re talking about a trade war with
China, what have we seen from President Trump that speaks to you about distributive bargaining? DAVID HONIG: Well, what I have seen from the
president is treating just about every negotiation as something that is distributive. It’s complete win-lose. It is take it or leave it, without the appearance
at least of a recognition that we’re going to come back to the table another time and
that we have mutual interests. AMNA NAWAZ: Professor Huang, let’s talk about
the flip side of this now. We see where President Trump seems to be coming
from in negotiating style and tactics. From what we have seen from China’s action
and response, what seems to be their strategy to the trade war? YASHENG HUANG, MIT Sloan School of Management:
I think their strategy is the integrated bargaining, as Mr. Honig described. They did signal that they wanted to reach
an agreement with the Trump administration. First, they talked about making concessions
on the trade front, buying more goods from the United States to narrow the trade imbalances
between the two countries. Then they actually took the step of lowering
tariffs on goods critical to American companies, automobiles, and trucks and the whole range
of products. They also at least signaled that they were
willing to talk about I.P. issues, intellectual property rights issues, the entry by the foreign
firms in the Chinese market, financial sector, and other issue areas. But they didn’t get a positive response from
the Trump administration, precisely because the strategy pursued by the Trump administration
is kind of a take it or leave it. That doesn’t really leave the Chinese with
much room to maneuver. AMNA NAWAZ: David Honig, now that we are where
we are, in the sort of tit-for-tat with tariffs, talk about the ripple effects. The U.S. imposes tariffs, it leads the Chinese
tariffs, just with soybeans as an example, right? Now, China, we know, has canceled those soybean
orders. They are nearly a third of the entire soybean
crop purchasing power there. That’s a big hit to the U.S. economy. What next? Where does the ripple effect go from there? DAVID HONIG: It is a big hit, and it shows
the danger of treating something that’s distributive that truly isn’t. So what we see is, we not only see damage
to American farmers, because they’re not able to sell their soybeans, but what happened
next is, China bought their soybeans from Russia, they tripled their purchases from
Russia. The ripple effect beyond that is not only
is Russia now buying selling soybeans — selling soybeans, and American farmers are losing
them, but Russia is now getting hard currency. So if you go outside trade and look at America’s
ability to project its power, now sanctions are going to be less effective, because our
sanctions addressed at Russia go to limiting their availability for hard currency, and
we put them in a situation where they can get more of that from China. AMNA NAWAZ: Professor Huang, you seemed to
be saying earlier that the two sides are coming at it with very different approaches. But, look, President Trump is basically he’s
doing what he promised he would do. He’s taking that tough style of bargaining
and applying it to what has been an uneven relationship in the past, right, when it comes
to the U.S. and China trade balance there. If nothing has worked to even it out before,
maybe could this work now? YASHENG HUANG: Well, I disagree with the view
that the trade imbalance, in and of itself, is about uneven relationship between the two
countries. The trade imbalance is driven by deep structural
economic factors within these two countries. One country has a very high savings rate. The other country has a lower savings rate. But I do want to make it clear that there
are objective problems between China and the United States. I will view I.P. as an issue, entry of foreign
firms into a Chinese market as another legitimate issue. The problem that I have with the Trump administration
is not so much that they invoke trade war as a tactic to get the Chinese to come to
the negotiating table. The problem I have is that they are now presumed
as an end in and of itself. And that’s very reckless. To escalate the trade war is going to be bad
for the Chinese economy, for sure, but it’s also going to be bad for the U.S. economy,
because much of the consumption in this country is produced by Chinese companies. A lot of the components sourced by U.S. companies
are produced by Chinese companies. It’s going to have a huge ripple effect on
the U.S. economy as well. So it’s OK to threaten China with a trade
war, but to actually use it is reckless. AMNA NAWAZ: David Honig, now that they are
actually using it, where is the off-ramp? How does this end? DAVID HONIG: I don’t know. I’m not sure that they have anticipated an
off-ramp. The same thing happened when they shut down
the agreement with Iran and told everybody, OK, stop buying oil as of November 1, and
all of the countries said, we can’t, we can’t replace it yet. And, this week, the U.S. State Department
said, OK, well, go ahead and keep buying oil, because they didn’t anticipate an off-ramp. So I don’t know where we get off. And I think that’s why some of us who observe
negotiations and certainly Professor Huang, whose expertise is much deeper in China and
trade, are concerned. AMNA NAWAZ: Professors David Honig and Yasheng
Huang, thank you for your time. DAVID HONIG: Thank you. YASHENG HUANG: Thank you.

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