Targeted tariffs on Chinese imports and action against China’s currency policy, are likely under the Trump administration, according to the Top of Mind report from Goldman Sachs (GS) Global Macro Research dated February 6. They note that President Trump has been remarkably consistent on trade, arguing since the 1980s that the U.S. routinely has been victimized by a series of bad trade deals. Back then, Japan was Trump’s chief target. Today, it’s China.

Biggest Bilateral Deficits

Analysis by Goldman of U.S. government data indicates that the U.S. ran a trade deficit of about $150 billion with China in computers alone in 2014, the biggest bilateral deficit with any country, in any category. In apparel, electrical equipment and miscellaneous manufactured goods, the deficits with China were around $50 billion each.

Blanket Tariffs Unlikely

Claire Reade, former Assistant U.S. Trade Representative for China Affairs (2010-14) was interviewed by Goldman, along with Tu Xinquan, dean and professor at the China Institute for WTO Studies at the University of International Business and Economics in Beijing.

Trump’s ultimate goal, Claire Reade says, has to be getting changes in Chinese policy that benefit U.S. products, services and jobs. Trump has proposed an across-the-board 45% tariff on imports from China, but she thinks this is unlikely, and would spark retaliation that ultimately would be harmful to the U.S. and global economies.

Moreover, Reade can think of no precedent in U.S. history for targeting a single nation in this way solely for commercial reasons. In any case, the imposition of tariffs normally requires legislation from Congress, though Congress has ceded limited authority to the president to impose tariffs in exceptional circumstances.

Tu Xinquan points out that China is a World Trade Organization (WTO) member. It also has most favored nation (MFN) trading status, meaning that the U.S. has pledged to impose tariffs on its exports that are no higher than those from other MFN trading partners. Revoking MFN status would be a drastic, and openly hostile move.

Analysts at Goldman advise that Trump should be careful about imposing trade restrictions that will harm U.S. manufacturers by cutting off supplies of critical imported parts, or by dramatically increasing their costs. For computers and related products, to take one example, China accounts for 16% of value added, and other Asian nations for 21%. (See also: China Threatens U.S. Imports Will Fall If Trump Imposes Tariffs.)

Quick Wins for Trump

To get some "quick wins," Trump is more likely to move against Chinese industries where government subsidies have created huge overproduction and trade distortions, Reade says. Here Trump can invoke anti-dumping agreements, impose countervailing duties and bring cases against China to the WTO. Reade mentions steel, aluminum, glass and solar as likely targets. Goldman also mentions chemicals and all basic metals

Tu Xinquan points out that the WTO does not prohibit government subsidies, and these are common in the U.S. Just look at the deals that states offer to attract investment, he says. He could have included Trump's own post-election deal with Carrier. Additionally, he believes that China would be more efficient and competitive without state-owned enterprises. (For more, see also: A Closer Look at Trump's Deal With Carrier.)

On the campaign trail, Trump frequently attacked China a currency manipulator. This is so, but Reade points out that their recent actions have been to strengthen the yuan​, a result that Trump wants. As a result, he has no reason to press this issue right now.

As a non-tariff approach to closing the trade deficit with China, Goldman suggests that Trump pursue agreements over the protection of U.S. intellectual property, as well other measures that would stimulate exports of services from the U.S. to China. 

China Not Easily Bullied

As for Trump's confrontational style, in evidence with his recent threats about imposing tariffs on Mexico, Claire Reade is not so sure that this will work with China. In fact, his relative silence on China since Inauguration Day may be evidence that he realizes this, as well appreciating how much higher the stakes are, making him more cautious than usual. Moreover, Reade notes, China's leaders can endure the ill effects of a trade war longer than the U.S. since they are a totalitarian regime not answerable to a voting public. (For more, see also: How the Two Faces of Trump are Shaking the Market.)

Tu Xinquan agrees that China is not likely to be coerced into trade concessions. The situation between the U.S. and Japan in the 1980s was very different, largely since Japan is a political and military ally, dependent on the U.S. for protection, and China is not. Also, multinationals based in many other countries have manufacturing plants in China. Restrictions against Chinese exports would have damaging impacts on global supply chains. This was not the case with Japan in the 1980s.

Damage From TPP Exit

Claire Reade says that exiting the Trans-Pacific Partnership (TPP) creates reputational problems for the U.S., sending the message that it is not reliable. China was happy over this decision by Trump, which gives them more leverage over Asia-Pacific trade. However, she does not believe that China can take on the market and regulatory disciplines inherent in the TPP, so the deals that they broker are not likely to be as strong.