4th Sept 2017
Next to the risk of imminent nuclear war, Donald Trump’s threat to end trade with China seems far lower on the list of things to be worried about.
But here’s why the US President’s threat, which he made following North Korea’s biggest nuclear test to date, would be disastrous if it was acted upon.
Trump made the threat in a tweet this morning
This is what he wrote:
Earlier, US Treasury Secretary Steve Mnuchin said he would ask Mr Trump to strongly consider cutting off all North Korean trade with new sanctions.
“If countries want to do business with the United States, they obviously will be working with our allies and others to cut off North Korea economically,” he told Fox News.
The White House is pointing the finger at China
It’s at the top of the list of North Korea’s trade partners, by a distance — it’s responsible for more than 80 per cent of North Korean exports and imports.
It’s not the first time he’s threatened a trade war against China, either. He has previously threatened to impose high import tariffs on Chinese goods as part of his promise to bring industry back to America.
Russia, which has its own land border with North Korea, also sharply increased trade with that country at the start of the year.
Other countries that do trade with North Korea are India, Pakistan, Saudi Arabia, France, Mexico, Brazil and Chile.
If the US followed through, the consequences would be disastrous
According to data from the US Government, the trade in goods between China and America alone last year totalled $US578.6 billion ($726 billion). The trade in services between the countries was worth $US69.6 billion ($87 billion).
So we’re talking about well over half a trillion dollars in trade every year.
A collapse in that trade relationship could lead to a global recession. And Australia would be hit hard, because China and the United States are our own two biggest trade partners.
Earlier this year, ABC business reporter David Taylor wrote that a trade war between China and America was the single biggest economic threat to Australia.
But experts say it’s not going to happen
Matthew Goodman, a trade expert at the Washington’s Centre for International and Strategic Studies, said Mr Trump’s suggestion was not viable because it would mean the US would cut off trade with not just China, but France, India and Mexico too.
“The notion of stopping ‘all trade’ with anyone who does business with North Korea is absurd,” he said.
Mike Murphy, editor of Marketwatch.com, wrote that it was a bluff:
“Simply cutting off trade with all those countries would be virtually impossible, economically catastrophic for the US and could potentially trigger a global recession.”
Why doesn’t China just nip all this in the bud and do more to stop its neighbour?
China’s big fear has always been that cutting North Korea off completely could lead to its collapse.
If that happened, a huge wave of refugees — North Korea has an estimated 25 million citizens — would head for the Chinese border.
But China also has a number of other concerns:
- It doubts further economic sanctions will work (because they haven’t worked so far)
- It says it’s not its sole responsibility to rein in Pyongyang
- It says America and South Korea’s own military drills have done nothing to cool tensions
Ruan Zongze, a former Chinese diplomat who works for a think tank affiliated with the Foreign Ministry, had this to say:
“The United States has to play its own role and should not be blindly putting pressure on China to try and squeeze North Korea.”
However, he said the seriousness of Sunday’s nuclear test meant China would likely support tough new action, including possibly cutting off oil supplies.
China has strongly condemned the latest nuclear test and urged Pyongyang to stop its “wrong” actions.