President Donald Trump appears determined to win his trade fight with China by his own definition of winning, even if it means the rest of us lose.
On Thursday, Trump instructed trade officials to explore imposing another $100 billion in tariffs on China on top of the $50 billion he authorized earlier this week, threatening to further escalate his dispute with Beijing.
Trump was reacting to what he called “unfair retaliation” by the Chinese against his latest round of tariffs — a reference to their plan, announced Wednesday, to tax 106 American exports also worth about $50 billion, including soybeans, automobiles, airplane parts, and chemicals.
None of these tariffs have gone into effect, and if the underlying disputes are resolved in time, it’s possible they never will. But the rapidly escalating exchange of threats between the U.S. and China has sent markets into panic mode, fearful of a full-on trade war between the world’s two largest economies. It’s also making Republicans apprehensive about explaining to midwestern farmers and auto workers why they’ve suddenly lost so much business.
To take Trump at his tweeted word, the president believes the U.S. “can’t lose” a trade war with China because of our sizable trade deficit. In the zero-sum, you-lose-I-win framework through which Trump appears to understand international relations, this is vaguely correct: We buy more goods from China than China buys from us, so China has more income to lose in a trade war.
This calculus, however, disregards both basic economics and the real impact such a trade war would have on the U.S. economy and the American people.
Trade deficits are not inherently bad — a fact Trump has repeatedly proven he does not understand. A deficit doesn’t mean we’re “losing to China on trade,” as he likes to put it. For one thing, many of the manufactured goods we import from China are merely assembled there from components made elsewhere, meaning most of the value of those products is added somewhere else. The fully globalized nature of the contemporary economy renders the concept of bilateral trade deficits almost meaningless. Furthermore, as Paul Krugman points out, China doesn’t even run big trade surpluses anymore, so even by Trump’s own faulty metric, it’s not clear China is “winning.”
For another thing, that trade deficit is what pays for all the cheap consumer goods to which Americans have become accustomed, and which have raised our standard of living even as our incomes have stagnated. Jacking up the price of imports for both companies and consumers is effectively a marginal tax hike on all of us — and if these tariffs are finally enacted, Democratic candidates should memorize that fact in preparation for November.
Trump may think that it counts as “winning” if China suffers more than we do, but voters are unlikely to see it that way. As Toby Ziegler one famously mansplained, thanks to free trade, “Food is cheaper. Clothes are cheaper, steel is cheaper, cars are cheaper, phone service is cheaper.” Make Everything Expensive Again doesn’t have much of a ring to it, as campaign slogans go.
For its part, China isn’t sweating the prospect of a trade war with the U.S. nearly as much as Trump would probably like. While the Chinese economy is hardly impervious to American pressure, the much larger economic role of the state gives President Xi Jinping more levers with which to counteract the negative impact of U.S. tariffs. He also has less to fear in terms of political consequences or press criticism (an authoritarian feature Trump covets).
Though Xi may have fewer cards to play in this game than Trump, he is playing them cannily. It is not lost on him that agriculture and certain manufacturing industries are powerful political lobbies in the U.S. and that workers in these industries make up an important component of Trump’s base, and it’s no accident that Wednesday’s threat from Beijing targets goods produced in America’s domestic political battlegrounds.
China also has other, less conventional methods at its disposal for harming the U.S. economically if it feels compelled to. It could crack down on joint ventures and make it much harder for American companies to manufacture and sell goods in China, or go for the “nuclear option” of dumping its sizable hoard of U.S. Treasury bills and messing with the U.S. bond market, thereby causing a spike in interest rates. These moves would be costly for China, too, but Xi has already indicated that he is willing to make sacrifices if he has to: After all, China consumes a lot of soybeans.
The stated rationale for these last two rounds of tariffs is that China is flouting global norms on international property rights through its policy of requiring foreign companies that form joint ventures with Chinese firms to hand over their technological IP without payment. This complaint is entirely valid and not limited to the U.S. or to trade protectionists. However, the way Trump is pursuing this standoff is dubiously related to the problem it’s supposed to solve.
If the U.S. wanted to confront China on these practices, the best way to do that would be to clearly articulate the policy changes it wants Beijing to make and form an international coalition of other large economies to present a united front. Instead, Trump has made a habit of threatening, insulting, and otherwise alienating our key allies and trade partners with his neo-mercantilist policies.
As a result, the weight of international opinion is coming down on China’s side in this disagreement. Despite China’s deservedly checkered reputation in global trade, Xi has had no trouble claiming the moral high ground against Trump’s blustering, bullying disregard for the norms of global commerce. Both economically and diplomatically, a trade war with China would be about as sure a winner as the Trump Taj Mahal.