Now that we are well over a year into the China and United States trade dispute, it’s time to take stock in the progress of a trade war President Trump said would be “easy to win” and would be “Short term pain, for long term gain.” So far in this trade war we have seen no positive gains, only negative impacts on farmers who have lost a huge market for two growing seasons, consumers paying increasingly higher prices, small businesses seeing lower or no profits because of the disruption in the Chinese supply chain and American manufacturing who are reporting lower earnings because of Chinese trade disruption. Trump, who promised 4% GDP growth, will fail in that optimistic projection in no small part because of his trade policies.
As negotiating partners, Trump and President Xi are a perfectly terrible match. Neither seems capable of maintaining a negotiating position, making a transparent offer, or following through on a commitment. Trump in particular usually seems one step behind – unable to anticipate China’s tactics or close the deal. The result is that China continues to promise big purchases of agricultural goods only to pull away at the last minute, leaving America’s patriotic farmers still holding the bag.
As American farmers wait patiently for the “short term pain” to end, what Trump and his echo chamber of fawning economic and political advisers have not seriously considered is that China may be more than willing to embrace a “no deal” decoupling result. The promised “gain” may never materialize.
Many conventional observers predict that China is waiting to seriously come to the table until after the 2020 election. Perhaps that is true, but this analysis misses the possibility that China, as a necessary step in its aspiration to replace the global economic dominance of the U.S., might conclude the correct strategy is rendering our nation irrelevant to its economic future.
Underlying his trade bravado, Trump believes the U.S. holds all the cards and the Chinese economy will collapse under the weight of his tariffs. This belief is seriously stupid.
First, no country with 1.42 billion potential consumers and a growing middle class is without economic power.
Second, China has adapted during the first year of Trump’s tit-for-tat tariffs. With the ability to centrally control its economy, China has taken corrective steps, like letting its currency devalue and increasing investment in infrastructure. Signs of stress are present, but the Chinese economy is not on life support as Trump wants you to believe.
Third, the president’s Twitter rhetoric has given the Chinese government the opportunity to stir up nationalism and fault the U.S. for its domestic economic adjustments. China watchers for years have been predicting that Chinese debt will eventually lead to a financial crisis in China. Ironically, Trump’s trade policy has given the Chinese government the running room to slow down its economy and blame the United States. Trump, and by extension the U.S., has become a convenient scapegoat.
Fourth, China has even more crippling arrows in its quiver yet to be deployed. To name a few, China could exercise the “nuclear option” of dumping U.S. Treasury bonds and discontinuing buying more us U.S. debt. The nation could also discontinue the export of medical supplies to the United States, a dangerous threat as, by some estimates, the U.S. imports 96% of its antibiotics from China and there is currently no alternative source.
Fifth, unlike the U.S., the Chinese are on an international trade charm offensive. While Trump has slapped Section 232 national security tariffs on our closest allies and threatened more, the Chinese rightfully evaluated this situation as an opportunity to expand their global economic influence. While the U.S. pulls out of the Trans-Pacific Partnership, China negotiates towards a regional economic alliance. While the United States raises tariffs, China lowers them on our commercial rivals Canada, Japan and Germany. China still has a long way to go to convince other potential trading partners that they will play by the rules, but in the face of this Trump-made opportunity, their odds look better and better.
Unlike the U.S., China has been preparing for this conflict for a long time. In the 15th century, China closed its doors to the outside world. Today, China is making moves to isolate itself only from the U.S. Although China was anticipating its overtaking of the U.S. to happen gradually, the Trump trade war is here, and China may be more than willing to wage this war at much higher stakes.
It is estimated that the Chinese lost 400,000 people in the Korean War. In evaluating that sacrifice, Chinese veteran Zhang Zhuan said: "No matter how many people were killed, we shouldn't regret fighting the U.S. because the war helped China win respect in the international world."
Trump, as the haphazard and incompetent commander-in-chief of the trade war, has failed one of the important rules of war:
“If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” Sun Tzu, "Art of War"
P.S.: To fend off the inevitable comment of “What would you do?” please see my column at https://cnb.cx/354teVf.