Trump’s ‘US alone’ strategy cannot win trade battle
Donald Trump’s America has some economic advantages – and a legitimate point – in its trade disputes with China. But it cannot win a trade war with the world’s second-biggest economy, especially if it goes it alone.
On July 6, the US’s first wave of tariffs on Chinese exports worth $50 billion – announced by Trump on June 15 – is supposed to come into effect. Should this happen, Beijing is expected to retaliate, imposing tariffs on $50 billion of US imports.
As the US president threatened on June 18, his administration would respond to the Chinese retaliation by levying an additional $200 billion on Chinese goods and possibly another $200 billion should Beijing hit back again.
Such a tit-for-tat exchange will certainly lead to a bona fide trade war between the world’s two superpowers. There will be, as in any all-out war, huge casualties on both sides. That said, economically, China will probably be more vulnerable than the US should a full-blown trade conflict break out, due to the fact that exports still account for a significant share of its economic growth and nearly 20% of its exports go to the US.
What’s more, the $450 billion of punitive tariffs that the Trump government threatened to impose accounted for 89% of Chinese exports to the US last year. The data from the US Census Bureau show China bought only about $130 billion of US goods while selling $505 billion to the US in 2017. According to these statistics, the American deficit in goods with the planet’s most populous country rose from $347 billion in 2016 to $375 billion (the highest level) last year.
So, it would be technically impossible for Beijing to retaliate in kind, as it vowed, should the Trump White House follow through with its threats.
The US’s huge trade deficits with its major trading partners, notably China, has, in fact, made Trump confidently declare that “trade wars are good, and easy to win.”
Another reason behind his administration’s willingness to pursue punitive tariffs against China is its view that the rising superpower is involved in theft of intellectual property and technology and other unfair trade practices. Such an accusation is shared by many Americans, including policymakers and analysts. During a visit to Beijing four months ago, Senator Elizabeth Warren, a Trump foe and a potential 2020 presidential candidate, reportedly said the US has now woken up to Chinese abuses, stating her country needed to rethink its trade policy and that she was not afraid of tariffs.
Apparently, other international observers and leaders, including the leaders of Great Britain, Germany and France – three key allies of the US – are also concerned about China’s illicit and unfair practices.
On March 22, 2018, the Financial Times editorialized: “China routinely steals intellectual property on a vast scale, illegally hacking foreign companies. It also massively distorts its own economy with subsidies and regulation, building up overcapacity in steel and other manufacturing.”
Yet, despite having a strong justification for adopting a tough posture toward China, it will be difficult – if not impossible – for Trump to win his trade war with the Asian giant.
Unlike America, China is an authoritarian nation, where all is controlled by the ruling Communist Party – or, perhaps more precisely, by Xi Jinping, the 1.3-billion-people country’s paramount leader.
In April, amidst Trump’s trade escalations with China, Politico, an influential American political news outlet, ran an article, “Farmers to Trump: No trade war, please.” According to this report, not only farming but also other American sectors, would suffer from – and, consequently, oppose – a trade war with China.
Like any major issue, let alone a far-reaching trade war, the media and public opinion are crucial. Politico’s article shows why Beijing is “definitely unafraid of a trade war” and “prepared to go toe-to-toe in its fight” with the US “at whatever cost” whereas the latter is not. That a Chinese state media outlet would run a similar piece is unthinkable.
But, while Perdue’s comments may be reassuring to American farmers, they cannot assuage concerns among some Americans – especially in the business community.
A key cause of their apprehensions is that China is a massive market and an economic powerhouse. Beijing’s retaliation will immensely impact their businesses.
More worrying for them is the fact that Trump is waging a global trade war, picking fights with not only China but also many other countries, including the US’s strongest allies.
He has already raised duties on steel, aluminum and some other products from Canada, Japan, South Korea and the members of the European Union.
In an interview with Fox News, his favored news network, on July 1, the maverick president continued his assault on the EU over trade by claiming the 28-member bloc is “possibly as bad as China” when it came to the way the EU members traded with his country.
He made such comments to reject suggestions that his attacks on the EU were counterproductive and that he should strengthen ties with the European allies to tackle the Chinese trade problem.
In fact, this is the most fundamental reason why China is very confident that it can win the trade battle with Trump’s America.
Rather than galvanizing support from his country’s closest friends – whose trade policies resemble those of the US and who share American concerns about China’s mercantilism – to force Beijing to change its unfair trade practices, Trump is pushing them closer to Beijing by accusing them of being almost as bad as the Chinese.
What is even more ironic and strategically unwise is that instead of highlighting China as a global trade abuser, he is actually transforming the Asian behemoth into a rules-based, responsible power and his country into a global economic disruptor.
On June 16, Xinhua commented, as “a responsible and reliable major trading nation,” China “hates to be engaged in a trade war with the United States” but it “has to fight back forcefully to safeguard [its] interests and to uphold the rules-based multilateral trading system.”
The communist-run country’s official news agency went on to say: “For free traders worldwide, it is never an option to accommodate Washington’s unilateral and protectionist measures with further concessions.” It then urged the EU, Canada and other countries to join China to “safeguard the multilateral trading system … and to defend the common interests of the wider international community.”
Actually, that is all that Chinese leaders, officials, experts and media have done since Trump ascended to the American presidency. As noted, when it comes to free trade, open economy and globalization, Trump’s America still fares better than Xi Jinping’s China.
Nonetheless, having already abandoned the Transpacific Partnership – a huge trade deal with America’s allies and like-minded partners in the Pacific Rim, Trump’s latest punitive tariffs against the US’s key allies and partners, including India – a country his administration is apparently courting to counterbalance a rising China – show he is reckless, feckless and thoughtless in his trade and foreign policies.
With the US’s closest allies and major partners rejecting his unilateral and protectionist policies and, to a certain degree, aligning with Beijing, sooner or later, it is likely he will back down in his trade fight with China. A simple reason for this is that he cannot afford to go it alone with an authoritarian, powerful and forceful opponent.