Maybe Trade Wars Aren’t So Easy To Win After All
“Trade wars are good, and easy to win.” — Donald Trump, March 2, 2018
“We don’t want to fight, but we are not afraid to fight and, given no choice, we will fight.” — Official statement of the government of China, May 6, 2019
If trade wars are easy to win, why hasn’t Trump won this one? It’s been going on for more than a year and he just escalated it by announcing that tariffs on $200 billion worth of Chinese imports would go from 10% to 25% on May 9.
A week ago, the two sides were to meet in Washington for what was expected to be the final round of negotiations. They were that close to a done deal. But then, Trump accused the Chinese of reneging on commitments they had made – the Chinese denied it – and the battle was rejoined.
China fired back by announcing that it would hit $60 billion worth of U.S. imports with tariffs ranging from 5% to 25% on June 1.
This led the Trump administration to roll out the big guns: it said it would impose 25% tariffs on all remaining Chinese imports “shortly.” That’s about $300 billion worth of goods.
But not to worry, Trump said. The U.S. tariffs would be paid “largely” by the Chinese. This is false. The tariffs have been and will be paid almost entirely by American businesses and consumers.
U.S. Sen. Tom Cotton, R-Ark., acknowledged this on Monday during an appearance on CBS This Morning.
“There will be some sacrifice on the part of Americans, I grant you that,” he said. “But also, that sacrifice is pretty minimal compared to the sacrifices that our soldiers make overseas that are fallen heroes or laid to rest.”
American soybean farmers who have filed for bankruptcy protection because the trade war has cut off their access to China, their largest market, will no doubt take comfort in Cotton’s rationale.
The trade war has yet to visit more than minor damage on the U.S. or Chinese economy. But if it does, China will be better able to mitigate harm than the United States will be, because “the government plays a much bigger role in the economy” than the U.S. government does, said Brad Setser, an economist at the Council on Foreign Relations.
For example, communist China can pump stimulus money into the economy much more easily than the United States can. It was doing that until 2018 and “China’s economy was slowing of its own accord when the (U.S.) tariffs were introduced,” Setser said. “I think there wasn’t much of an impact from the tariffs in 2018, but you definitely see a slow-down in 2019.” Consequently, “China went back to some of its stimulative policies,” he said.
Trump, on the other hand, doesn’t believe in government intervention in the economy.
China has other tricks up its sleeve, some of which it has already used; it has strategically deployed its tariffs in states and congressional districts whose voters favored Trump in 2016. More of the same can be expected when China’s next round of tariffs takes effect.
China can use any number of non-tariff barriers against U.S. imports, such as slow-walking customs approvals at the border. Of course, the U.S. can do this, too, but not without a lot of loud squawking by affected businesses and their elected representatives, all of which would be reported in the press.
China can withstand a prolonged trade war for longer than the United States can. There is no independent press there and its communist leaders don’t have to worry about getting re-elected.
America’s leaders do, so Trump announced on Monday that he would be throwing more money at “our great patriot farmers” who have been hurt by the trade war.
“Out of the billions of dollars that we’re taking in (from tariffs), a small portion of that will be going to our farmers,” he said.
This will be the second round of payments to farmers, most of whom voted for Trump in 2016 but are now losing patience with his trade war. They don’t want hand-outs; they want their foreign markets re-opened.
Trump is all about winning, but when this trade war ends, it’s hard to imagine how he’ll be able to legitimately say that he’s won it. It will be a Pyrrhic victory at best.
John Brinkley was speechwriter for U.S. Trade Representative Michael Froman and for Korean Ambasador Han Duk-soo during the Korean government’s quest for ratification of the Korea-US Free Trade Agreement.
This article originally appeared on Forbes.
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