When he set out to extract concessions from China and other countries, President Donald Trump assured Americans that “trade wars are good, and easy to win.” He regarded previous presidents as easy marks for devious foreign governments, and he thought his tough tactics would force those rivals to back down.
But after two years of negotiations with Beijing, victory has proved elusive. What was mostly an exercise in posturing and demands is turning into a full-fledged battle that threatens to produce mass casualties.
On Thursday, the president abruptly announced that he would slap a 10% tariff on $300 billion in Chinese goods starting Sept. 1, in retaliation for Beijing’s intransigence. This was in addition to the 25% levies he put on $200 billion worth of other goods in May — which prompted Beijing to impose new tariffs on U.S. products.
Monday, China escalated the battle by letting its currency sink to the lowest level since 2008. Beijing also indicated it won’t make those big purchases of American farm products that Trump promised. The administration hit back by formally branding China a currency manipulator. Skirmishing is giving way to trench warfare, which could go on a long time.
“The Chinese have sent a strong signal that they are ready to rumble,” Paul Blustein, a trade analyst at the Centre for International Governance Innovation, told The New York Times. Stephen Moore, who has played the dual roles of Trump economic adviser and defender, told The Washington Post, “We’re learning that maybe China has a higher pain threshold than we thought here.”
The biggest potential victim is the U.S. economy, which has enjoyed a recordlong expansion now in its 11th year. The stock market had five straight down days, and Monday was the worst this year. Disrupted markets and rampant uncertainty can only deter businesses from investing and hiring, which fuel economic growth.
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In July, the Federal Reserve cut interest rates, a step Chairman Jerome Powell said was “intended to ensure against downside risks from weak global growth and trade tensions.” Those dangers just got bigger. The Fed may be reluctant to bail Trump out of his self-created mess, and its tools may be inadequate to keep the economy cruising through the storm.
Any business that depends on exports to China is at risk. Lamented American Farm Bureau Federation President Zippy Duvall, “We stand to lose all of what was a $9.1 billion market in 2018, which was down sharply from the $19.5 billion U.S. farmers exported to China in 2017.” Illinois manufacturers like Boeing, Caterpillar and Deere also stand to forfeit sales.
No one denies that China has engaged in practices that harm American companies, such as theft of intellectual property and subsidies to state-owned companies. But the president gave up a powerful tool of leverage when he pulled out of the Trans-Pacific Partnership, which would have created a huge free trade entity of 12 nations. China would have felt pressure to seek admission, submitting to rules that would have compelled reform.
Instead, Trump has tried to cow a Chinese government that increasingly relies on nationalism and resistance to foreign demands to maintain public support. China will suffer economic pain as its exports decline and companies move to Vietnam or Thailand to escape U.S. tariffs. But an authoritarian system is better able to weather public discontent than Trump, who has to answer to voters next year.
Brinkmanship can be a useful tactic in negotiating with foreign governments to achieve U.S. goals. But when both sides go over the brink, the tumble can leave each of them bruised, bleeding and full of regret.