Donald Trump has finally bitten off more than he can chew in this trade war with China
Neither country looks set to blink, and that is bad for everyone – including the President's base
Or, as Donald John Trump, a regular provider of Zen wisdom, put it: “When the time is right we will make a deal with China. My respect and friendship with Xi Jinping is unlimited but, as I have told him many times before, this must be a great deal for the United States or it just doesn’t make any sense.”
Trump has been tweeting a lot about China in recent days. But he has done more than just tweet. In a breach with the thinking of most economists, and particularly pro-free trade Republicans, he has imposed tariffs on $200bn worth of Chinese goods and threatened tariffs on a further $300bn. China has responded in kind, targeting products such as frozen vegetables and liquefied natural gas.
These skirmishes are part of a trade war that started last spring. At that point, among the products China intentionally targeted were soybeans produced by farmers in the midwest, many of whom voted for the president in 2016.
There has been repeated criticism that Trump does not understand how tariffs work. Economists point out that tariffs on Chinese goods are paid by US companies and consumers, not China. It is true the treasury’s coffers are boosted, but that money comes from Americans. “Tariffs are taxes paid for by American consumers and businesses, not by China,” David French, a spokesman for the National Retail Federation, said this week. Axios reported that Trump really does believe tariffs work the other way. If that’s true, it’s worrying.
What is certainly true is that Trump appears to think he can win by staying tough. He told reporters at the White House he thought the trade war was just a “little squabble”.
“I think it’s going to turn out extremely well. We’re in a very strong position,” he said. “Our economy is fantastic; theirs is not so good.”
Most economists believe tariffs hurt everyone. It is harder for manufacturing companies that rely on imported goods such as Chinese steel, and it is difficult for those who export goods and have to deal with China’s retaliatory tariffs. The same situation plays out for both Chinese manufacturers and exporters.
Another truth is that Beijing is better prepared for the long game than anyone. With Xi Jinping having been given an almost uniquely powerful position, he is less distracted or concerned about issues such as winning re-election or angering members of his own party. (Even the top Republican in the senate, Mitch McConnell, said this week: “Nobody wins a trade war.”) American politicians who have to face voters in 2020 are, of course, in a very different position.
“If you want a trade war, we’ll fight you until the end,” Chinese anchor Kang Hui said on state broadcaster CCTV this week, according to the Associated Press. “After 5,000 years of wind and rain, what hasn’t the Chinese nation weathered?”
Some commentators believe Trump is driven less by logic than by gut instincts. New York Times economics correspondent Peter Goodman said Trump was tapping into a sentiment among many supporters who feel the US has been taken for a ride by China.
Any assessment of who has benefitted the most from globalisation would have to point to the US, he said, but that does not mean those gains have been equally distributed. As a result, Trump can again tap into the same anxieties felt by workers in the midwest who have seen their jobs shipped overseas, and pitch his stand as something broader and more patriotic. More America First.
The Independent had an insight of this last spring, when the trade war kicked off. Speaking to soy farmers in Missouri, whose biggest market was China, there was intense concern about the impact on livelihoods, and fears they could even lose farms that had been in families for generations.
At the same time, many felt Trump was finally standing up to Beijing.
One 40-year-old farmer, who asked to be identified only by his first name, Adam, said: “I think we have been run over on trade. I think people play the game harder than we do.”
The result is the standoff we now have. Trump does not want to budge, and may even have calculated he benefits politically by not agreeing to a deal. Meanwhile, China, while not entirely insulated from the pain caused to its people, does not intend to blink either.
What’s the proverb for all of that?