Moneybox

Donald Trump Could Have Waged a Smart Trade War or a Dumb One. Guess Which He Chose.

Chinese Vice Premier Liu He says goodby to U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer in Washington on Friday.
Chip Somodevilla/Getty Images

So far, Donald Trump’s trade war with China has done mild harm to the U.S. economy while failing to achieve any significant policy goals.

Now, he’s doubling down on it.

With recent trade talks between the countries failing to produce an agreement, the White House followed through on its threats and increased tariffs on $200 billion worth of Chinese goods Friday, lifting them from 10 percent to 25 percent. The president says he’s preparing to potentially slap duties on the rest of China’s U.S. exports, too, and has suggested the standoff could last a while. “Talks with China continue in a very congenial manner - there is absolutely no need to rush,” he tweeted earlier. In other words, we might be settling in for a slow jam here.

The new tariffs will likely hurt growth a bit—after all, they’re essentially a tax on U.S. consumers and businesses who want to buy Chinese goods. But outside industries that import a lot of raw materials and inputs—think appliance manufacturers and heavy equipment manufacturers—most Americans probably won’t feel much pain. When economists looked at the combined effect of Trump’s tariffs on Chinese goods and global steel imports in 2018, they concluded that they cost the economy up to $7.8 billion, which is barely a drop in a $19 trillion economy. Based on some back-of-the-napkin math, the latest round of tariffs should amount to $30 billion in extra costs to Americans at most.

This speaks to a more general point about trade battles. For a country like the U.S., with a huge, diversified economy mostly driven by domestic consumption, even a historically large spat like the one we’re now engaged in just doesn’t pose that much danger. The tit for tat between us and China may end up hurting soybean farmers (unless they’re bailed out) or washing machine–makers, and in that sense it could create real victims. But it won’t put a big divot in growth.

The thing about trade wars, though, is that if you’re going to insist on throwing down for one, you at least ought to have a good strategy for winning it. Trump does not.

Most experts have long acknowledged that China is a problematic actor in global trade. Between its on-and-off history of currency manipulation, its subsidies for domestic companies, its track record of overproducing products like steel and dumping it on the global market, and its habit of mugging foreign companies for their intellectual property, there’s plenty to object to.

Donald Trump entered office determined to confront Beijing, after making it a boogeyman for his entire campaign. There were two basic strategies he could have chosen. One, which was advocated for by the ill-fated “globalist” faction, including former economic adviser Gary Cohn, would have involved creating a united front with other major trade powers like the European Union and Japan to put pressure on China. The other, advocated by protectionists like White House trade guru Peter Navarro and Steve Bannon, was to pick one-on-one fights with the rest of the world, and hope that we’d have enough heft to cow China into submission by ourselves.

Trump chose Option B. The White House pulled out of the Trans-Pacific Partnership, a trade agreement that was expressly designed to limit China’s influence in the region (though some questioned how effectively it would do so). His administration antagonized Europe by putting levies on foreign steel and threatening them on cars. Trump managed to cause a rift with Canada, of all countries, over NAFTA renegotiations. And the administration decided to go toe to toe with China.

The results of all this have been underwhelming. America’s global trade deficit in goods hasn’t budged much. The steel tariffs have led to fatter profits for manufacturers, but few new jobs. The U.S.–Mexico–Canada Agreement (aka new NAFTA) won’t make much more than a ripple in the wider economy and might not even pass Congress. And China has yet to give in to Trump’s pressure tactics. By trying to take on everyone, Trump has managed to best no one.

It is possible, of course, that the escalating rounds of tariffs against China will eventually cause its leaders to crack. The country is struggling to keep up its pace of growth. The duties have been painful for its economically important and politically powerful exporters. And President Xi Jinping is under at least some pressure to wrap up a deal. “Now it appears that there is no clear policy response to Trump on the trade war, and that China seems on the back foot,” Rana Mitter, a China politics and history expert at the University of Oxford, told the Associated Press this week.

But even within the White House, some seem to have recognized that going it alone on trade was the wrong move. Late last year, Trump’s chief economics adviser Larry Kudlow explained to reporters that once the White House had finished new trade deals with other major countries, including Europe and Japan, it would round them up to face Beijing. “We are talking to the European Union again, we are talking to Japan again, and we are moving to what I have characterized as a trade coalition of the willing to confront China,” he said.

Those comments were in October. So far, the coalition still hasn’t come together, and it’s unclear whether one ever will. If we’d tried enlisting help from our friends from the start, maybe we’d be getting somewhere.