CHINA MASTERING THE ART OF DEALING WITH TRUMP ON TRADE
President’s actions will hurt American consumers the most, Joe Chidley writes.
When contemplating the possibility of a global trade war, stoked by resurgent protectionism from the United States, I’m put in mind of a man named Krystof Azninski.
In 1995, Azninski, a farmer in Poland, earned international attention with the way he “won” an alcohol-inspired contest of macho-ness with a group of friends. As the story was told back then, the match began with hitting one another over the head with turnips, but soon escalated into bloodshed when one drunken participant cut off his own foot with a chainsaw. Not to be outdone in bravery (or drunkenness, or stupidity), Azninski grabbed the saw, shouted “Watch this, then!” — and proceeded to cut off his own head.
Now, I can’t vouch for the veracity of that tale, but I like it as an allegory for trade wars anyway. And its portrayal of manly-manliness seems to conform with the ham-handed confrontationalism of U.S. Presi- dent Donald Trump and the neomercantilists he listens to. They (erroneously) look at global trade as a zero-sum game, where the score is kept by trade balances and imbalances, and they seem to think they can win by shouting loudly and punishing “offenders” (whose supreme offence seems to be selling more stuff to the States than they buy) with punitive tariffs. In fact, all this gamesmanship is, as for Azninski, a way of winning by cutting off your own head. And America — or, more specifically, American consumers and businesses — will be the ones hurt the most over the long run.
For example, let’s start with the turnip-like salvo the administration launched in January: tariffs on imported washing machines and solar panels. The laundry tariff will likely raise the price of washing machines for American consumers by eight to 20 per cent, Goldman Sachs has estimated. Meanwhile, anticipation that it was coming led U.S. importers to stock up on foreign machines, which can be sold at the pre-tariff price for quite a long time, which kind of undermines the point of the tariff in the first place, namely to protect American manufacturers.
The solar panel tariff could end up being even more damaging. Its obvious target is China, the major exporter of solar panels to the U.S. But it turns out Americans spend a lot more time (and occupy a lot more jobs) installing Chinese panels than they do making their own. The U.S. Solar Energy Industries Association predicts the tariff will cost around 50,000 or 60,000 jobs this year. Oh, and electricity prices might rise because of it.
If those relatively contained tariff actions are the turnip-onhead equivalent, the steel and aluminum tariffs Trump recently announced are kind of like cutting off your own foot. George W. Bush introduced similar levies on imported steel back in 2002 (exempting Canada and Mexico, as Trump sort of has). What did it do? Manufacturers had a hard time getting the steel they needed and they paid more for it; there were production delays; they passed along the cost increases to customers. The tariff didn’t save any steel jobs, but it did cost jobs in related industries and put a drag on the entire economy.
Anyway, now we’re getting closer to head-chopping time. According to reports, the Trump administration is thinking of slapping US$60 billion worth of tariffs on Chinese imports — everything from shoes and shirts to TVs and computers — as early as this week. Apparently, the office of U.S. Trade Representative Robert Lighthizer is busy writing a case for tariffs based on China’s (mis)treatment of intellectual property. But the recent balance-of-trade numbers might explain the politics of the move: the 2017 U.S. deficit in trade in goods with China hit a new record — US$375 billion — in the first year of Trump’s presidency, no less.
Surely, in Trump’s view of the world, that aggression cannot stand. He tweeted last week that the U.S. had asked China for a plan to reduce its trade surplus by $1 billion; a White House spokesman later clarified that the President meant to say “$100 billion.” One supposes the tariffs, if enacted, will go some way to getting to that mark, but at what cost? Details are characteristically sketchy, but there’s little doubt the tax on anything Chinese would inflate prices for U.S. consumers and make business harder for Corporate America. In a recent report, the non-partisan Information Technology and Innovation Foundation estimated that a 10 per cent levy on Chinese IT imports alone would “slow the growth of U.S. output by US$163 billion over the next 10 years, and a 25 per cent tariff would slow output by US$332 billion.”
That’s showing them … Meanwhile, China appears to be playing a different game. On Tuesday, Premier Li Keqiang told reporters that China plans to reduce import tariffs on a range of consumer goods, will open highly protected sectors such as financial services and manufacturing to foreign investment and will stop requiring technology transfer as a cost of doing business for foreign firms. Who knows whether those pledges will be followed by action, but the rhetorical departure from the U.S. is stark, as China sets its sights on extending its global influence through commerce.
So while the Americans are following the Azninski strategy, maybe the Chinese are reading their Sun Tzu, who advised generals to warp when the enemy woofs. Or to put it another way: if your adversary wants to cut off his own head with a chainsaw, let him.