Editorial Comment:

America’s economy and system of governance give it huge advantages over its protectionist opponent

Any discussion of Trumponomics must begin by acknowledging that the US President is right about China and trade, or rather, was right. Whether he still is, or is pursuing US grievances in the appropriate manner, are different questions.

But yes, his complaint is an entirely legitimate one. Western openness to trade and technological transfer has over decades been ruthlessly, and often unfairly, exploited by China for politically selfish development and geo-political ends. China talks a good game on free trade but, when it comes to its own markets, it practices the opposite; it is one of the most protected economies on the planet.

Mr Trump is also right about technological theft. There is no meaningful protection for intellectual property rights in China. The country’s investment-led growth model has moreover spawned grotesque levels of global overcapacity in industries such as steel, decimating Western counterparts. When it comes to the “economic nationalism” he is so often accused of, Mr Trump cannot hold a candle to China.

On the substance of his complaint, then, it’s hard to disagree. But there is a sense in which it is also yesterday’s story. China has been making steady, if unspectacular, progress in shifting from the old, investment-led growth model to more Western-style dependence on domestic consumption. As a consequence, its trade surplus has shrunk to tolerable levels.

Nor as yet do we need to get too concerned about the economic impact of the threatened trade war. Despite its escalating, tit-for-tat nature, it has to date been more tokenism than substance, peacocks strutting their stuff. As the surplus nation, China is certain to come off worse if things degenerate further. But, even for China, the consequences are unlikely to be catastrophic; exports to the US today account for “just” 3 per cent of Chinese GDP. As for US exports to China, they are rather less than 1 per cent of US GDP. Even if all trade between the countries were to cease, it would not be the end of the world. Beyond disruption to international supply chains, the direct costs of “deglobalisation” are not as big as sometimes imagined.

Yet costs there are, and they lie not so much in the impact of tariffs as the law of comparative advantage, an idea originally developed by the British classical economists Adam Smith and David Ricardo. This holds that if someone else can produce something better and more cheaply than you, it is best to buy it from them, pocket the saving and invest in activities you are good at instead.

The decline and eventual closure of Britain’s once-mighty textile and clothing industry is obviously a matter of deep national regret, yet the British consumer has benefited hugely from the lower prices and almost infinite variety that globalisation of these industries has allowed. In overall economic terms, the savings far outweigh the cost in jobs, painful though it has undoubtedly been for certain regions and communities.

In this sense we are barking up the wrong tree in bemoaning our steadily shrinking manufacturing sector (it is shrinking only as a proportion of GDP, not in absolute terms). The price of manufactured goods relative to services has been falling for more than 40 years, a trend that shows no sign of abating and may even strengthen with progressive automation. China, it might be argued, has done us all a service, and despite its vaulting ambition, condemned itself to a permanently low position in the value chain.

In the end, a trade deficit is no more than a book-keeping entry; it means very little. Mr Trump would have his surplus tomorrow if only Americans could be persuaded to consume less and save more. Forcing them to do so was never in the script, but that may be the consequence of any fully blown trade war.

Protectionism nearly always has some underlying purpose beyond any supposed economic justification. In this case, it is about American supremacy and the fear that rapid Chinese development could eventually come to challenge it. Mr Trump aims to nip that threat in the bud. To his mind, too much has been ceded.

There is perhaps good reason for the paranoia, yet it also displays a quite surprising degree of self doubt on Mr Trump’s part. Can he really have so little confidence in the innate strengths of America’s economy and system of governance? In truth, China comes nowhere close. Run by a tiny, self-perpetuating elite that seems entirely immune to meaningful reform, transparency and accountability, China is already struggling to escape the so-called middle income trap, the stalling point in development where export competitiveness loses its traction but the technological prowess of advanced economies proves hard to attain.

China has made impressive progress, but it is all based on Western innovation, which is in turn the product of rule of law, democracy and the enlightenment, things China has yet to achieve. I’ll believe autocracy and coercion capable of better when I see it.