Trade war with China: can Trump win it?

“For the first time in the modern era, the world’s two largest economies are engaged in an all-out trade war,” said Gerard Baker in The Times. Last week, Donald Trump imposed new 10% tariffs on $200bn worth of Chinese goods imported to the US, from baseball gloves to network routers and industrial machinery. China retaliated immediately with new tariffs of 5% to 10% on $60bn worth of US goods, including meat, chemicals, clothes and car parts. The cycle looks set to continue: Trump has promised to raise tariffs if China doesn’t back down. This is, as one Chinese official put it, “a very scary moment”. Trump himself seems fixated on the trade deficit – the fact that the US imports more from China than China does from the US. “He believes trade deficits are, simply, bad”, that the US is somehow “losing” – though most economists think it makes sense to import from other countries if they can make some goods more cheaply. Furthermore, Trump believes that the US is losing because China is “cheating”.

Trump is “broadly right”, said Liam Halligan in The Sunday Telegraph: China is cheating. It is “exporting like billy-o”, while heavily restricting foreign imports, by manipulating its currency to make its exports artificially cheap, subsidising its own exporters and stealing technology from foreign firms. “Having said that, Trump has been rash to go it alone, imposing tariffs unilaterally.” Instead, he should be using America’s clout to build an international coalition, forcing China to act by invoking World Trade Organisation rules. As it stands, China’s President Xi Jinping “holds most of the cards”. Trump’s tariffs will only result in higher prices for US companies and US consumers. China’s economy is still growing at about 7% a year. “It can handle a war of attrition.”

Roughly 99.9% of economists think Trump’s trade war is “idiotic”, said Niall Ferguson in The Sunday Times. But the indications are that China’s elite is panicked. The country’s economy faces all sorts of problems: mounting debts in its corporate sector, overcapacity in heavy industry. And China has “few good options” for fighting back, because Chinese imports of US goods are so much less than US imports of Chinese goods. “Xi is a student of Marx. He must, therefore, be aware of the risks he is running.” For that reason he is likely “to do whatever it takes to avoid a significant slowdown in Chinese growth”. With his uncanny instinct for his opponent’s weak spot, “Trump has found the Chinese leadership’s principal vulnerability”.