Securing trade peace with China
Getting in a trade war with China or anyone else is economically suicidal, a way to disrupt everything and anything, and here is hope that what we are really seeing is the art of the deal. What you do is make egregious demands and then back down as the other side sees the hurt of obstinance and the benefit of concessions.
Maybe that’s what the Trump administration is really up to in its talk about $60 billion worth of tariffs on China, and there are signs of such a thing. China, in addition to saying it will fight back mightily, is also murmuring it will sit down and talk. Our treasury secretary has said talk sounds good to him, and although there has been no followup, the United States has already told the European Union and most other allies to relax, that the uranium and steel tariffs will not apply to them.
The thing is that nervousness about China still reigns supreme, and maybe it should, considering that the famous Trump book, “The Art of the Deal,” was co-authored (actually written) by someone who thinks Trump is a klutz of a bargainer. His name is Tony Schwartz, he once spent lots of time with Trump working on this book, and familiarity bred contempt.
Trump has been worried to death about our trade deficit, the amount of money we spend for imports compared to the lesser amount of money we get for exports. The concept is meaningless. Nothing would be traded if it were not for mutual advantage. For every dollar we spend, we get something in return, an asset, something useful, maybe something essential in making products here.
It is true that some specific industries have been hurt by globalization, but the main cause of fewer jobs for the unskilled is technology and too little training. Globalization is an overall benefit, although the Chinese are cheats. They have broken lots of rules by way of their own tariffs and subsidies. They have also stolen a lot of our intellectual property. We should sit down to straighten things out, but the way to do it is for the United States and a whole big bunch of the rest of the world to confront China as a body.
Our allies in Asia and Europe seem to be willing, and China will be a whole lot more impressed by this gang than by facing one nation that accounts for a fraction of one percent of its GDP.
To see what a trade war could do, consider the example of farmers. China imports lots of food for its 1.4 billion people and our farmers say thank you very much for not letting our plows rust. Any number of other businesses could face going out of business if things really got going, and remember this: Tariffs are really taxes on the citizenry. Less competition means not just fewer jobs but higher prices. Purchasing power is what’s important for consumers, and prices are as much a factor in purchasing power as wages.
Interestingly, Trump is getting more support from Democrats on his trade stance than Republicans, many of whom are furious. For instance, Elizabeth Warren, a Democratic senator from Massachusetts and someone who thinks enterprise should not be all that free, says look, let’s not be afraid of tariffs. One reason Republicans could not get the two-thirds vote necessary to override a Trump veto of a congressional bill thwarting his ambitions is that too many Democrats would refuse to go along.
The good news is that the new director of the National Economic Counsel is Larry Kudlow, a conscientious, highly able economist who is not just another person who agrees with Trump on everything. He disagrees on this issue and communicates terrifically. Maybe, by employing some version of the other of the art of the deal, he can change Trump’s mind.