The escalating tariff face-off
If President Trump’s plan was to bully China into reforming its trade practices before a trade war breaks out, it doesn’t appear to be working. As the president has laid out his proposed tariffs in recent weeks, the Chinese government has responded in kind, threatening to target $1 in U.S. exports for every $1 in Chinese exports targeted by the United States. After Trump threatened Thursday to slap tariffs on an additional $100 billion worth of Chinese goods, a Chinese government spokesman told the Wall Street Journal, “The Chinese side will follow suit to the end, not hesitate to pay any price, resolutely counterattack and take new comprehensive measures in response.”
Whether Trump likes it or not, this particular drama is playing out more like “Dancing With the Stars” than “The Apprentice.” Chinese President Xi Jinping seems committed to matching Trump step for step as the two countries circle to the beat of a trade war.
The exchanges are nothing more than posturing at this point. Neither country has actually levied any new tariffs or imposed any new quotas yet — those are still months away. The impact of the threats and counterthreats has been limited to the gyrations they’ve caused in the stock market and the anxiety they’ve sowed among U.S. farmers and other trade-dependent businesses.
Trump obviously feels that stepping on those particular toes is necessary to winning this contest. To him, the fact that China ships about $30 billion worth of products more into the U.S. than it buys is a sign that the playing field is tilted, with jobs and other benefits flowing toward Beijing.
But that’s simplistic. The trade deficit reflects not just the effect of U.S. and Chinese trade policies, but also Americans’ inexhaustible demand for goods, peerless buying power and nervy determination to spend rather than save. In fact, other policies championed by Trump — big tax cuts and low interest rates — reinforce those uniquely American traits and will likely widen the trade deficit.
And let’s face it, low-cost imports benefit consumers and the industries that serve them. Any penalties placed on Chinese exports will be paid by Americans, in the form of higher prices. In other words, tariffs are like another version of a sales tax.
Trump is right about this: There is a human cost to the flood of cheap imports, and it’s reflected in the loss of manufacturing jobs as companies shift production outside the U.S. and automate to stay competitive. And he is right about China not competing fairly. The country engages in a maddening array of tactics that harm U.S. exporters and investors, violating the World Trade Organization rules it pledged to observe.
Part of the challenge for policymakers has nothing to do with China. Instead, it’s how to improve the way U.S. schools, colleges and job-training programs equip works for higher-skill, higher-wage jobs that can withstand cheap foreign competition. But part of the challenge comes down to trade policy — specifically, how to stop China’s trade cheating.
Trump is betting that he can tee up so much harm to Chinese exports that China will come to the negotiating table chastened and eager for a deal. After all, he got South Korea to renegotiate a free-trade agreement by saying the U.S. might withdraw. But South Korea is an ally; China is a rival with an economy almost an order of magnitude larger than Korea’s. By late Friday, the Chinese government was saying it wouldn’t even negotiate with the U.S. as long as Trump was upping the ante on tariffs.
A president who relies on threats as a negotiating tactic has to follow through on them at some point. Otherwise they have no credibility. And China appears perfectly willing to call Trump’s bluff and let a real trade war begin. After all, it has many other outlets for its goods, and its state-owned industries are far more tolerant of disruption than U.S. farmers and publicly traded companies can afford to be.
That’s why Trump should have taken a different approach from the start, working with other trading partners to bring broad sanctions against China that would be hard to circumvent and carry real consequences for Xi. In a statement Friday morning, the administration said it is exploring that path too, bringing a complaint about China to the World Trade Organization and “working with allies also affected by China’s unfair behavior to restore fairness to global trade.” Such efforts hold more promise than Trump’s ever-escalating tariff threats.