Trump’s Tariffs Are Meant to Hurt the Chinese, Not to Help Americans

(Bloomberg Opinion) -- The recent escalation in the U.S.-China trade war hints that the ultimate goal of American trade policy is not to help Americans, but to hurt the Chinese. Trade now looks like part of a larger effort to contain Chinese geopolitical power.

In theory, it would be no big deal if the Chinese economy were 50% bigger than the American economy. China could buy 50% more avocados than Americans do, or 50% more cases of Coca-Cola, or 50% more iPhones, and life would go on. In reality, it’s more complicated.

With some products and services, like search engines, it’s relatively easy to design different versions for different countries based on the laws and customs of the countries. With others, due to high fixed costs, you generally create one “base model” and then think about which auxiliary markets you can sell it to. The film industry is going to make only one version of “Avengers: Endgame”; should it be made with primarily the American market in mind, or primarily the Chinese market? Similarly with smartphones and automobiles, American politicians and consumers want the “base model” to reflect American values and tastes rather than Chinese ones.

Economic power also shapes how the U.S. government and global industries respond to human rights abuses. There are fewer economic tradeoffs involved when a country with whom America has weak economic ties commits a human rights abuse than when it’s a country with whom American businesses deal with frequently, whether it be China or Saudi Arabia.

Maybe it was inevitable that Chinese economic growth continuing to outpace American economic growth would eventually create strains between the two countries, but it seems like in 2019 we may be approaching an explicit clash. If that’s the case, the high-level goals of trade policy may shift from economic ones — whether they be overall economic growth or jobs for American workers — and toward national security priorities. This would have major ramifications for investors, workers and consumers.

That’s because sometimes national security interests might mean economic sacrifice. National Economic Council Director Larry Kudlow admitted as much on Sunday, saying that both the U.S. and China would lose in a heightened trade war. (On Monday, China retaliated against the U.S. for the tariffs that President Donald Trump imposed on Friday.)

This kind of shift in trade policy should impact relations between the U.S. and other trading partners around the world. Rather than trying to win zero-sum trade negotiations with all of our trading partners, a heightened focus on China might mean more motivation to get deals done quickly with the rest of the world. In light of the renewed pressure with China, the U.S. appears more motivated to work out a deal with Japan

A new goal for trade policy also represents the potential for a new outlook on the Trump administration’s view of Mexico and the rest of Latin America. Rather than a hawkish approach on trade and immigration with our southern neighbors, they could be seen as an ideal partner for shifting global supply chains if the goal is to reduce trade with China.

As long as trade policy is viewed through the lens of economics, there’s going to be a lot of frustration with the Trump administration’s approach toward negotiations with China. Less trade between the two countries will hurt people in both countries, and it’s not clear that even a U.S. “win” in any deal would be worth the economic damage.

But when the framework is national security instead, the trade war may look like a different story. Hurting the Chinese economy might be worth some pain to the American economy. The question, if this is where we’re headed, is whether American voters and business interests will tolerate the pain.

To contact the editor responsible for this story: Philip Gray at philipgray@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Conor Sen is a Bloomberg Opinion columnist. He is a portfolio manager for New River Investments in Atlanta and has been a contributor to the Atlantic and Business Insider.

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