Trump Should Declare Victory on China and Retreat
(Bloomberg Opinion) -- In any “trade war,” the most important thing to remember is the limit of the martial metaphor. When a foreign company sells Americans something they choose to buy, it is not an act of aggression. Trade negotiations aren’t a zero-sum game in which one country wins and the other has to lose.
That’s not to say that the “China hawks” in the administration — there’s that martial language again! — are wrong about everything. Chinese tariffs against American exports, theft of intellectual property, forced technology transfer: All are legitimate American grievances. The hawks appear to be focused on getting long-term policy change on all these issues.
The doves, on the other hand, seem to be more interested in extracting promises of a rapid reduction in the U.S. trade deficit with China. Looking narrowly at those competing objectives, the hawks have the better of the argument, both because promises that the bilateral deficit will fall are worth little and because that deficit is not in itself especially important.
So you can see why even some people who have in the past generally been free-traders, such as Republican Senator Marco Rubio, have been urging President Trump to “stay strong” and ruing administration concessions.
But the hawks and their new allies are acting as though we are bound either to get what they want or what the doves want. If those were the only choices, they might be right. There are, however, other possibilities. One is a standoff that yields new tariffs on both sides, which would harm both countries’ economies. Even worse would be an escalating trade war that undermined the global trading system as a whole.
That last scenario does not have to be likely to be alarming. And the administration’s hapless conduct of trade diplomacy so far raises that probability.
A well-considered strategy for fighting Chinese mercantilism would have started very differently. President Trump would have kept the U.S. in the Trans-Pacific Partnership, an agreement that was partly designed for that very purpose. Instead he attacked it during his campaign, savagely if vaguely: It amounted to “a rape of our country,” even though he never identified any feature of it to which he objected. He withdrew from it once in office. Last month he said he might rejoin it, then seemed to change his mind again a few days later.
A strategy against Chinese mercantilism would have used the World Trade Organization. Instead Trump has criticized it, mused about leaving it, and imposed tariffs outside it.
Trump’s tariffs on steel and aluminum, and the manner of their implementation, have also undermined the fight against Chinese mercantilism. First he threatened unilateral tariffs that covered many countries that share our interests with respect to China. His aides insisted there would be no exemptions; then exemptions were granted for most imports, but only on a temporary basis. The message the world received: We are not interested in working with you on trade matters, but we also can’t be assumed to be serious about following through on what we say about them.
If would-be allies had any remaining confidence in our trade policies, our handling of the China dispute has sapped it. The administration’s negotiators plainly don’t agree with one another, and the president has not settled their disagreements. All in all the administration’s actions are isolating the U.S. rather than China.
The president has great confidence in his deal-making ability, but little demonstrated knowledge about trade policy, conflicting impulses and infighting aides (two of whom, Commerce Secretary Wilbur Ross and trade czar Peter Navarro, do not appear to understand the basics of national accounting). The possibility that we will stumble into truly damaging trade conflict cannot be dismissed. Take that possibility into account, and the doves have reached the right conclusion: It would be best for the administration to find a way to declare victory and get out of this trade battle.
Equities have risen on the news of Trump’s “surrender.” The market appears to think that for Trump to hang tough would be more likely to harm than help the economy. With good reasons to agree and no strong reasons to disagree, we should trust that judgment.
©2018 Bloomberg L.P.