When he launched his trade war with China, President Trump declared it would be “easy to win.” In the months since, he has discovered trade wars are anything but. The collateral damage to the U.S. economy is everywhere. The financial markets are reeling, the cost of consumer goods is rising, farmers are failing, recession looms.
Trump picks on those he considers weak, but he has made a drastic underestimation of China’s economic strength. Now he’s casting around for scape goats; fallout from his trade war is the news media’s fault. It’s Federal Reserve Chairman Jerome Powell’s fault. It’s the Democrats’ fault. It’s the European Union’s fault. It’s even the fault of businesses that do business in China.
China is an industrial behemoth, where cheap labor abounds. I recall visiting a consumer product factory in Ohio years ago. One of the workers there told me he had been assigned to dismantle manufacturing equipment so it could be shipped to China. Adding insult to injury, he said that a number of his colleagues would be training Chinese workers to use the machines.
This trend has repeated itself throughout America. Much of what we buy today comes from China and other Asian countries, even Trump’s branded merchandise. From a cold-blooded business perspective, it makes sense; cut labor costs and see profits rise. Wall Street loves it. What the Street doesn’t love is volatility, and we see that reflected today in the markets.
China, meanwhile, is going tit-for-tat on tariffs. The self-anointed “chosen one” imposes them and the Chinese respond in kind. And contrary to Trump’s claims that China is paying “tens of billions” to the U.S. treasury, those tariffs are tacked onto the cost of the goods we buy.
Trump can say this because he knows the conservative media won’t push back on the lie, and his supporters don’t seem to understand what tariffs are or how they work. Yet, J.P. Morgan Chase recently predicted Trump’s tariffs could cost each American family $1,000 annually.
South Carolina senator and Trump toady Lindsay Graham tells us to, “accept the pain.”
There’s another aspect about going toe-to-toe with China on trade. Losing face is totally unacceptable to the Chinese, so Trump’s in-your-face antics are deeply offensive and only likely to make their leaders even more recalcitrant.
Trump, of course, won’t admit he’s made a mistake. There’s no doubt China has been taking advantage of its trading partners, but by thinking he can push the Chinese around to get where he wants to go, the president again exhibits his astounding ignorance. He may be able to intimidate Republicans, but in the trade war school yard, a bullying Trump got punched in the nose. The blood we see is the faltering economy.
Even the conservative Wall Street Journal, owned by Trump’s pal Rupert Murdoch, editorialized, “The trouble with trade wars, like shooting wars, is that once they start you never know how they’re going to end. They enemy gets a vote, and sometimes events escalate in ugly fashion.”
Trump painted himself into a corner. The Federal Reserve might cut interest rates, but that won’t solve his self-inflicted China trade problem, as Powell recently noted. The only way out now is through diplomacy, the path Trump’s predecessors have taken. There is leverage to be had with China, but only through skillful, informed negotiations.
Of course, tough guy Trump has to save face, too. He can’t backtrack now because his fragile ego won’t allow it and he doesn’t like to think much less listen to advisors who know better. He seems to believe his wildly impulsive threats and actions will somehow bring China to heel. All they do, however, is harden Beijing’s resolve to stay the course and wait for 2020.
Last Friday, Trump “hereby” ordered U.S. companies to pull out of China. “Order?” responded the Wall Street Journal. “Somebody should tell Chairman Trump this isn’t the People’s Republic of America.”
Trump apparently thought he could invoke the International Emergency Economic Powers Act, a 1977 law that is intended to authorize the president to declare an “unusual and extraordinary threat... to the national security, foreign policy, or economy of the United States” that originates “outside the United States.”
Any “threat” that exists is of Trump’s making. “Moreover, even if this happened, it would not provide authority over U.S. investments that have already been made in China,” law professor and trade expert Jennifer Hillman told The Washington Post. Thus, Trump hastily retreated Sunday only to follow-up at last weekend’s G7 summit in France by claiming China had called looking for a trade deal.
That was news to the Chinese.
This kind of unhinged, erratic, blatantly dishonest behavior throws the economy into chaos, even though the economy is the only thing Trump has going for himself into the next election. “Markets are wondering if we’re headed toward mutually assured economic destruction,” warned the Wall Street Journal.