An Urban's Rural View
You Can't Win a Trade War Without Casualties
Let's start by giving Donald Trump credit where credit is due. Someone needed to stand up to China, which has been extorting technology from American companies as a price of doing business there and in other ways limiting Americans' ability to succeed in the Chinese market. President Trump is finally saying enough is enough.
Credit the president, too, with his refusal to put up with slippery Chinese negotiating tactics, like taking back concessions already made. When the Chinese tried this during trade talks that looked to be nearing a conclusion, the President reacted swiftly and harshly, announcing punitive tariffs on Chinese imports. He didn't worry about the chill this put on the talks.
Finally, credit him with political sense. Seeing that China's inevitable retaliatory tariffs on U.S. exports would hurt farmers and ranchers, many of whom are loyal supporters, Trump moved quickly to promise more compensatory financial aid, maybe as much as $15 billion.
While giving the president credit, let's also admit that his willingness to take on China has touched off the biggest trade war in modern American history. That sounds bad. It is bad. Tens, maybe hundreds of billions of dollars, could be lost. War is hell.
Sometimes war is necessary. Sometimes fighting is preferable to accepting the status quo. Sometimes a country must just accept the inevitable casualties. Many of those Americans who know China best and normally favor good relations have embraced the need to stand up to China now.
What distresses them, and ought to distress even loyal Trump supporters, is not so much the war. It's the way the president is approaching it -- his heavy reliance on tariffs, which aren't necessarily his strongest weapon, and in particular his blinkered understanding of how tariffs work and their consequences for the economy.
The president is right in thinking the threat of tariffs can force trade partners to the table. He's wrong in thinking actually implementing tariffs makes trade wars easy to win. His logic -- that the Chinese will pay us many more billions in tariffs than we pay them because they export so much more to us than we do to them -- is especially wrong.
Mr. President, exporters don't pay tariffs. Importers do. The tariffs Uncle Sam collects will come from Americans -- first from the companies that buy from China. To the extent they pass on the cost in the form of higher product prices, American consumers will pay.
The president would have been closer to the truth if he'd said China's economy can tolerate less pain from a tariff war than ours, so China will blink first. Tariffs could possibly "win" the war that way. We'll see.
Make no mistake, though. If we win, it won't be an "easy" victory. Economists say the trade war will inflict pain on the U.S. economy, possibly a lot of pain depending on how broadly we apply the tariffs, certainly more than the tariff revenue collected. The longer the war, the greater the pain. Even with a new government aid program, ag producers will be among the sufferers.
Were there ways to stand up to China without absorbing so much pain? Definitely.
Start with reciprocity in investment policies.
It would work like this. If American companies can't invest in China without Chinese joint-venture partners, Chinese companies investing in the U.S. would face a similar stricture. If the price of doing business in China is turning over technology, Chinese companies would pay the same price in the U.S.
Something similar could be done with non-tariff trade barriers. Do their bureaucrats intervene to stifle American exports? Our bureaucrats could do the same to theirs. Do they subsidize exports? So could we. Any trick they play on us, we play on them.
Taking action in cooperation with allies would be even better. The European Union and Japan have similar problems with the Chinese. Instead of going it alone against China, we could organize a united front.
Having chosen tariffs as the weapon instead, are the U.S. and China in for a long and bloody trade war? Some pundits hope President Trump and President Xi Jinping will strike a deal when they meet in Japan next month at a multinational economic forum.
Trump has been careful to stay on friendly terms with Xi. On occasions past -- think Ronald Reagan and Mikhail Gorbachev in the 1980s -- top leaders' personal rapport has smoothed the way to agreements that had eluded underlings.
More often than not, though, top leaders can only sign what's already been worked out. Friendly personal relations only go so far. To paraphrase an old saying, nations don't have friends -- only interests.
The interest of the Communist Party rulers of China is not to be forced to redo their economy along American lines. It's certainly not to be seen caving to foreign pressure and reminding a restless populace of past national humiliations at the hands of Western powers, like the 19th century Opium War.
That being the case, then, the safe bet is to dig in for that long and bloody trade war. We may win it, but we won't win it without suffering casualties.
Urban Lehner can be reached at firstname.lastname@example.org
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