This morning brought news that the United States and China have declared another "truce" in their on-going trade war and resolved to resume negotiations on a final agreement. This is both good and bad news, since an escalating war between the world's biggest economies and trading partners can never end well, not just for the direct protagonists but for everyone else no matter how removed from the original quarrel. But having entered into this war, we have little option but to prosecute it vigorously now and eke out the best deal possible.
Unfortunately for that latter aim, we need a clear and well-defined strategy, and at least at the highest levels of our government, we seem lacking in clarity and defined goals. Or rather, the defined goals do not match up with our rhetoric or demands. I admit, freely, that I am not a fan on this current administration and that my dislike of their policies and politics may well cloud my judgment of their approach to trade. However, I think that on the whole I may muster a reasonably balanced and objective review of their trade policy and its consequences, seen of course from the viewpoint of a layman.
My first and foremost criticism of President Trump's trade policy is that he conflates trade deficits with unfair trade practices. Deficits by themselves are not a problem, especially for the US - if we import more than we export, it's because other nations have goods we desire at a cost that is better than what we could manage domestically. It ensures that we enjoy cheaper products locally and fuel our own consumption. I may be mistaken, but given that these goods are imported by private companies, the US government has no direct loss if we import more than we export as long as the US dollar remains the global currency. Governments of other nations may suffer in similar situations since the payments drain their foreign exchange reserves, something the US clearly doesn't face in the present or foreseeable future. But the president is fixated on trade deficits as a marker for other countries exploiting the US and enriching themselves at our expense. No major (or even minor) economist has endorsed his opinion on deficits, but that has not deterred him. Critically he has tied the trade deficits in manufactured goods to the loss on American jobs, especially in the Rust Belt states. But as critics have pointed out, US manufacturing output has increased steadily over the years, even as the total number of jobs in that sector have fallen. Even if we stop importing all those products - iPhones and shirts, LCD displays and toaster ovens, solar panels and MAGA hats - the number of jobs would not recover; the only reason we do import so much from China, and Vietnam and Bangladesh, is that those countries can produce goods cheaper than we can do here. Forcing manufacturing back into the US must lead to inevitably higher costs for us, without the higher paying jobs needed to afford them.
Now there are definitely many things that fuel trade deficits and many of those do tilt the field against the US. But the Administration has barely mentioned items such as lax environmental laws or working conditions that enable other nations to undercut our prices, except to seek to reduce our own protections. There is a political side to this position, since many modern conservatives dream of gutting our own environmental protections and returning workers to an utopian slave-like status; to push other countries to enact laws like our own would undercut the GOP position and stem the evisceration of unions in the US. So these issues are not part of our trade position, or at least are not a prominent or strongly held position in our negotiations.
China, more than our other partners, cheats in the realm of intellectual property rights and uses their government muscle to force one-sided deals on their corporate partners. These corporations, lacking the same government support on their side, acquiesce in order to gain a foothold in the largest emerging market, but in doing so hobble themselves for the future. So we have a German company handing over Maglev technology to the local train corporation in return for the contract to build the Shanghai Maglev, or Google agreeing to government censorship in return for access to the Chinese internet. But these are private corporations selling out their future and/or their principles for short-term gains. By principle, the US has limited interest in these deals and it would be smarter for international companies to make common cause against such Chinese policy; something they will not do, since our current markets reward short-sighted temporary gains over long-term losses. Other Chinese laws, or lack thereof, allow trademark piracy and open theft of intellectual property. On this front the US can and should fight back, and yet it is precisely this issue that is left on the backburner and given little importance in the Trump trade war.
Possibly a major reason for talking about deficits over intellectual property rights is politics and perception. The president views everything through the prism of reality TV and ratings and he knows that ranting about manufacturing job losses plays well to his supporters, even if he doesn't know or doesn't care that no trade deal is going to bring those jobs back to the country. Moreover, the deficit in absolute numbers makes for an achievable aim in a trade war, even if it has no meaning in the long term prosperity of the US, and in fact may hurt the US should we succeed. In many ways it is hard to believe that the president is serious about a real deal for the US as a country or he would have followed a very different course. To start with, he would not have demonstrated from the start that he sees treaties and deals as meaningless. He talks of negotiating a new deal with China, even as he tore up a free trade zone deal with Canada and Mexico and renegotiated it with threats of wrecking the economies of all three nations if they didn't agree. (Fortunately for him, his bluff worked, though it's hard to say if anything new or substantively better for the US was actually added to the new deal - Canada and Mexico worked out a deal largely similar to the last with some concessions rather than wreck their own economies to make a point), But in the end, even if he should succeed in negotiating a deal that is tilted in the US' favor - and make no mistake, despite all the talk of "fair" agreements, Trump's insistence on bilateral rather than multilateral agreements makes it clear that he wants to bully smaller economies into one-sided trade deals (only his overly simplistic view of global economics stands in his way of actually blowing up global trade) - there is nothing to keep China from tearing it up as soon as conditions favor them in a tough negotiation. Trump has made clear that as in his personal business dealings, he sees nothing binding in an agreement and that the only right is the power to get away with one's actions, legal or otherwise.
It is a safe bet that this president has never read the teachings of Sun Tzu or Lao Tzu or he would never have chosen to follow quite the course he has so far. If he really wanted to address the true unfair trade practices in China, he would have made common cause with Europe, Japan and Korea to maximize pressure on the one lawbreaker instead of opening wars on every front. Pulling out of the Trans-Pacific Partnership, a treaty designed by previous US trade representatives to constrain Chinese intransigence, was short-sighted to say the least and a signal to the world that the US had no long-term strategy to trade. Criticism of the WTO is a similarly strange approach to achieving one's aims, but all part of Trump's muddled view of global trade and economics. He has continually conflated different issues, most recently pushing the idea that some Chinese companies pose a cyberthreat to national security - how stupid would the UK feel if they followed US urging to expel Huawei from their markets, only to see today that in Donald Trump's view those dire claims were just a negotiation tool and that today he is perfectly willing to raise US sanctions on that company as part of a trade deal. Canada must be definitely feeling cheated having aided in the arrest of Huawei's chief executive and drawn the ire of the Chinese government in return, only to see the US hang them out to dry while negotiating with China. If this company poses a threat to US security, that should be a redline in talks with China, possibly not even included in the trade negotiations. But the US government has mixed all these issues together, robbing them of separate importance and actually ceding an advantage to China. China after all has some issues that are much less open to negotiation and we would need much more pressure to force changes in their policy. But we not only fail to understand these issues (at the highest level, since I think our career officials at the Commerce Dept understand the case better), we make it clear that we see most issues as equal and that all that matters to us is the overall trade deficit and rise of the stock markets. In effect, we have signaled to China that we will accept any deal that reduces the trade deficit, an issue that they will gladly cede in return for the chance to continue stiff-arming foreign companies and benefiting off the intellect of the rest of the world. The stock market of course will rise on any agreement that ends the danger of a trade war and not care about the long term risks to the US - it is neither their interest or job to worry about how we hamstring ourselves, nor do they care about one country over the other. So we may well give China what it wants most in return for mere window dressing, concessions that they will feel quite willing to cede if they hold their core interests. Meanwhile, we have weakened the entire world trade system and handed our allies over to China's power to be dealt with at leisure once the war with the US is done. Sun Tzu couldn't have plotted it better - for China.
Unfortunately for that latter aim, we need a clear and well-defined strategy, and at least at the highest levels of our government, we seem lacking in clarity and defined goals. Or rather, the defined goals do not match up with our rhetoric or demands. I admit, freely, that I am not a fan on this current administration and that my dislike of their policies and politics may well cloud my judgment of their approach to trade. However, I think that on the whole I may muster a reasonably balanced and objective review of their trade policy and its consequences, seen of course from the viewpoint of a layman.
My first and foremost criticism of President Trump's trade policy is that he conflates trade deficits with unfair trade practices. Deficits by themselves are not a problem, especially for the US - if we import more than we export, it's because other nations have goods we desire at a cost that is better than what we could manage domestically. It ensures that we enjoy cheaper products locally and fuel our own consumption. I may be mistaken, but given that these goods are imported by private companies, the US government has no direct loss if we import more than we export as long as the US dollar remains the global currency. Governments of other nations may suffer in similar situations since the payments drain their foreign exchange reserves, something the US clearly doesn't face in the present or foreseeable future. But the president is fixated on trade deficits as a marker for other countries exploiting the US and enriching themselves at our expense. No major (or even minor) economist has endorsed his opinion on deficits, but that has not deterred him. Critically he has tied the trade deficits in manufactured goods to the loss on American jobs, especially in the Rust Belt states. But as critics have pointed out, US manufacturing output has increased steadily over the years, even as the total number of jobs in that sector have fallen. Even if we stop importing all those products - iPhones and shirts, LCD displays and toaster ovens, solar panels and MAGA hats - the number of jobs would not recover; the only reason we do import so much from China, and Vietnam and Bangladesh, is that those countries can produce goods cheaper than we can do here. Forcing manufacturing back into the US must lead to inevitably higher costs for us, without the higher paying jobs needed to afford them.
Now there are definitely many things that fuel trade deficits and many of those do tilt the field against the US. But the Administration has barely mentioned items such as lax environmental laws or working conditions that enable other nations to undercut our prices, except to seek to reduce our own protections. There is a political side to this position, since many modern conservatives dream of gutting our own environmental protections and returning workers to an utopian slave-like status; to push other countries to enact laws like our own would undercut the GOP position and stem the evisceration of unions in the US. So these issues are not part of our trade position, or at least are not a prominent or strongly held position in our negotiations.
China, more than our other partners, cheats in the realm of intellectual property rights and uses their government muscle to force one-sided deals on their corporate partners. These corporations, lacking the same government support on their side, acquiesce in order to gain a foothold in the largest emerging market, but in doing so hobble themselves for the future. So we have a German company handing over Maglev technology to the local train corporation in return for the contract to build the Shanghai Maglev, or Google agreeing to government censorship in return for access to the Chinese internet. But these are private corporations selling out their future and/or their principles for short-term gains. By principle, the US has limited interest in these deals and it would be smarter for international companies to make common cause against such Chinese policy; something they will not do, since our current markets reward short-sighted temporary gains over long-term losses. Other Chinese laws, or lack thereof, allow trademark piracy and open theft of intellectual property. On this front the US can and should fight back, and yet it is precisely this issue that is left on the backburner and given little importance in the Trump trade war.
Possibly a major reason for talking about deficits over intellectual property rights is politics and perception. The president views everything through the prism of reality TV and ratings and he knows that ranting about manufacturing job losses plays well to his supporters, even if he doesn't know or doesn't care that no trade deal is going to bring those jobs back to the country. Moreover, the deficit in absolute numbers makes for an achievable aim in a trade war, even if it has no meaning in the long term prosperity of the US, and in fact may hurt the US should we succeed. In many ways it is hard to believe that the president is serious about a real deal for the US as a country or he would have followed a very different course. To start with, he would not have demonstrated from the start that he sees treaties and deals as meaningless. He talks of negotiating a new deal with China, even as he tore up a free trade zone deal with Canada and Mexico and renegotiated it with threats of wrecking the economies of all three nations if they didn't agree. (Fortunately for him, his bluff worked, though it's hard to say if anything new or substantively better for the US was actually added to the new deal - Canada and Mexico worked out a deal largely similar to the last with some concessions rather than wreck their own economies to make a point), But in the end, even if he should succeed in negotiating a deal that is tilted in the US' favor - and make no mistake, despite all the talk of "fair" agreements, Trump's insistence on bilateral rather than multilateral agreements makes it clear that he wants to bully smaller economies into one-sided trade deals (only his overly simplistic view of global economics stands in his way of actually blowing up global trade) - there is nothing to keep China from tearing it up as soon as conditions favor them in a tough negotiation. Trump has made clear that as in his personal business dealings, he sees nothing binding in an agreement and that the only right is the power to get away with one's actions, legal or otherwise.
It is a safe bet that this president has never read the teachings of Sun Tzu or Lao Tzu or he would never have chosen to follow quite the course he has so far. If he really wanted to address the true unfair trade practices in China, he would have made common cause with Europe, Japan and Korea to maximize pressure on the one lawbreaker instead of opening wars on every front. Pulling out of the Trans-Pacific Partnership, a treaty designed by previous US trade representatives to constrain Chinese intransigence, was short-sighted to say the least and a signal to the world that the US had no long-term strategy to trade. Criticism of the WTO is a similarly strange approach to achieving one's aims, but all part of Trump's muddled view of global trade and economics. He has continually conflated different issues, most recently pushing the idea that some Chinese companies pose a cyberthreat to national security - how stupid would the UK feel if they followed US urging to expel Huawei from their markets, only to see today that in Donald Trump's view those dire claims were just a negotiation tool and that today he is perfectly willing to raise US sanctions on that company as part of a trade deal. Canada must be definitely feeling cheated having aided in the arrest of Huawei's chief executive and drawn the ire of the Chinese government in return, only to see the US hang them out to dry while negotiating with China. If this company poses a threat to US security, that should be a redline in talks with China, possibly not even included in the trade negotiations. But the US government has mixed all these issues together, robbing them of separate importance and actually ceding an advantage to China. China after all has some issues that are much less open to negotiation and we would need much more pressure to force changes in their policy. But we not only fail to understand these issues (at the highest level, since I think our career officials at the Commerce Dept understand the case better), we make it clear that we see most issues as equal and that all that matters to us is the overall trade deficit and rise of the stock markets. In effect, we have signaled to China that we will accept any deal that reduces the trade deficit, an issue that they will gladly cede in return for the chance to continue stiff-arming foreign companies and benefiting off the intellect of the rest of the world. The stock market of course will rise on any agreement that ends the danger of a trade war and not care about the long term risks to the US - it is neither their interest or job to worry about how we hamstring ourselves, nor do they care about one country over the other. So we may well give China what it wants most in return for mere window dressing, concessions that they will feel quite willing to cede if they hold their core interests. Meanwhile, we have weakened the entire world trade system and handed our allies over to China's power to be dealt with at leisure once the war with the US is done. Sun Tzu couldn't have plotted it better - for China.
