Early this morning, the United States officially imposed a 25 percent tariff on $34 billion worth of Chinese exports. The Chinese government, which didn't want to be seen "firing the first shot," says it will immediately impose its own retaliatory tariffs on $34 billion worth of U.S. exports. The Trump administration already has tariffs on another $16 billion of Chinese exports in the works, and is threatening to impose duties on a whopping $500 billion worth if China doesn't back down.
In other words, President Trump's trade war is on. And just like an actual war, the start of hostilities begs a question: How do you win?
In April, journalist Keith Richburg wrote about how "at the start of America’s disastrous invasion of Iraq, then Major General David Petraeus ... famously asked my Washington Post colleague Rick Atkinson: 'Tell me how this ends.'" Trump himself once called the endless quagmire of the Iraq War, and the enormous sacrifice of blood and treasure there, "the single worst decision ever made." A huge part of the problem was that the Bush administration never really nailed down what circumstances would trigger the end of hostilities. As Richburg noted, if Trump has similarly nebulous ideas about what China could do to satisfy him, extracting the U.S. from this conflict could be challenging indeed.
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Now, in fairness, the Trump administration did lay out what they ostensibly want back in May. Their demands include a 60 percent reduction in America's trade deficit with China (which was $375 billion last year), an end to Chinese theft of U.S. intellectual property, no more Chinese subsidies for its own tech companies, a reduction in China's tariffs on American exports, and for the Chinese government to allow more U.S. investment over there.
But this too is reminiscent of the Iraq debacle. To the extent the Bush administration had a final goal in mind for the invasion, it was to turn Iraq into a democracy. But as specific criteria, this proved to be such a towering order that it was useless as a practical tool for assessing victory. Trump's demands for China are similarly sweeping. As The Washington Post put it, China would have to "redo just about everything with its economy" to satisfy Trump.
The Chinese, of course, completely balked at the list. For the moment, we have no actual answers for what could happen to convince the White House that its tariffs can come down.
The problems continue if you break Trump's demands into their constituent parts. On its own, shrinking America's trade deficit with China is a fine idea. But tackling the problem export by export is a fool's errand. The problem is that the aggregate flow of American demand to Chinese jobs is not matched by an equivalent flow of Chinese demand to American jobs. We need to get our arms around the whole system: bring the value of the two nation's currencies into closer alignment by having the Chinese drain off their massive reserves of U.S. dollars.
There's historical precedent for this. In the 1980s, America was running trade deficits with a number of major countries like France, Britain, Germany, and Japan. Congress threatened tariffs to remedy the problem, and the Reagan administration used that threat to convince the other countries to adjust the values of their currencies and bring the trade deficits down.
Trump could use his own threat of tariffs in the exact same way with China. In fact, Trump repeatedly insisted on the campaign trail that the value of China's currency was a serious problem. Remarkably, though, that rhetoric has completely disappeared now that Trump is actually in the Oval Office. By all indications, the White House's plan is to browbeat the Chinese government into directing its economy to buy more U.S. goods and services. That is both wildly impractical and fails to get at the root causes of the problem.
Or take the question of intellectual property. No doubt, China's practices in this arena are shady. And there's an obvious value in having trading partners who play by the rules. But when it comes to intellectual property law, the rules themselves are pretty ridiculous. It actually is in our interests for China to become a modern, advanced, wealthy economy. When that happens, they can sell America even better and more advanced goods. But they'll also have more money to buy more stuff from us. Insisting that the Chinese abide by draconian IP rules will slow that process down.
More to the point, Trump's fundamental concern is American jobs. But the IP issue has little to do with that. It's not as if U.S. companies need the Chinese to fork over gobs of licensing and patent fees so they can create jobs and raise wages. American corporations are already enjoying enormous profit margins, and are sitting on a ton of cash. They could invest right now if they wanted to. In other words, the only people who are going to benefit by squeezing IP fees out of the Chinese are wealthy CEOs and shareholders.
It's worth remembering that the president was a reality TV star. And in that profession, the point is ratings. There's little differentiation between putting on a show and getting results; the show is the result. And it's hard to escape the conclusion that this trade war is just another show Trump's putting on.
In which case, will he ever let it end?
