Trump's trade war is actually for the elites

(Image credit: Illustrated | Justin Sullivan/Getty Images, Chip Somodevilla/Getty Images)

published 13 May 2019

Ask people what President Trump's biggest break with the centrist establishment has been, and they'll probably point to his trade war with China. It's the primary thing that gets him tagged as a populist and a nationalist. Think tanks, economists, experts, and politicians from the center-left to the center-right react to his trade policies with a mix of condescension and horror. The latest round in Trump's stand-off with China just delivered tariff hikes on tens or even hundreds of billions worth of each country's exports, sending Wall Street into a temporary tizzy.

But the gap between Trump's trade war and the preferences of mainstream elites is not so great as this spat might suggest.

Yes, mainstream economists and politicians are deeply uncomfortable with tariffs, largely because of their potential to devolve into exactly this sort of arms race. But that's a disagreement with Trump's tactics. When it comes to the things Trump is actually trying to achieve — the changes he's trying to impose on China — there's actually a fair amount of overlap between the president and those critics.

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There are three major demands coming from the White House: First, that China crack down on intellectual property theft in its domestic market. Second, that China change its regulations so that foreign companies opening up shop in China's market no longer have to partner with a Chinese firm — which almost inevitably entails giving up technological know-how and trade secrets. And third, that China cut back on the subsidies the government provides to various companies and industries.

Most of those same mainstream economists and experts and think tanks wringing their hands over Trump's tariffs also see all three of these things as genuine problems. "I think the basic issue that the Trump administration is pointing to — the lack of intellectual-property protection — is a serious one, particularly for the United States," Gregory Mankiw, a Harvard economist and former advisor to President George W. Bush, told the New York Times last year. None other than the Peterson Institute for International Economics, about as down-the-line an example you could find of establishment respectability, has described access to China's domestic market and technology transfer as "a real problem."

What's sitting behind all this is that most all of these mainstream economists and policymakers are committed to maintaining the modern global trade order: A set of interlocking rules they'd like all countries to follow, in keeping with the vision of a global competitive capitalist market, to guarantee private companies and investors can move as freely as possible across the globe in search of profit. A trade war of escalating tariffs does threaten that order.

For the global trade vision to happen, companies want to know that intellectual property laws will be respected anywhere in the world, allowing them to recoup generous profits on their investments. They want to be able to open factories and make investments anywhere they like, without worrying the local government might force them to give up advantages to competitors. Same goes for China's subsidies: You can't really have a perfect global competition if various governments are giving a boost to their favored companies with "market-distorting subsidies," as U.S. Trade Representative Robert Lighthizer put it.

As a matter of fact, the real incoherence lies on Trump's side of the divide. The whole selling point for Trump's trade war — the reason he supposedly undertook it, and the reason it resonates with his base — was because it was a rejection of the preferences of mainstream elites. Across many rural and small town communities, not to mention urban working-class communities as well, that have suffered from de-industrialization, the idea of fighting a trade war with China is pretty popular.

But technology transfer and intellectual property protections have little-to-nothing to do with job loss and shuttered factories. What harmed everyday American workers was the relative values between American and Chinese exports and imports, and the resulting shift in American demand towards Chinese-produced goods. Getting Chinese companies to pay American companies more licensing fees, or grab fewer American technological secrets, will do nothing to re-balance those values or shift consumption back stateside. They will fatten the pockets of corporate profits and their shareholders, but that's about it.

Chinese subsidies help depress the price of some Chinese exports, so that could matter. But accepting a global regime in which subsidies are prevented stops the U.S. from helping its domestic economy as much as it stops China. Actual policy changes that could help rebalance trade, particularly changes to the value of China's currency, have fallen completely off the radar after Trump paid them initial lip service. Then there's the broader fact that the existing rules of the global trade order arguably benefit owners of capital exclusively, while rigging the game against workers, and allow capitalists to play workers in one country off workers in another.