A trade war we’d be unlikely to win

According to President Trump, trade wars are easy to win. This may be true in some cases, but a trade war with China would be anything but easy.

Steve says, based on sources close to Trump, that the president believes we can win a trade war with China because China needs the U.S. more than the U.S. needs China. Thus, the theory goes, the Chinese will blink first.

Trump’s premise is true. In theory, China needs the U.S. more than we need China. Our economy is stronger, our standard of living is much higher, our ability to innovate is greater, and our system of government has a much firmer foundation.

To sustain itself over the long haul, the Chinese dictatorship must continue to deliver a quickly improving standard of living to its subjects. A sustained economic depression would likely lead to disturbances, repression, and eventually rebellion.

However, Trump’s conclusion — that China would blink first — is doubtful. In practice, China holds the upper hand, and not just because of all the U.S. debt it holds. Precisely because China is a dictatorship, a bad economic year or two won’t worry its leaders.

By contrast, if the U.S. stock markets were to lose, say, 40 percent of their value in the next six months and our farmers started to take an economic hit, Americans would quickly lose their stomach for a trade war. And unlike the Chinese people, Americans have a say. The question “are you better off now than you were four years ago?” typically drives the election when a president seeks a second term. In the event of a serious trade war with China, the answer to that question in 2020 will very likely be “NO!”

In short, Americans aren’t prepared to pay the price that comes with a serious trade war. And China knows it.

Though our lack of stomach for a trade war betrays national softness, it’s not a bad thing. Trade wars are the product of protectionist policies and protectionist policies are, generally speaking, undesirable.

However, China is a special case. As Gordon Chang puts it, what looks like an ordinary trade war “is really a struggle for the control of the technologies that will dominate coming decades.” Chang explains:

Chinese theft of intellectual property is sapping American innovation and therefore America’s economy. The IP Commission, in a 2017 update (PDF) to its landmark 2013 report, estimates the U.S. each year loses somewhere between $225 billion to $600 billion in intellectual property through predatory means. It almost goes without saying that most of that loss is, directly or indirectly, to China.

Under these circumstances, a trade war with China might well be necessary. Trump is right to be willing to wage one. The problem is that America will likely to unwilling to sustain it.

Trump has made several errors that decrease our chance of success. One mistake is claiming that the war will be easy to win. Leading a country into any sort of war with this kind of rhetoric is misguided. A trade war will demand sacrifice. People are less willing to sacrifice when they have been promised easy victory.

Another mistake is alienating allies through aggressive trade policy. Our best hope of winning a trade war with China resides in concerted action with other nations fed up with Chinese mercantilism, of which there are many. But instead of cultivating these countries, we have attacked their trade practices.

We renounced the Trans-Pacific Partnership, a vehicle for a commercial alliance against China with its neighbors, because it benefited our potential partners marginally more than it benefited us. We threatened allies like Canada with tariffs.

If we’re serious about a trade war with China over its unique predatory practices against industries that hold the key to winning the economic future, it makes no sense to engage in skirmishes with allies and potential allies over garden variety trade grievances. Yet Trump has done just that.

But Trump may not be serious about a trade war with China. Or if he is now, he may soon be talked out of it by his advisors.

Before a war commences, Trump will attempt to talk China into moderating its policies. Once he realizes China’s seriousness of purpose, he might well look for a few face-saving concessions.

China likely will grant them. Its goal isn’t to humiliate Trump, though it won’t mind teaching him a lesson. Its goal is to maintain the status quo, or enough of it to accomplish its carefully thought out plan to become the world’s dominant economy within a decade or two.

China may not achieve this goal. If it falls short, the reason won’t be American will to stop it. That will does not exist, MAGA hats notwithstanding.