A trade war that’s not so easy to win

Reportedly, there is a division within the White House over how to proceed with China on trade. One camp, which includes Steven Mnuchin and Larry Kudlow, is optimistic that the administration can reach a trade deal with Beijing as things stand now. But Peter Navarro, the senior trade adviser, believes stronger tactics are required to change China’s approach. President Trump is said to agree with Navarro.

But what if both sides are wrong? What if both are too optimistic?

It may well be that China isn’t going to reach an agreement with the U.S. in 2019 or 2020 whether we get tougher with Beijing, or not. Sure, China is suffering due to Trump’s tough policy, and will suffer even more if his policies get tougher. However, Chinese leaders don’t answer to the Chinese people. Thus, they can resist a deal until at least 2021. By then, they hope, Trump will have been defeated thanks in no small part to the pain his trade war will have inflicted on the U.S. economy.

Reportedly, there is also a division within the White House over how to proceed on Hong Kong. Trump’s top aides, John Bolton in particular, are said to be urging him to back Hong Kong’s pro-democracy protesters. However, the president remains determined to keep China’s human rights abuses from complicating his trade negotiations.

But if China is determined to undermine Trump’s presidency, the administration’s stance towards Hong Kong protesters will have no bearing on trade negotiations. In this scenario, only major trade concessions to Beijing might produce a deal, and even that course might not suffice.

Trump said many “out there” things during his presidential campaign. His claim that trade wars are “easy to win” might have been the most egregious, at least as applied to China.

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