Trump's Trade Wars Could Get Very Ugly

Milton Ezrati

Economics, Americas

Both sides stand ready to inflict considerable pain on the other—even as they talk about talking.

President Trump has started a dangerous game with these tariffs. Rather than use more quiet means to move China from less-than-fair trade practices, he has chosen to play an all or nothing game—or what looks like one. It may yet yield positive results. But China’s leadership is no less afraid of risk than Trump. While willing to talk, it has countered the American tariffs with some of its own. Now both countries are stuck in a negotiation where failure will result in something more destructive than disappointment, for the U.S. economy, for China’s, and for the world economy generally. What is more, the destruction will occur while they talk and perhaps even if the resulting outcome is positive.

Though candidate Trump talked a lot about tariffs, his recent announcements had a larger purpose than simply fulfilling promises. They were meant to pressure Beijing as seldom before into making concessions, to ease restrictions on entry into that economy and its financial markets, to eliminate Chinese insistence that foreign firms secure a Chinese partner to do business there, and most galling of all, to blunt demands that foreign partners transfer patented technology to their Chinese counterparts. If they were simply delivery of a promise, their announcement would not have occurred simultaneously with a call from Treasury Secretary Steven Mnuchin to congratulate China’s Liu He on his rise to vice premier. Nor would the White House have coupled the announcement as it did with a letter to Beijing from Mnuchin and U.S. Trade Representative Robert Lighthizer inviting talks. Since China has long resisted any softening of these positions, it is also understandable why the White House sought a way to shock Beijing, but it does not make it any less dangerous.

The ploy seemed to work for a while in late March. Beijing voiced an uncharacteristic eagerness to talk. But true to past practice, China’s leadership has quickly upped the ante, countering the announced U.S tariffs with its own on 106 American products, including cars, chemicals and agricultural products. Beijing’s proposed 25 percent tariffs would affect an estimated $50 billion in annual U.S. sales to China, just matching the estimated $50 billion in Chinese sales here that Trump’s 25 percent tariffs on 1,333 Chinese products aim to impact. Now both sides stand ready to inflict considerable pain on the other even as they talk about talking.