Why Trump (and America) Will Lose the Trade War with China
Things are not going well for America in our trade war with China. Even as talks stalled last week the economic conflict escalated with President Trump’s announcement of additional tariff’s against Chinese imports. The move was a negotiating tactic by the president aimed at using America’s position as the largest recipient of Chinese exports (18% of total Chinese exports in 2018) to force an agreement between the two countries. Unfortunately for Trump, the stock market, and America in general, China responded by countering with new sanctions against US imports to China. The result was another series of alarms and growing concerns over the trade war with China. The reality however is that this is just one battle in the larger geopolitical struggle between the two countries, and America could very easily lose both.
The rationale behind the Trump administration’s trade negotiations with China are the same as they’ve been for two decades. The most high profile issue is America’s need to protect itself from Chinese violations of US intellectual property rights (IPRs), as well as forced technology transfers for companies investing in the country. But for American economists and politicians the most important issue is the US trade deficit with China. The $420 billion deficit combined with China’s control of 28% of America’s public debt has convinced many that it is a source of geopolitical leverage over the United States and thus a growing threat to national security. For these and other reasons (e.g. increased Chinese defense spending, territorial issues in the South China Sea, etc.) America has engaged the Chinese in continuous economic and diplomatic skirmishes since the end of the Cold War.
President Trump believes he can win this battle due to the sheer weight of America’s economic might, and he may be correct. What should really be considered however is that China’s willingness to fight from a disadvantage signals they have already accepted the possibility of short-term losses and disruptions. There are several reasons for the Chinese strategy including waiting for “a more serious administration” in 2020 and confidence born of the…