President Trump’s Trade War is an Election Gamble
President Trump has no strategy to win his trade war with China. Imposing tariffs and threatening to impose yet more tariffs are the only tactics he seems to know. The result of his two-year trade war is now being seen clearly, and the outcome couldn’t have been more predictable. The farm industry is getting decimated by the loss of access to foreign-markets and the tit-for-tat tariffs with China.
With China imposing tariffs, which, make no mistake, are taxes on American goods, and America doing the same on Chinese goods, the American people are being hit with a tax on stuff they sell and a tax on stuff they buy. For American family farms, this has contributed to a 20 percent increase in Chapter 12 bankruptcies in 2019. For the last five years, American farmers have seen a downturn in their businesses, and instead of helping them, Trump has put a boot on their throat.
In response to the economic hardship of American farmers due to the trade war with China (and a dozen other countries), President Trump has successfully pushed Congress to pass legislation giving $28 billion in subsidies to those farmers who are hurt by his trade wars. The money to pay for these subsidies is coming from every American taxpayer. Taking wealth from all citizens and giving it to a select group because of an incompetent policy that has created financial woes, is the sharpest example of Washington dysfunction. It also happens to greatly resemble socialism.
Not sure you agree? Well, let’s see what President Trump said on Friday.
“IF OUR FORMALLY TARGETED FARMERS NEED ADDITIONAL AID UNTIL SUCH TIME AS THE TRADE DEALS WITH CHINA, MEXICO, CANADA AND OTHERS FULLY KICK IN, THAT AID WILL BE PROVIDED BY THE FEDERAL GOVERNMENT, PAID FOR OUT OF THE MASSIVE TARIFF MONEY COMING INTO THE USA!”
Beyond the bizarre use of all caps TO MAKE A STATEMENT, what’s truly disconcerting about the president’s remark is that he is enthusiastic about the fact that he has put a “massive tariff” (massive tax) on goods Americans are buying so as to give a handout to a specific group of Americans that are suffering economic hardship because of the trade war he started.
This wouldn’t be the first time President Trump has acted like a socialist autocrat. Just last summer, the president announced he was “ordering” all American companies to immediately “start looking for an alternative to China” to conduct business and produce goods. First, he has no authority to make such an order. Second, the Dow Jones immediately fell more than 435 points. Maybe, in a way, Bernie Sanders is already in the White House. In addition, when speaking about tariffs, it’s not just about the consequences of these taxes on the economy, it’s also about the government stepping into the market and choosing winners and losers. Steel industry you win. Farm industry you lose. Sorry, comrades.
If the socialist philosophy ruminating from Trump isn’t concerning enough, how about we step back and observe the simple fact that we’re in a trade war with our biggest trading partner, and the president has no plan for a true American victory. Because to win a trade war with China takes much more than simply pounding the tariff table over and over again.
Trump proponents will certainly point to the Phase 1 agreement as evidence of Trump’s progress, but they’ll point to the headline and disregard the substance. Because Phase 1 is an agreement that is conceptually flawed with unrealistic expectations, commitments that aren’t based on market demand, and a mechanism to resolve disputes that has the potential to destroy the current international system that the United States has advocated for and protected over the last 75 years. Also, and this is worth noting, Phase 1 did not lift the tariffs.
Whatever we get at the end of this trade war is guaranteed to be woefully inadequate, and most likely will be agreed to simply so Trump can say he beat China. Honest political observers know that Trump’s motto is, simply, damn the details, the headline is what’s important. And that’s what Trump will ultimately settle for, a deal of no substance so he can spin the headline to help him achieve reelection in November.
But there are a number of tactics the Trump Administration could have employed to ensure that there was minimal financial pain for American businesses and that the final deal would make significant progress towards curbing China’s malicious trade practices and theft of intellectual property.
First, and not complicated to see, if the president (any president) determined that we needed to aggressively confront China as a bad actor in trade, they would first take into account that the U.S. would most likely be thrust into a trade war. With this, no competent leader would have backed out of the Trans-Pacific Partnership (TPP) in the complete and empty way Trump did. TPP offered the United States access to markets which would have resulted in diminishing (or in some instances denying) market share to China, and thus would have checked China’s ability to grow and blocked their ability to gain influence in regions we don’t want them to have influence. In addition, TPP would have offered American farmers access to new markets which would have softened the blow of China’s tariffs, and thus hurt China’s bargaining position against the United States.
Second, Americans are on this trade battlefield alone. Where are our allies? Why have we not gotten the Europeans, Australians, Japanese, South Koreans, Canadians, and Mexicans to rally with the United States to correct China’s bad trade behavior? Even if only a handful of allies joined the fight, a coalition of strong global economies would strengthen the hand of the United States greatly. Does it not boggle the mind that rather than build a coalition, we instead put tariffs on our allies like Canada? And in return, they’re putting tariffs back on us. America First, meet America alone.
Third, once a president decided that China’s dishonest trade practices needed to be confronted, the United States should have identified countries with economies that are similar to China’s. How about India?
From the beginning, it should have been clear to Trump and his team which American industries would be hit the hardest in a trade war with China. Taking this understanding, Trump should have entered into a bilateral agreement with India that focused on softening the blow for the American industries that were likely to get hit the hardest. As American farmers would get squeezed by the Chinese, India could represent access to new markets as a replacement. A smart negotiator could have weakened China’s ability to negotiate and softened the pain for American businesses. But alas, for India, Trump hit them with a 25 percent tariff on steel and a 10 percent tariff on aluminum. And of course, they’ve retaliated with tariffs on $240 million against American goods, including almonds, walnuts, chickpeas, and apples. Ah, those pesky American farmers again.
Ironically, all these tariffs are being imposed solely by Donald Trump under the pretext of national security. The real authority to impose tariffs rests with the United States Congress, not the president. Who says this? The United States Constitution does. But because of the feckless nature of Republicans in Congress who don’t want to anger Trump, the Congress has gone along with Trump’s national security charade and abdicated their authority as a consequence.
The three aforementioned tactics would have greatly aided the American government’s ability to negotiate a favorable and quick deal with China—a deal which not only checked China’s malicious trade practices but also provided Americans with a greater ability to achieve financial successes at home and abroad. Instead, we have President Trump utilizing a strategy that is solely based on tariffs and impulse behavior. Trump is recklessly jeopardizing a strong economy that took a decade to rebuild from the massive loss of wealth in the great recession.
Because the economy is humming, President Trump’s incompetent trade strategies and socialistic impulses, which are disguised as patriotic nationalism, haven’t registered with many Americans. But as different risks become more acute to investors, as American businesses are squeezed by loss of foreign markets, and as increased cost for goods start to accumulate on average Americans, the alarming and erratic behavior of President Trump, will have an impact on the economy.
Americans would be wise to vote for a leader in 2020 who is rational and who doesn’t have socialist tendencies—even if that means voting for a candidate who does not have an R or D by their name. After all, no person or political party is entitled to any citizen’s vote.