Washington • President Trump is conducting his trade war with China as if it were a zero-sum game, but it’s not. It’s a negative-sum game. Both sides lose.
Sad! And self-defeating.
It’s clear at this point that Trump’s ill-advised gambit of tariffs and bombast is hurting both economies. The question is who can more stoically withstand the pain — an autocrat with a mandate to rule indefinitely over a tightly controlled one-party state, or a democratically elected president with dismal approval numbers who must face voters in 14 months.
I think I know the answer. I think most people do, except Trump. The president seems to have drunk his own Kool-Aid about being some sort of genius deal-maker. Asked Monday about his erratic and disruptive method, if you can call it that, Trump told reporters with a shrug, “Sorry, it’s the way I negotiate.” I’m sorry, too. The whole world should be.
Revised figures released Thursday show that the economy grew by 2% in the second quarter of this year — not bad, but sharply down from the 3.1% growth we saw in the first quarter. Trump claims on Twitter and at his rallies that the economy is not slowing. His own administration’s statistics prove that’s not true.
In fact, the economy is growing at about the same rate as during the last quarter of the Obama administration — the difference being that now economists are worried that we’re sliding toward a recession.
For the financial markets, this has been essentially a lost 12 months. The pattern is that investors get comfortable, stock indexes make some gains, and then there’s another heated clash in the trade war and the markets give the gains back. As many experts predicted, the “sugar high” from Trump’s upper-class and corporate tax cuts has faded without meaningfully benefiting most Americans. Middle-class families that did get a modest tax cut are seeing much of the windfall snatched away by price hikes for merchandise covered by Trump’s tariffs.
“I think our tariffs are very good for us. We’re taking in tens of billions of dollars. China is paying for it,” Trump lied last week. In fact, China is not paying a cent. As Trump well knows, the tariffs are taxes paid by U.S. companies that import Chinese goods, and the cost is ultimately passed along to the U.S. consumer.
What unsettles the markets more than the tariffs themselves is uncertainty about where this unnecessary trade war is headed. Trump’s declaration last Friday that American companies were “hereby ordered” to stop doing business in China was ridiculous on its face, but it had to make even his most loyal supporters nervous. And his tweet asking whether Chinese leader Xi Jinping or Federal Reserve Chairman Jerome Powell was “our bigger enemy” can only be described as nuts.
With all his tariffs and all his tirades, Trump has managed to do just one thing: give Xi the upper hand.
It is true that the trade war is hurting the Chinese economy, which this year will probably see its slowest growth in decades. But Xi can afford to play the long game. And he surely knows that he holds Trump’s political future in his hands.
The U.S. election polls that Trump calls “fake news” are being read not just in Washington but also in Beijing. Xi can see that Trump’s reelection bid is in trouble. He can’t possibly miss the fact that Trump is claiming economic revival as the main reason he deserves a second term. And Xi must grasp how the trade war is contradicting Trump’s campaign narrative.
If I were Xi, I’d be thinking that these are my choices:
I could look at Trump’s unhinged performance at last weekend’s G-7 meeting and decide that, on balance, it is good for China for the world’s big industrialized democracies to be without effective U.S. leadership. By that reasoning, I might come back to the table and make a trade agreement — one that would surely be favorable to China, given Trump’s desperation — and boost Trump’s chances of reelection.
Or I could sit back, take only modest countermeasures against the U.S. tariffs, play the role of reasonable adult against Trump’s petulant child, ride out whatever pain the trade war brings in the knowledge that Trump is hurting more, and thus increase the likelihood of his defeat. My guess is that this is the option Xi has settled on. The Chinese leadership doesn’t like unpredictability any more than the financial markets do.
If Trump is “the chosen one” to confront China, it was an awful choice.