Trade wars: Easy to win?

The trade war between the US (or rather the Trump Administration) and China (or rather Xi Jinping) is heating up again. The standard view seems to be that, because of the massive imbalance in merchandise trade between the two countries, Trump has the advantage. China could retaliate by dumping US bonds, but this is seen as a weapon too dangerous to use.

I don’t think this exhausts the options. As we’ve seen in Australia, the Chinese government can do all sorts of things to retaliate against nationals of a country that has offended them. That might, however, be an option confined to bit players like Australia.

If I were advising Xi on retaliation against Trump, I’d suggest looking at services where the balance is strongly in favor of the US. An obvious starting point would be tourism. A travel advisory, suggesting that the US is a dangerous place for Chinese tourists to visit, and implying that such visitors might face adverse consequences on their return would be an obvious choice. It would cause instant economic pain, be easily reversible and could be justified by pointing to the example of the US embargo on Cuba.

A more hopeful, and probably more likely, outcome is that China will play for time until 2020, when Trump will come under pressure in US farm states, or until 2021 when (more likely than not) he will be gone altogether.

Trade wars aren’t, as Trump suggests, easy to win. But they are nowhere near as destructive as real wars. We should be more concerned about the hawks in the foreign policy establishment, spoiling for a fight over the South China Sea, than about tariffs on TVs and soybeans.

24 thoughts on “Trade wars: Easy to win?

  1. “2021 when (more likely than not) he will be gone altogether.”

    I wouldn’t count on that. Presidents usually get re-elected; Trump only needs the states that voted for whim last time to get re-elected, and there’s no sign that the people who voted for him in 2016 aren’t going to vote for him in 2020; and the Democrat field does not look strong.

  2. There are lots of ways China can put pressure on. Obviously the tariffs will hurt, but China supplies so many basic inputs that the US probably has few alternatives, so the main results will be higher prices domestically. But they can target selected sectors (already doing), redirect students and tourists, add weight to shifts away from the dollar as the trade currency…

    The key to the failure of this round is US demands that China legislate specific outcomes. In Beijing this could only be read as “Unequal Treaty” time again.

  3. Smithy

    two things

    1) Trump is a minority president in terms of votes
    2) Trump has a large disapproval rating which has been constant. This is an obvious consequence of merely courting his base. Most new Presidents gain in popularity
    Thus if the Democrats have a decent candidate they could win

  4. Most now-developed countries used protectionism and industry development policy to overcome their backwardness in the era(s) when they were relatively undeveloped. Free trade is only beneficial to relatively advanced and dominant countries.

    ” … virtually all of today’s developed countries—or now-developed countries (henceforth NDCs)—actively used interventionist trade and industrial policies aimed at promoting, not simply “protecting,” it should be emphasized, infant industries during their catch-up periods.” – Ha-Joon Chang.

    That is they used tariff protection and domestic industry promotion polices. In other words protectionism and anti-laissez faire policies.

    China has become dominant over the US in industrial and manufacturing terms, so it may now be beneficial for the US to become more protectionist. It would be foolish to make any blind assumption that free trade is always good for everyone, everywhere. History shows that this is not the case.

    Having said that, I very much doubt that Trump’s trade policy is thought through in any consistent way or that it connects up in any logical ways with his other policies. (I also hope he fails to win another term.)

    http://www.personal.ceu.hu/corliss/CDST_Course_Site/Readings_old_2012_files/Ha-Joon%20Chang%20-%20Kicking%20Away%20the%20Ladder-The%20%E2%80%9CReal%E2%80%9D%20History%20of%20Free%20Trade.pdf

  5. Did I read that correctly John? YOU would advise the Chinese government to engage in the deliberate deception of its people as a form of a “noble” lie justified by Trump and all he represents.

    I guess Trump brings the best out of all of us

  6. The phrase one the battle but lost the war is now going to have to be changed to won the country but lost the planet. Or may be won the contract but lost the planet is even more apporpriate.

  7. “I wouldn’t count on that. Presidents usually get re-elected; Trump only needs the states that voted for whim last time to get re-elected, and there’s no sign that the people who voted for him in 2016 aren’t going to vote for him in 2020; and the Democrat field does not look strong.”

    I just watched the ABC’s Planet America tonight (the only TV I’ve watched this year) and couldn’t help noticing the poll numbers for Trump at the moment have rocketed over the last … month or whatever it was. Like, historic high approval ratings only surpassed by Bill Clinton at a comparable time in the term?

  8. Chinese theft of US property rights creates a distortion favoring China. There are university courses in China where you are taught how to reverse-engineer. If a new golf club model comes up in the US there will be an illegal much cheaper clone produced in a few months in China. The US is an innovative economy whereas China is one based on hard work and replication. This is fostered by the education of millions of Chinese in the west. Free trade in this situation gives too much of the gains to China. Maybe the tariffs will get China to rethink a bit the issue of intellectual property rights but I doubt it somehow. The technology of theft is built into the economy. It will not be reversed by central directives even were these sought.

  9. Harry Clarke,

    Historically, much of human economics has been based on theft and it still is of course. If we are going to talk about theft then let us count the possible ways.

    (1) Primitive accumulation = theft.
    (2) Conquest = theft.
    (3) Colonialism = theft.
    (4) Settler Colonialism = theft.
    (5) Underpayment of workers = theft.
    (6) Banker and CEO bonuses = theft.
    (7) Corporations not paying tax = theft.
    (8) Claiming copyright on folk inventions = theft.
    (9) Overcompensation for intellectual property = theft.
    (10) Property = theft.

    The list goes on and on. The definition of “theft” requires an ethics system and various ethics systems define theft in different ways. Your ethics system apparently defines China’s listed behaviors as theft but possibly (I don’t know for sure) exonerates the types of theft inherent in US colonial and imperial history and its current economic practice.

    Instead of being moralistic we simply need to be realistic. Great powers will always compete and they will always fight dirty while demanding the other side fight clean. (Minor powers would do the same if they could but they are constrained by lack of power.) Demanding the other side fight clean is really just part of the myth that “we are the good guys and we compete honestly”. The realpolitik politicians who make such claims on both sides don’t really believe it themselves. It’s for public consumption.

    Having said all that, economics or political economy is a competitive-cooperative game where even the rule set is up for competitive change. There are potentially negative-sum rules, zero-sum rules and positive-sum rules. Nations at backward levels of development will find rules sum differently for them than they do for advanced nations. Each nation wants rules which favor it. The trick, I guess, if one is genuinely concerned for the greatest good of the greatest number is to find, if possible, rules which are positive-sum for most people in most nations. I don’t think that asserting high levels of intellectual property rights achieves this. It keeps a few rich rather than sharing the fruits of invention. Invention is never a solo nor even a corporate act. Invention is always embedded in a wider matrix of social conditions which many people create (like education systems or the “stealing” of a lot of top brains from other countries).

  10. It’s far too soon to say that Trump won’t be re-elected and it’s also far too soon to say that Trump will be re-elected.

    Presidents usually get re-elected …

    I count sixteen examples of people elected to two consecutive terms as President, and nine examples of people who were elected President, ran for re-election, and were defeated. That’s a little less than two to one, which isn’t long odds: ‘more often than not’, clearly, but ‘usually’?

    … Trump only needs the states that voted for whim last time to get re-elected …

    Mathematically correct, but the same could be said about eight of the nine examples I just mentioned, and they lost nonetheless.

    … there’s no sign that the people who voted for him in 2016 aren’t going to vote for him in 2020 …

    It’s a certainty that some of the people who voted for him in 2016 won’t vote for him in 2020, on account of having died. On the other hand, it’s equally certain that the same is true of people voting against him. The point is that his margin of victory was so slender in 2016 that it’s mathematically possible for changes in the composition of the electorate to bring about a change in the 2020 result, even if there are no other changes in voting behaviour (and it’s a moral certainty that there will be at least some other changes in voting behaviour, although it’s too soon to say what, or in which directions).

    Trump is a minority president in terms of votes

    Mathematically correct: but mathematically it will be no harder for him to win in 2020 with a minority of votes than it was in 2016.

    Trump has a large disapproval rating which has been constant.

    … the poll numbers for Trump at the moment have rocketed over the last … month or whatever it was. Like, historic high approval ratings only surpassed by Bill Clinton at a comparable time in the term?

    The least fallible predictor of election results are the polls just before the election. People making predictions based on the polls famously came a cropper in 2016: the polls-based predictions are fallible. But all other predictors are even more fallible. For example: if I had to guess the results of the election here in a week’s time, I would guess that most likely the ALP will win, because that’s what the polls are saying; the polls might turn out to be wrong (I wouldn’t be at all surprised), but probably they’re on to something. Conversely, the people who are guessing now that Trump will lose in 2020 might be on to something, or on the other hand the people who are guessing that he will win might be, but in both cases probably not.

  11. J-D

    Most of your elected presidents who lost in subsequent elections were in the 19th century.

    Since 1900 the list comprises Herbert Hoover (1932) Jimmy Carter (1976) and George H..W Bush (1992).

    If you want to be picky you could add those who were not re-elected because they died in office (Harding) or they didn’t run again (Coolidge, Johnson) or they weren’t elected in the first place (Ford).

    The pattern is clear. The American voters, if they give a president a first term, will give him a second.

  12. Most of your elected presidents who lost in subsequent elections were in the 19th century.

    Since 1900 the list comprises Herbert Hoover (1932) Jimmy Carter (1976) and George H..W Bush (1992).

    And since 1900 there have been eight people who have been elected to two consecutive terms as President, so …

    The pattern is clear. The American voters, if they give a president a first term, will give him a second.

    … they have followed that pattern in about two-thirds of instances: a little less than two-thirds if all instances are counted, a little more than two-thirds if only instances since 1900 are counted. I’d reckon eight to three as favourable odds, but not overwhelming.

  13. @Troy Prideaux
    I’m not sure which polls Planet America are referring to, but according to the well-regarded American psephological site FiveThirtyEight, Trump’s popularity has been, and remains, consistently quite low. His approval levels are worse than Clinton’s at the same point in his term, and Clinton was an unpopular President by comparison with other postwar presidents. The only postwar presidents with comparable levels of unpopularity to Trump at this point in their terms were Ford and Carter.

  14. Tim Macknay,

    I sure hope site FiveThirtyEight is correct. One needs a little hope. 🙂

  15. Send pink carnations. Red roses would probably be moving to fast for a new relationship.

  16. Hugo, China lacks the ability to effectively invade Taiwan. Their fleet is mainly for coastal defense and they lack the ability to effectively mass murder people in other countries. If they switched to a war time invasion economy they could presumably do it but losses would be high.

    Improvements in electronics have favored defense. Long range air defenses depend on powerful radars, which are detectable and can be taken out, but short range aerial defenses can now use cheap, weak radar that does not need to be located near the guns or missile launchers or they can use entirely passive visual and infrared detection. Multiple small radar systems can also be combined so they function as a single more powerful radar. This makes helicopters and small boats very vulnerable to direct and indirect fire.

    China would have a very difficult time invading Taiwan if other countries did nothing. If the United States provides Taiwan with only material the invasion probably would not succeed. With sanctions stopping or diminishing imports of raw materials including oil, China’s ability to run a war time economy would be hindered. Many other countries, including India, would be scrabbling to take advantage of the interruption in trade to take China’s customers away for good.

    Corruption, already a Chinese curse, would bloom like a thousand flowers under wartime conditions. Due to the one child policy anything but a quick victory would be massively unpopular and would require massive repression of the population, further weakening Authority. Even if an invasion of Taiwan ended in a Chinese “victory” it may end up costing them their superpower status.

  17. Sorry, diverting a bit, wilfully.

    I know China v the USA is a paramount topic, given BOP, but I am still smarting at Labor’s endorsement of the corrupt decision of the LNP to ignore a scientific report on water misappropriation by Adani on the Galilee Basin.
    Why, the other night, did Shorten let slip the term “sovereign risk” the other night, I think talking on Adani or a related issue?

    Did he mean the threat of an ISD should we protect the water resource, when the opposition had the cheek to support the government on the FTA’ s?

  18. Commenters who buy into the “China has no respect for IP rights” are invited to explain how the British-Japanese compant ARM, which handily dominates the world market for computer processors, thrives in China, where hundreds of semiconductor fabricators willingly pay its license fees.

    Hints for the answer: ARM licenses to all comers, so it does not intervene strategically in the Chinese economy; the fees per chip are low (they are very high only for an architectural license, which Apple and Qalcomm and a few others have bought, so they can design their own processors using ARM’s protocols); the licenses come with a lot of technical support, particularly helpful to new entrants and smaller firms; finally, ARM is innovative, and an attempt to replace it with a national champion would be very expensive (tens of billions) and offer limited hope for getting a better deal.

    China’s IP policy looks pretty rational to me, and follows that taken by the USA in the 19th century.

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