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Is The Trade War With China Winnable?

True to his campaign promise, President Donald Trump has forged new international business agreements that will finally give domestic employers financial incentives to open factories and create jobs in America.

The United States’ financial relationship with China is fairly recent. In fact, not everyone cheered the opening of diplomatic and trade relationships with China by President Richard Nixon in 1972. However, his week-long official state visit to the People’s Republic of China (PRC) did restore peaceful dialog between the U.S. and China after 25 years of non-communication. This was the first time a U.S. president set foot on PRC soil.

Nixon and Chinese leader Mao Zedong decided to abandon being bitter enemies. They agreed to re-establish diplomatic relations and focus on common interests rather than political ideology.

Trade deals struck after Nixon’s parlay have resulted in commerce between the two countries totaling over $500 billion a year. In July 2018, Bloomberg reported the staggering imbalance favors China:

“The trade surplus with the U.S. stood at $28.97 billion, the highest in any month in data back to 1999. Exports climbed to $42.62 billion, also a high, the customs administration said on Friday.”

Put another way, The Balance explains why a U.S. trade deficit with China might be viewed as anti-American:

“The U.S. trade deficit with China was $375 billion in 2017. The trade deficit exists because U.S. exports to China were only $130 billion while imports from China were $506 billion.”

Lobbing another volley in the China trade war on March 8, Trump proposed that the Chinese reduce the $375 billion U.S. trade deficit by $100 billion. They were agreeable.

Then, citing national security as justification, the president invoked a special power granted by Congress in 1962 that let him bypass Congress, the only legislative body with the authority to impose tariffs. Trump’s aggressive action was based on a Commerce Department report that imported metals threaten domestic arms production, Trump announced a 25 percent tariff on steel imports and a 10 percent tariff on aluminum.

Aerospace Industry Council members who make satellites, planes, ships, and bombs forecasted dire consequences — they believed excessive tariffs targeting China would backfire, raising costs in U.S. military budgets.

The $375 billion annual deficit in China’s favor for both imports and exports will, no doubt, be eased by Trump’s current trade tightening tariffs. However, it will take years to completely level this lumpy economic playing field.

The China trade imbalance is complicated by the fact that Americans have become used to purchasing cheap Chinese goods and won’t necessarily buy superior quality domestic products if they cost more. What can China do about foreign consumer choices?

What kinds of good are we talking about? The U.S. gets computers ($77 billion), cell phones ($70 billion) and apparel and footwear ($54 billion) from China. In return, China imports commercial aircraft ($16 billion), soybeans ($12 billion), and cars ($10 billion).

Ironically, exploitative Chinese manufacturers buy raw materials from the U.S. and keep the cost to sell finished products back to U.S. consumers by paying slave wages to sweatshop employees.

However, ethics do not typically drive a trade war: the flow of money and political perception do.

In the short run, taxes on foreign marketing can boost a flagging economic sector – like automobile manufacturing – and bring industry back into the country, creating more jobs.

But further down the road, limiting international commerce historically results in economic depression and fewer jobs due to increased production costs.

A sufficiently punitive trade war can lead to a battlefield conflict:

“The last major trade war occurred with the 1930 Smoot-Hawley Tariff. It increased 900 import tariffs by an average of 40 to 48 percent. Its purpose was to support U.S. farmers who had been ravaged by the Dust Bowl. But it also raised food prices for Americans who were already suffering from the Great Depression. Other countries retaliated with their own tariffs. It forced global trade down by 65 percent, worsened the depression, and contributed to the start of World War II.”

This year, on January 22, 2018, Chinese solar panels and washing machines were subject to U.S. tariffs and import quotas. Trump soon announced additional tariffs on other Chinese goods.

China responded in kind, escalating the trade war in a predictable fashion. This is where the situation stands today.

A Tweet from US Trade Representative Robert Lighthizer said the financial restrictions are designed to “urge China to stop its unfair practices, open its markets, and engage in true market competition.”

Remember too that Trump’s advisors are not new to the art of the deal. Trump has offered to consider exempting countries from certain tariffs. Take the case of South Korea. On March 26, just over two weeks after the initial tariff announcement, Trump authorized a steel exemption to the nation that is the third largest foreign supplier of steel to the U.S.

South Korea showed its appreciation by approving amendments to the 2012 bilateral trade agreement. Instead of expiring a 25 percent pickup truck tariff in 2021, the U.S. will extend the tax for another 20 years. South Korea will double the number of U.S. cars it imports.

We have to give President Trump an ‘A’ for effort. He has gotten the world’s attention, even if most countries disapprove of the new U.S. trade tariffs. It will be interesting to see what happens next – unless that happens to be the next World War.

  1. Post Author

    We should not make political issues from economic matters.
    Like it or not the quality of certain American goods such as cars and clothing has experienced a sharp decline in quality.
    We still can not produce cheap oil despite our vast resources and high technology.
    Even if US tries to leave WTO it will take years to adjust with no clear outcome.
    If it is not broken don’t fix it.

  2. Post Author

    Who will win a trade war – the U.S. or China. The numbers speak for themselves! The U.S. is China’s biggest customer! We imported $506 Billion of China’s goods while China imported $130 Billion of U.S. goods – a net difference of $376 Billion in China’s favor. There is simply NO QUESTION, the U.S. would win, which is why China will not engage in a full trade war.

    Yes, China has responded, early, as Trump raised some tariffs. Their hope was the Trump was just a blow hard, like all the U.S. Presidents before him. But, they and the rest of the world are learning, he says what he believes and is willing to back up his words with actions. He is NOT THE PUSSY OBAMA WAS AND IS!

  3. Post Author

    Our economic relationship with China is not about Mao or South Korea. It’s about Chinese theft of our corporate secrets, unequal treatment of laborers in China that saves corporate salaries and competition for business hegemony in Asia. By leaving TPP Transpacific Partnership negotiations, Trump has ceded the Asian market to China. Adding tariffs to China imports by Americans, he puts the nail in the coffin of American efforts to win new markets in emerging countries over there.
    Perhaps the worst results of our loggerheads with China over trade is that China has loosened sanctions that rein in North Korea which we want to lose their nuke arsenal, give up ability to attack America and our allies by missiles and nuclear bombs. Trump meeting with Kim has done nothing to enumerate either nukes or missiles, uncover all secret sites for warmaking production or ease tensions with China leaning toward Kim, not ‘friend’ Trump.
    The president deceives himself if he thinks he’s achieved anything toward American security by visiting and schmoozing with Kim in Singapore this year. He’s easy to fool and has been snookered by both China and Kim.

  4. Post Author

    I love when articles explain thtese things so well. We all need to get smarter and to hear the whole story.

  5. Post Author

    What is not openly mentioned but implied in this very important article, is the fact, that US is in fact not in a trade imbalance with China but in an imbalance with its own corporations, which are using cheap Chinese labor for keeping production costs down and selling that cheap stuff to their own countrymen, who, by virtue of export of their jobs cannot afford costly American made products.

    If not for US corporations reaping profits for their investors, their is no way American politicians, bought out by that money would have allowed cheap foreign products on their soil. In fact it was called smuggling.

    The alternative, that either continue the course of controlled globalization, or the economy will stagnate, is only valid with the current way of doing business. When their is predictable loss in both ways of doing business then then it’s time to question ‘peofiteeing’ or a greed based economy and start thinking of a need based economy in the world. Then only labor and production of every country can live up to the expectations of their people.

    But it was a very insightful writing.

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