Is President Trump losing his trade war?


President Donald Trump has long been keen to defend United States workers from the “carnage” of “bad trade deals.” To that end, he has decided to impose tariffs and quotas on imports of steel and aluminium. He also threatened the EU with trade barriers on automobiles and could take even more measures on intellectual property rights and technology goods. It is more plausible than not that this is the beginning of a costly tit-for-tat whereby United States trade protection will be countered by others.
The bad news is that a fully-fledged trade war would create serious economic damage. Recent estimations by Ralph Ossa from the University of Chicago indicate that a global trade war, resulting in a rise in trade barriers for all countries, would slash real incomes by an average 3.4%. At the global level, this would correspond to a loss of almost one full year of growth efforts.
Dr. Agnieszka Gehringer, Senior Research Analyst at the Flossbach von Storch Research Institute stated that the trade clash between the United States and China is not just about trade. It’s about whether China will remain a manufacturing appendix to the West or will get to rival and perhaps eventually supplant, the United States as the leading global power.
After World War II, the United States and its Western allies created an international political and economic system to which other nations around the world gradually signed up. The principles on which that system is based are similar to the ones on which the United States itself was established by the country’s Founding Fathers in the second half of the 18th century. In this respect, the system certainly serves the interests of the United States and benefits it both politically and economically. However, it also allows other players to prosper. It creates a global marketplace that is not a zero-sum game, i.e., it is not about the division of the existing pie but about growing it in size, so that every player gets more.
The current global system is characterized by open borders, both to trade and to the movement of people. It is rules-based and relies on international institutions, but it is highly decentralized and oriented primarily on private-sector actors. It is a system that encourages, and in many cases demands, democratic reforms and insists on the protection of human rights in countries around the globe. It maintains international peace by refusing to recognize occupation of countries and annexation of territory. It rejects the principle of altering national borders by force.
Tom Clifford, an Irish journalist, currently based in Beijing argued that China clearly works differently. It is state-centered and nationalistic. It defers to a leader, not institutions or laws. It is secretive, riddled with censorship and prizes the collective, not the individual citizen. China occupies Tibet, deals harshly with its restive Uighur population and jails dissidents. It brooks no interference in its internal affairs and is only too glad to close its eyes to other authoritarians doing the same thing in their corners of the globe.
Tom Clifford noted that China may or may not become a dominant power and put its imprint on the global system. But what is truly disconcerting is that President Donald Trump is moving the United States away from its historic roots and principles. In his presidency so far, the United States is now much closer to the Chinese model. President Trump’s “America First” slogan is quintessentially how China operates. It always puts China First. This is true even if China, in sharp contrast to President Trump, usually tries to employ softer rhetoric.
Alexei Bayer, who specialises in Eastern Europe political economy stated that President Trump’s disregard for rules and laws at home and abroad is un-American but quite in line what the Chinese do when “reasons of state” demand so. The Chinese routinely spy on their competitors and steal their intellectual property and trade secrets. President Trump’s exit from the Iran nuclear deal and the Trans-Pacific Partnership were unilateral steps, affirming a form of absolutist national sovereignty that China proclaims as well. He wants to censor the media and subjugate the judiciary. He demands adoration and deference from his followers the way the Chinese used to adore Mao and other leaders.
Alexei Bayer argued that President Trump’s rallies gather large audiences who respond to him as a mob, not as rugged individualists Americans they still somehow believe they are. In international relations, President Trump’s America is already acting like China. President Trump has recognized Israel’s annexation of the Golan Heights, making it the first time that territorial expansionism has gotten an imprimatur from the United States since the end of World War II. President Trump is also clearly itching to recognize Russia’s annexation of Crimea and give Putin a free hand in Ukraine.
Meanwhile, China has not stood still. It has moved forward by adopting some of the best American virtues such as pragmatism. To begin with, it abandoned dogmatic Marxism in favor of capitalist development and continued to pay only lip service to communism. And, unlike ideologues in the United States who deny that climate change even exists, China believes scientists when they declare man-made global warming to be an existential threat to the planet and the world’s greatest challenge in coming decades.
While President Trump promotes coal and attacks renewable energy, China has emerged as a leader in electric vehicle technology and solar power, while at the same time building plenty of new coal power plants. As Dr. Agnieszka Gehringer explained it, with the United States abandoning its proudest and most productive principles and Trump racing to reach down to the Chinese bottom, it is clear that China, not the United States, is gearing up to lead the world in the 21st century.