US-China trade war escalates

President Donald trump has escalated the US-China trade war in while negotiations continue. Playing hardball may be necessary to make decent progress, but it’s risky, not just for the US and Chinese economies, but for all those who trade with them as well, which is most of the world.

.Washington Times: No cheating on friends

A president who talks and acts tough on trade has been a long time coming. Donald Trump made getting fair dealing on trade a major plank in his campaign platform and has followed through. China can’t say it wasn’t warned about the imposition this week of additional tariffs on selected goods coming into the United States.

Bad trade deals have cost the United States billions of dollars and cost millions of American workers their jobs over the last several decades. Supporters of free trade find tariffs against China, Europe, Mexico and Canada hard to take. Tariffs are taxes hiding under another name and lead to higher prices for U.S. consumers. The stock market dropped 500 points after the new China tariffs were announced. Tariffs provide a safe harbor for inefficiencies, and protect markets and manufacturers from the need to innovate and increase productivity.

But as a short-term strategy to get the Chinese to the table to make agreements to protect American intellectual property, for example, it might be that rare occasion on which to do something bad so that good may come.

If it works.

RealClear Politics:  A Don Corleone Offer to China on Trade

You don’t have to like tariffs to like President Trump’s strategy of imposing harsh ones on China. Those he imposed overnight are punishing, not only to China but to American consumers. The longer they last, the more they will cost. Yet serious trade sanctions are the only hope of getting Beijing to roll back its abusive economic practices and open its markets to U.S. exporters and investors.

Half measures and paper promises won’t do. The U.S. wants a big deal, and it wants teeth in it to prevent cheating. To get it, Trump is willing to threaten a trade war. We don’t know if it will work.

We do know that Trump’s threats are credible. He began saying how much he loved tariffs long before he ran for office. The irony is that his protectionist stance could pave the way for freer trade, first with China and then with the European Union.

The problems may be clear, but the solutions are not. No previous administration has figured out how to move China away from its discriminatory policies. Sweet talk and generous gestures don’t work. If they did, President Obama would have succeeded, not only with China but with Iran, Russia, and other hostile powers. Empty threats don’t work either. If they did, several administrations would have gotten China to change its trade and investment practices long ago.

These failed policies don’t leave Washington with many options. The U.S. can either accept Chinese protectionism, as Europeans and previous U.S. administrations have, or it can make them an offer they can’t refuse. The terms are obvious:

  • Threaten China’s export-driven economy
  • Make that threat believable and sustainable
  • Offer China a reasonable deal
  • Make it costly for China to delay, and
  • Buttress the deal with tough enforcement mechanisms

Trump is taking the Don Corleone option. He acted swiftly and ruthlessly when Chinese trade negotiators withdrew concessions they had already made in writing. On Friday, he more than doubled tariffs to 25% on some $200 billion worth of Chinese exports, with promises of more to come.

Trump’s decisive move is directed at China’s economy, but it also sends a sobering message to North Korea’s nuclear negotiators. They are bound to see how costly it is to make empty promises to the Trump administration, as Kim Jong Un has done on denuclearization.

President Trump is forcing Xi to choose between two unhappy alternatives. That’s why he has thrown a severed horse head into the bed. Trump wants to force the issue and make it hard to resist the American offer. If he succeeds, he will present the deal as a huge win for both sides.

But dealing like this can have it’s risks, and it’s down sides.

Washington Post – Another View: Multi-front trade wars hurting U.S

News reports identify the Trump administration’s specific complaint as China’s alleged going back on its promises to put U.S.-requested policy changes into law. For their part, Chinese sources have told Western media that Beijing interpreted Trump’s complaints about purportedly tight Federal Reserve monetary policy as a sign of economic weakness that China could exploit.

It’s anyone guess what will come of the current meetings in Washington between China’s trade delegation and Trump’s team. What should not be in doubt, however, is that throughout the entire bargaining process with Beijing, the administration has undercut its position by attempting to wage simultaneous tariff battles with other countries.

As Chad Bown of the Peterson Institute for International Economics has shown, Trump’s tariffs now cover 50.5% of Chinese imports — but also 7.3% of imports from Canada, 2.5% of imports from the European Union, 9.6% of imports from South Korea and 3.8% of imports from Japan.

By bracketing old friends with Beijing, even justifying some levies against them (on steel and aluminum) on “national security” grounds, Trump has made it politically difficult for them to rally to the U.S. side in the dispute with China. They were, in fact, obliged to retaliate.

This unforced error is doubly regrettable because Trump arguably had the upper hand going into his talks with China.

In a world where Trump is deeply unpopular, his complaints — shared by previous U.S. presidents — against China represented a rare case in which other nations conceded him the moral high ground. A savvier president would take advantage of that.

The negotiations with China might yet reach a mutually beneficial conclusion, or they might collapse. Either way, Trump will have defied a lesson of history: Multiple-front wars are the hardest to win, whether they are of the military kind or trade wars.

Fighting without allies is harder still.

But for now the big battle is with China, and much will depend on how they react.

Reuters: Trump says no hurry to reach deal with China as trade war escalates

In a series of morning tweets, Trump defended the tariff hike and said he was in “absolutely no rush” to finalize a deal, adding that the U.S. economy would gain more from the levies than any agreement.

“Tariffs will bring in FAR MORE wealth to our country than even a phenomenal deal of the traditional kind,” Trump said in one of the tweets.

Despite Trump’s insistence that China will absorb the cost of the tariffs, U.S. businesses will pay them and likely pass them on to consumers. Consumer spending accounts for more than two-thirds of U.S. economic activity.

Global stocks, which have fallen this week on the increased U.S.-China tensions, came under renewed pressure on Friday.

Following the U.S. tariff hike, China’s Commerce Ministry said it would take countermeasures but did not elaborate.

China’s central bank said it was fully able to cope with any external uncertainty.

China responded to Trump’s tariffs last year with levies on a range of U.S. goods including soybeans and pork, which has hurt U.S. farmers at a time when their debt has spiked to the highest level in decades.

Trump escalated the one way war of words. Much now depends on whether China responds by escalating the war of tariffs.

And how markets deal with the war. CNN: Dow Tanks After Trump’s Ballistic Twitter Rant Shellshocks Wall Street

The Dow’s weeklong catastrophe shows no signs of letting up, as the US stock market endured another shellacking at the hands of Donald Trump and his tariff regime on Friday.

The immediate trigger for Friday’s sell-off was the never-ending trade war teeter-totter, which continues to viciously seesaw between dizzying optimism and utter despair.

Less than a day after hinting that Thursday would be a “very strong day” for US-China trade negotiations, President Trump unleashed a ballistic Twitter rant in which he downplayed the need to “rush” into a trade deal.

Time will tell. Trump has a reputation for overstating his abilities and his tactics. Tweeting may be a useful tool for Trump, but like imposing tariffs it has risks.

What is not well known is how China will be approaching the current situation, as they operate far less publicly.

And a number of US businesses will be nervous about how all this will affect them.