Summary: Trump has brought us to the brink of a trade war. Before we take the plunge, let’s remember what we are risking – and why. These seldom end well for anybody.
“If the tension is not managed intelligently and creatively, the danger is that the domestic consensus in favor of open markets will ultimately erode to the point where a generalized resurgence of protectionism becomes a serious possibility.”
— Dani Rodrik (professor of economics at Harvard) in Has Globalization Gone Too Far?(1997).
Trade wars have much in common with real wars. They are born in hubris and ruled by the unexpected. Trade wars between great powers are MAD – mutual assured destruction. The only way to win is not to play. There are other and better methods to resolve conflicts.
Anyone clearly seeing Trump knows that he is a clown. Starting a trade war with China would be reckless, showing deep ignorance of how the world works. It would be the defining point of his administration.
Wars and trade conflicts are creatures of a President’s will. Sometimes Congress rubber-stamps his decision, often on the basis of lies. Sometimes Congress grants the President broad and vague authority that allows him to start wars at will. Trade wars are the latter. Either way, they show the bizarrely massive discretionary power we grant our presidents. Unfortunately, we often elect presidents unworthy of great power.
We have been lucky. Our bad choices have not sunk us. Of course, there is always tomorrow. Trump appears determined to start a trade war with China, ignorant of the risks – encouraged by his belligerent advisers.
Hail to the Chief.
The far right hates the treaties that protect us
Despite Trump’s faux populism during the election – arousing hope for change – he has governed as a bog standard far-right republican. The far-right hates the network of treaties that has helped keep America safe and prosperous. America pushed through these treaties to build a better world after WWII, and are among its greatest contributions to humanity. Past Republican presidents resisted pressure from their extremists. Trump has embraced them. See the list of treaties and agreements he has cancelled or withdrawn us from. Add to that the UN Arms Trade treaty he withdrew us from in April.
For generations the Right has sought to return us to the pre-WWII world. Nineteen of them voted against the Nuclear Test Ban Treaty which stopped the above ground nuclear testing that was blanketing the world with radioactive fallout. On 8 December 1987 Reagan and Mikhail Gorbachev signed the Intermediate-Range Nuclear Forces Treaty. This marked the beginning of the end to the cold war – and a large step towards lifting the threat of global annihilation. Conservatives went berserk.
- Howard Phillips (Chairman of The Conservative Caucus) wrote a NYT op-ed: “The Treaty: Another Sellout.“
- In his 1988 book The New Season: A Spectator’s Guide to the 1988 Election
, George Will wrote: “Historians may conclude that it was during this administration that the United States conclusively lost the Cold War.” The Berlin Wall fell the next year.
- Reagan biographer Richard Reeves noted stated the obvious: “In fact it was the day we won the Cold War.”
They hate the treaties that kept us safe. They hate the trade treaties that produced much of our post-WWII prosperity. Eventually they will destroy both our safety and prosperity.
But the stock market isn’t scared!
Ignore the myths. Financial markets are just mirrors of investors’ thinking. They show no special prescience. For example, investors ignored the evidence of WWI’s approach until the armies moved (see the amazing details).
Watch the clouds gather over the global economy
“Do I disapprove of Trump’s trade methods? I don’t see any method.”
— Tweet by Paul Krugman.
Slowly the clouds gather. Nobody panics because few can imagine that Trump would be so stupid.
- The timeline of the US-China trade war: Historians will read this as evidence of our stupidity, if not insanity.
- The Hill: “The longer the trade war, the sooner the recession“.
- WaPo: “GOP senators raise alarms, criticize Trump as U.S.-China trade war heats up.“
- LAT: “As trade war escalates, Chinese remember ‘national humiliation’.“
- Vox: “Why China’s new tariffs could make the US trade war even worse” – “A crumbling global economy, job losses, and a spooked market — just to start.”
Especially see the articles by economist Brad Setser at the CFR.
- Best briefing paper: “U.S.-China Trade War: How We Got Here.”
- “China Never Stopped Managing its Trade.“
- See his other articles about global trade, especially China’s.
I continue to suffer cognitive dissonance re the widely accepted view that China’s state subsidies are one of the grounds for trade war. Don’t we believe in markets? If so, shouldn’t such subsidies hurt them? Seems like an implicit vote for state intervention over markets.
— Jared Bernstein (@econjared) May 17, 2019
We can do better.
For More Information
Ideas! For shopping ideas, see my recommended books and films at Amazon.
If you liked this post, like us on Facebook and follow us on Twitter. See all posts about China, about trade, about globalization, and especially these…
- Globalization and free trade: wonders of a past era, now enemies of America?
- Why does the US government seek a hotter conflict with China?
- Cheap Imports Backfire on America’s Retailers & What’s Left of Our Economy.
- The real reason for America’s hostility to China.
- Stratfor: Manufacturing Is A Campaign Promise That Trump Cannot Keep.
- Stratfor: Trump risks a trade war with China that cannot be won.
- A powerful defense of free trade by Ed Dolan, before Trump attacks it.
- Stratfor: will Trump end free trade in food, & wreck US farmers?
- The forgotten secrets of free trade justify Trump’s tariffs.
Two books with radical ideas about the global economy
Two books by Dani Rodrik (professor of economics at Harvard). See his faculty page and his weblog.
Has Globalization Gone Too Far?
Straight Talk on Trade: Ideas for a Sane World Economy
Larry,
Tell us how you really feel about Trump…lol
One thing is for sure, he certainly has things stirred up.
Consider the alternative. Two years into four years of globalist Obama’s reign of look the other way, run by Clinton.
Ron,
“he certainly has things stirred up.”
He’s the president, not an entertainer. “May you live in interesting times” is a curse, not a blessing.
“Consider the alternative. Two years into four years of globalist Obama’s reign of look the other way, run by Clinton.”
What’s your point? Clinton’s economy was the most successful of any president since Coolridge. Better, because the expansion didn’t end in a Great Depression.
Larry,
“Clinton’s economy was the most successful of any president since Coolridge. Better, because the expansion didn’t end in a Great Depression.”
Trump’s economy is good, unless this trade war screws it up. Hillary would have kept the Obama policies of open borders, sanctuary cities, global climate accord nonsense, and liberal agenda.
Plus, where would we be without the Russian collusion thing? Saber rattling just because. Obama’s apology tour didn’t work out.
LK: Trade wars have much in common with real wars. They are born in hubris and ruled by the unexpected. Trade wars between great powers are MAD – mutual assured destruction. The only way to win is not to play. There are other and better methods to resolve conflicts.
Forbes: https://www.forbes.com/sites/cblock/2018/03/13/yes-china-does-cheat-in-trade-the-rest-of-the-world-needs-to-wake-up/ . There are other articles that can be found on China cheating.
https://www.china-briefing.com/news/the-us-china-trade-war-a-timeline/: With neither Trump nor Chinese President Xi Jinping willing to back down, US-China trade tensions could erupt into a full-blown trade war. China’s own Ministry of Commerce warned that the dispute may even lead to “the largest trade war in economic history to date”.
IIRC, past presidents have tried and failed diplomacy with China’s cheating. IMO, the Chinese are as much to blame. As both Forbes and China Briefing note, China is not an innocent in this conflict. I read but can’t remember where, that some of the cheating, such as dumping, gave money that would have increased China’s ability to demand more world trade by its citizens, to the US and others who already have money and trade. In other words, China’s cheating is bad for world trade.
My opinion is what Trump is doing is a lot like other things he is doing: hogging the limelight, not really fundamentally changing things. I see the trade issue as the same. It may cause short term problems, but if the article was correct about how China’s cheating was slowing world trade; then long term, Trump may be doing the right action.
I have read economic analysis supporting both trade war, and not. From what I gather it is the assumptions and the extent of the timeline that determine the result as good or bad. As Trump stated at winning the Presidential election “Complicated business.”
John,
“past presidents have tried and failed diplomacy with China’s cheating”
That’s quite false. They made weak efforts, but nothing more.
“My opinion is what Trump is doing is a lot like other things he is doing: hogging the limelight, not really fundamentally changing things.”
If he starts a destructive trade war, you’ll have to change you opinion.
“I have read economic analysis supporting both trade war, and not.”
What economist have you read that thinks a trade war is a good idea?
“From what I gather it is the assumptions and the extent of the timeline that determine the result as good or bad.”
You are missing the point. That’s also true of real wars. But both kinds are considered bad because chance, not policy, determines if the result is massive destruction. Wise people don’t take such risks.
“”“past presidents have tried and failed diplomacy with China’s cheating”
That’s quite false. They made weak efforts, but nothing more.””
I should have been more specific. If the weak efforts did not get it, and too strong efforts yield a trade war; then I don’t see that a Goldilocks solution is necessarily viable.
LK: Wise people don’t take such risks. JFP: But China already is.
Allowing cheating hurts world trade. I don’t know the solution. So far, we are outlining a less than ideal solution, and choosing the assumed better of the choices.
John,
I don’t know what sources you are using, but they’re lying to you.
“I don’t see that a Goldilocks solution is necessarily viable.”
Beyond absurd. Steady pressure by Western nations usually works in these matters. This isn’t the first trade rodeo.
“But China already is.”
No, they’re not. As the analysis by Brad Setser (a leading expert in international trade economics) shows, its not even clear that China’s behavior violates WTO rules. They have found loopholes, which need to be addressed. But all actions we don’t like are not “cheating.”
I can’t deny that the sources I read are mistaken, if not lying. It is an interest of mine, but I have limited expertise.
Steady pressure may be true and works. Sometimes, I have a hard time separating out the exploitation, extension of empire, and trade, so I rely on others.
https://www.theamericanconservative.com/articles/the-unreal-scope-of-chinas-intellectual-property-theft/ Here is another supporting article on theft by China. https://www.nytimes.com/2017/08/15/opinion/china-us-intellectual-property-trump.html It may be allowed because of a treaty. What follows is my understanding why this is particularly bad. Though I am concerned about NYT and TAC bias when using as sources.
The reason I think this was war and bad before Trump, goes to how the free trade as a benefit was explained. The simple version: China does with what it can to generate trade with the things they do well, and we generate trade with other things that we can do well. If this simplistic relationship is fairly close to what is free trade, then China’s thefts in these areas are not minor if the things stolen are the ones we do well, but they don’t.
If true, it may not justify the trade war, but then neither is China’s position or innocence justifiable.
https://www.iatp.org/sites/default/files/Full_Text_of_Clintons_Speech_on_China_Trade_Bi.htm Here nineteen years ago, Clinton is talking about the benefits of trade and 30 years of working with China on issues. It does not seem that “Steady pressure by Western nations usually works in these matters” is working exceptionally well. We have made huge progress with China, yet in IMO and others cheating or not living up to the reason free trade works is a bad problem with a long history.
I don’t think a trade war is wise, but likewise not having free trade working as free trade has its costs as well. That the estimated cost may have large uncertainty does not change its potential, or its risks. From the timeline, the cost to the world and the Chinese have not been slight.
John,
As I said, you get information from right-wing sources that lie to you. I asked for a cite: “what economist have you read that thinks a trade war is a good idea?” You give an article from a non-economists writer at the American Conservative.
“It may be allowed because of a treaty. What follows is my understanding why this is particularly bad.”
It seem “particularly bad” to you because you know little of the relevant history and rely on people that lie to you. As I said elsewhere on this thread:
“It may be allowed because of a treaty.”
This is business as usual, and why we have a trade regulatory mechanism – not just a treaty. These problems arise and have to be dealt with. They’re life.
“If true, it may not justify the trade war, but then neither is China’s position or innocence justifiable.”
This isn’t kindergarten. Nations play the game aggressively – both the US and others. America built the current trade regulatory structure to handle these problems. It works quite well, until fell into the hands of right-wing fanatics and an ignorant president.
With household income stagnant at best for those outside the top 10% of the income distribution, it is not obvious that the current ‘free trade’ economic system will continue to command the support of the people.
Trump is simply the first willing to challenge the orthodoxy, which has helped deindustrialize large parts of the country. The proliferation in the US of unproductive or even counterproductive jobs in recent years reflects the governments frantic efforts to provide some means for social stability, necessary because the low paying but essential jobs such as furniture making were all sacrificed in the name of ‘free trade’. That needs to change.
Mr. Kummer, one aspect of our political/economic policies I don’t quite grasp due to the absence of information, has been the exportation of our manufacturing capabilities to foreign countries, a drive that has been jointly supported by the Democratic and Republican Parties since the early ’70’s.
If I remember correctly, those moves were accompanied with direct subsidies to the companies involved and lower tariffs on the products imported into the USA, thus causing a substantial decrease in domestic production of those products with the concurrent reduction of employment in those sectors.
I understand the profit motive here where those foreign countries provide lower standards of living, less government oversight, lower costs of doing business (i.e. no EPA), etc., but what is wrong with making those countries compete on a level playing field, IF that is what Trump is attempting to do?
Chad,
“what is wrong with making those countries compete on a level playing field, IF that is what Trump is attempting to do?”
So we should lower our standard of living, reduce pollution controls, etc? We can hardly expect other nations to follow our policies just because it suits us. Sovereignty and all that.
Also, two centuries ago Ricardo explained the concept of comparative advantage. In some fields, poorer nations have – and should have – a competitive advantage over richer nations. That is what allows us to trade with them. This doctrine is one of the most thoroughly proven in economics, as many nations have adopted government policies to reduce imports – creating an autarky. It is the fast track to poverty.
The problem with China is not that they’re violating our trade treaties, but that they are playing the game too aggressively. This is not unusual. We did it to Great Britain. Japan did it to us. There are time-tested methods of dealing with it. But conservatives prefer force and domination in foreign policy. They’re following the path of many nations that ruined themselves in foreign conflicts.
“So we should lower our standard of living, reduce pollution controls, etc?” No, I was not suggesting anything like that, but it does seem that our standard of living is on a downward spiral.
“There are time-tested methods of dealing with it.” What are those methods? I sure don’t know.
Chad,
These kind of trade disputes are business as usual since the 19th Century. That’s why America created the World Trade Organization for nations to collectively set the rules – and enforce them. This has worked fantastically well, creating a regime of the fastest growth in trade the world has seen since Rome.
Editor you might find this interesting: “A Harvard Professor explains the populist revolt against immigration & globalization” at the FM website.
In this area I do feel that there is a situation in which those that have gained from globalisation, often do not appreciate the extent to which those that have lost are hurt.
The working class are seeing wages fall, they see their parents had blue collar jobs, they serve fries casually, their incomes are stagnant while bills rise – “So we should lower our standard of living, reduce pollution controls, etc?” we are for the poorest.
Compared to what I had to start with casual teaching is still better, but for the children of teachers, social workers and other middle class, they find the drop painful as these areas casualise. If it is harder for them image the working class,
I have friends who have worked in casual and contract work since leaving school at 16 (we are all around 55), they have rented all their lives, few have holidayed outside a cheap package holiday every three to five years, and wages are going down as they find it harder to get work after 50 and yet more immigration is happening. In 1980 when we started our first summer jobs after school we got $3/hour (pounds) I went back to school for a year, he stayed on, the wage now is $7-8/hour (pounds). He walks to where the office blocks are for his 8/9 – 4/5pm, rarely has more than a week or two off a year, his wife does admin, they rent a three bedroom flat. They do odd jobs, like lawn mowing, child minding or cleaning. Never had a car, most clothes are second hand.
With regard to China: Clive Hamilton’s website. Maybe interesting.
I have a Lecturer friend who is on yearly contracts, he dare not fail Chinese or any international fee paying students. “Cash Cows” at Four Corners – “The universities making billions out of foreign students.”
After all what other work is there we import everything, and need more people to cut wages. My International Students tell me the Asian restaurants pay $8/hour cash, the legal rate in Australia is $18/hour. The Pizza place near us pays International Students for four hours an evenings, but they actually do 6/7 hours, my son used to work there until they started this and dismissed him and his local mates. The crew is now Pakistani, and even the local born Indian is gone – old racial tensions.
Fabius Maximus – would know about entertainment and circuses to keep the poor distracted.
Just a Guy,
Remember the great rule of humanity: being prey is a choice. Nothing “just happens.”
Thanks Editor.
Point taken, capital does really help to be able to set up your own business or just live while you change job, which is getting harder and harder as we live from pay cheque to pay cheque