By Tom Fowdy
Donald Trump has dramatically escalated his trade war against China.
While he has de-escalated tariffs on other countries, crashing global markets, he has singled out China exclusively and raised levies on imports to 125%.
In doing so, he has peddled a simplistic, zero-sum narrative that America is treated "unfairly" in trade by Beijing and being "ripped off." His logic? That such measures will bring back jobs and manufacturing to the United States and will presumably contain China all while forcing other countries into making favourable deals.
China, which has always been Trump's primary trade antagonist, is thus given exclusive treatment. Beijing has made it clear it will not give in, placing countermeasures on the US that has led to rounds of escalation, with it being in Trump's nature to respond to countermeasures by threatening, and subsequently escalating even further. He believes China will capitulate and thus be forced to make a deal which "corrects" the "trade imbalance."
While it is my personal belief that China should negotiate with the United States, Beijing has nonetheless made it abundantly clear that it has no intention of capitulating to American "coercion" and "bullying" and will stand firm. First of all, Trump's leverage is not what he claims it to be. The President, as noted above, frames global trade in simplistic "zero-sum game" terms that consist purely of "winners" and "losers." This is a total distortion of economic reality.
The United States is a high-income consumer economy whereby the costs of domestic manufacturing outweigh the incentives for most countries, which, through the system of neoliberal free trade, they created, incentivises companies to manufacture overseas. We might ask ourselves, is Apple manufacturing iPhones in China and exporting them back to America, which counts for Chinese exports, really China winning at America's expense? China may manufacture the phones, supplying many key components, but they do not profit from the monetary value of the phone sold in an American store, which far exceeds the production cost. Does that profit go to China?
There are numerous more examples, and while it is true China has ascended the production value chain, it is enough to make our point that trade is not a "zero-sum game", but patterns of economic interdependence between countries. If China is of course too expensive to make something owing to the impact of Trump's tariffs, a company will only retreat to an even more affordable destination, such as Vietnam. In no instance will the said product reshore itself in the United States, because there is no practical or economic benefit to doing so, notwithstanding the fact Trump initially slapped massive tariffs on Hanoi and on every other country in South East Asia anyway.
In this case, it is a consensus amongst experts and economists that Trump's measures will induce skyrocketing inflation, a potential recession, and already crashed markets all over the world to the point he had to retreat. It is a self-imposed disaster on his behalf, premised on fantasy economics. Because of this, China has no need to panic and certainly has no rush to give in to Trump's assaults on its economy. Logically, it should vest diplomatic time and resources into deepening its trade ties with other countries and framing itself as the champion of the global trading system President Trump wants to destroy. Countries around the world will be seeking to hedge their bets, and in doing so, China should be prepared to deepen its opening up of its domestic market to deepen trade ties across the world accordingly. Trump constitutes chaos, destruction, and turmoil. China offers stability, certainty, and prosperity. The choice could not be clearer, and the countries of Europe, Japan, and South Korea, amongst others, should think carefully about this. Trump doesn't want compromise; he wants capitulation and demands the impacted countries surrender their entire market and industrial base to American companies, gutting their industries, their jobs, and their prosperity.
As one commentator put it, he will turn Canada into the next Detroit if he gets his way. Talk where you can, yes, there are benefits to mutual trade ties with all, of course, but never give in to Trump's coercion.
The views do not necessarily reflect those of DotDotNews.
Read more articles by Tom Fowdy:
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