Given that Trump is apparently scheduled to sign his Phase I deal with the Chinese later in the month, it is appropriate to review what the issues are, where we are in the negotiations, and what we are trying to accomplish.
Trump has given a variety of rationales for the war over time. Here is at least a partial list of them, with my responses:
- THE MONSTROUS BILATERAL TRADE DEFICIT REPRESENTS THE THEFT OF AMERICAN RESOURCES BY THE CHINESE. THAT HAS TO BE STOPPED. In reality, the trade deficit is the product of an immense number of perfectly reasonable private decisions on investment and consumption; it says nothing about the respective wealth of the affected nations. It appears that America’s bilateral trade deficit with China has been reduced as a result of the war, but the effect of the tariffs has been to move production from China to other nations with low labor costs–not to bring it home. As a result, our overall trade deficit has actually gone up. This was, and is, the dumbest possible reason to engage in a trade war.
- CURRENCY MANIPULATION IS A PROBLEM THAT NEEDS TO BE ADDRESSED. Not really. The Chinese stopped manipulating their currency in a mercantilist way years ago. This is a classic effort to refight a war that is already over.
- WE NEED TO PROTECT AMERICAN INTELLECTUAL PROPERTY. This is a legitimate issue that was fought by Obama with limited success before Trump took office. As the Chinese economy moves upstream, however, Chinese producers will want increased protection for intellectual property, as well. The problem will probably solve itself over time without a trade war.
- WE NEED BETTER ACCESS TO CHINESE MARKETS. Another legitimate battle, but one that is better fought with allies. Trump views the EU in some respects as being worse than the Chinese, which makes progress difficult.
- WE NEED TO STAMP OUT CHINESE MERCANTILIST ACTIONS IN THE TECH FIELD THAT PRESENT A DANGER TO OUR NATIONAL SECURITY. Finally, a battle worth fighting! If Trump’s focus was on this issue, rather than the last war, I would feel better about it. The problem here is that the Chinese are never going to agree to make fundamental changes to their political and economic systems, which is what Trump is essentially demanding, simply as a result of American tariffs. It is doubtful that even the assistance of the EU would do the trick. In the long run, we will have to decide whether we are going to engage in similar behavior in order to compete, or not; it is our response, not the actions of the Chinese, that are really open to debate. Phase II, which is supposed to address this issue, will go nowhere.