There is no doubt that Trump is determined to provoke a crisis with the Chinese over the trade deficit. Whether he succeeds or not remains to be seen (I’m skeptical). The question for the day is, what can he reasonably hope to accomplish? After all, even the Chinese government can’t require its citizens to buy American products, which, from our perspective, would be the best solution to the problem.
Here are the possibilities:
1. Currency manipulation: There was a time when the Chinese were keeping the value of the yuan artificially low to boost exports, but those days are gone. In addition, defining currency manipulation is very difficult, because economic initiatives that are primarily intended to accomplish other objectives can have significant collateral implications for the value of your currency.
2. Anti-dumping measures: Generally uncontroversial and completely legal, these have been employed by all of our previous Presidents, including Obama. They require time and litigation.
3. Ending Chinese barriers to American imports: A legitimate objective pursued, mostly unsuccessfully, by all previous administrations. This can only be accomplished, if at all, through years of hard work and pressure. Trump doesn’t have the patience to go this way.
4. Ending the Chinese government’s ties to industry: Good luck with that, Jack. The relationship between the government and business is an important feature of the Chinese political and economic systems.
5. Managed trade: There is a precedent for this in Reagan’s deals with Japan over imports in the 1980’s. I think it will be Trump’s vehicle of choice when the confrontation begins in earnest.