Trade war a symptom of deeper malaise

Source:Global Times Published: 2019/8/13 20:45:17

David J. Firestein   Photo: Courtesy of David J. Firestein


Editor's Note:

Amid intensifying rivalry between China and the US, there has been growing opposition within the US toward President Donald Trump administration's approach to China. David J. Firestein (Firestein), inaugural executive director of the China Public Policy Center under the University of Texas at Austin, holds that a "silent majority" in the US continues to see China as a vital stakeholder in US future. He shared his insights with Global Times (GT) reporter Yu Jincui on a string of issues including implications of the recent US moves to escalate the trade war, the impact of the trade war on the US, and how the voices of moderation within the country will influence bilateral relations. 

GT:After having threatened to impose a 10 percent tariff on an additional $300 billion worth of Chinese imports, the US labels China a currency manipulator. Why has the trade war intensified again shortly after the resumed trade consultations? Are China and the US heading for a currency war?

US President Donald Trump seems to be operating on the assumption that there is some amount or level of pressure he can apply on China that will generate a significant change in Chinese behavior, force China to the negotiating table from a position of weakness, or strengthen himself politically in the context of the 2020 electoral process. In my judgment, all of these assumptions are wrong, which is why Trump's policies are self-evidently failing to attain his own stated policy objectives. 

There is no inherent economic logic to much of the current US approach to US-China trade. Economists on both sides of the US partisan aisle agree on that. Current US trade policy toward China rests strictly on purely ideological and political considerations - and very flawed ones at that. This accounts for the erratic lurching on the part of the US from one policy or position to another that we have seen over the last 18 months. As Trump's analysis changes, his views and policies change - often within the span of a week or even a day. 

I don't think the trade or tariff war is morphing into a currency war, but the larger point is that the trade war itself is symptomatic of a deeper, more ideological concern on the part of some members of the Washington DC elite about US competitiveness relative to China. The trade war is not the fundamental problem in the US-China relationship. It is a symptom of a larger concern.

GT: Trump portrayed the US as being on the winning end of the trade war, saying tariffs are punishing China's economy while generating billions of dollars for the US. Is the US benefiting from the trade war as the president claims? How has it influenced the US and Americans? 

Current US policy toward China is failing the US in a number of measurable ways. Under Trump, the US merchandise deficit with China has risen to an all-time high; the overall US foreign trade deficit has reached its highest point in the 243-year history of the US; the US stock markets are starting to soften; and Americans are effectively paying more taxes today - over $800 per household by some estimates in the form of higher prices generated by the increased tariffs that Trump has levied on Chinese imports - than they were in 2017. US businesses, workers, farmers and ranchers are all starting to feel higher levels of pain, owing to increased input costs and decreased demand in China for their products, services and commodities. 

Neither the US nor China is "winning" the trade war; we are all losing. For its part, the US is losing in many of the obvious and self-evident ways noted above. 

The inanity of Trump's approach to tariffs comes through mostly clearly when one distills the policy down to its essence. In essence, what Trump is saying to China is, "I will tax my own people, stunt my own economy's growth, sabotage my own stock markets and erase trillions of dollars in my nation's own wealth until you (China) do what I want you to do." It's just not a winning strategy. 

This is why the overwhelming majority of the business community opposes this president's tariff policies. Most US experts agree: There are real and serious problems in the US-China trade relationship, with overall asymmetry that favors China being arguably the greatest of them from a US perspective; but few Americans agree with this president's prescription on how to solve those problems.

GT: To what extent will the 2020 presidential election affect the trade war, and the China-US relations in general?

I would make two points. First, Trump faces a strategic choice: He can either be "the tariff president" or he can be a two-term president, but he cannot be both. If he continues down this current policy path, he will lose some of his popular support and these lost votes, in places like Pennsylvania and Michigan, will cost him the election. To win reelection, Trump must end the trade war; and he must do so no later than the summer of 2020. 

The second and related point I would make is that, oddly enough, the 2020 election will thus likely have a moderating impact on US political discourse on China, not the usual inflaming one. Thus far at least, China has not been a major factor in this presidential campaign; and few if any Democrats view China through the lens that the Trump administration does - for example, essentially as an enemy - or favor tariffs as a remedy to the real problems that do exist in the US-China trade relationship. 

The political imperatives of 2020 will force Trump to moderate his "hurt America first" policies on trade with China, while allowing Democrats - if they're smart enough to realize it - that they can score easy political points against Trump from the right - for example, the pro-business side of the debate - rather than from the left. For these reasons and others, the 2020 election will likely have a moderating and tempering effect on US discourse on China, in contrast to the dynamic of years past.

GT: Historian Niall Ferguson said Trump's tough stance against China and the China-US trade imbalance has alerted the US public to the fledgling stages of a second cold war. From your perspective, is there a looming, or already, new cold war?

It is not surprising that many commentators have employed the "cold war" metaphor in describing the current relationship and dynamics between the US and China. There are a couple of cold war elements present in the current bilateral dynamic - most notably, a zero-sum mentality in the US toward China, and arguably a similar, if not as publicly articulated, stance in China toward the US. But most of the features that defined the US-Soviet Union Cold War are absent in the US-China case. 

Perhaps the three biggest differences are: first, the absence of a comparable degree of overall military enmity and of twin military alliances of broadly equal might; second, the respective hefts of the two economies and the degrees to which they are intertwined - even now, 18 months into the trade war; and third, the public opinion picture in the US, in which China is viewed far more favorably today, even after nearly two years of constant elitist media and political framing of China as the "enemy," than the Soviet Union ever was until the late 1980s. 

The US and China are engaged in an intense competition in a number of ways; but this is not a cold war and, though this is a challenging moment, I don't think it will become one.

GT: Why is the US so anxious and fearful of China's rise? With its rise, is China inevitably a US enemy? Some say is it hard for major powers to escape the Thucydides Trap.

Undergirding US concern about China's rise is what I refer to as a "primal fear" on the part of some in the US: China is the only country in the world that has the capacity, and may have the intent - from the perspective of some in the US - to change the US way of life for the worse. No other country on the planet possesses this capability relative to the US. And this is why some in the US - cognizant of China's capabilities and mistrustful of China's intentions - are reacting to China's continued development and rise with such alarm.

In my view, the US and China are not foreordained to be either friends or foes; how we relate to each other will always be a function of the assumptions we hold and the choices we make in both countries. If the US comes to regard China an enemy - or worse, self-fulfillingly turns it into one - I think it would be one of the grandest and most tragic strategic blunders in our nation's history.

The two countries are now, and for the foreseeable future will remain, formidable competitors; but, as I have said publicly for 18 months, we are not enemies. And I pray that leaders on both sides understand that and act accordingly. 

As for the so-called Thucydides Trap, it's a myth; there has been no documented case of such a trap since 1945. Why? Because of the advent of nuclear weapons and the principle of nuclear deterrence. In today's world, no power that does not possess nuclear weapons can credibly be described as either an established or rising power. And thus, nuclear weaponry has rendered the so-called Thucydides Trap obsolete - the stuff of purely academic discussion.

GT: Some argue that "red scare" is reshaping in the US, what's your take? 

I don't think I would, at least yet, go so far as to argue that the "red scare" - essentially, "McCarthyism 2.0" - in the US is reshaping our country; but this mind-set is causing the US to retreat from the principles of limited government, market economics, globalization and even the very concept of comparative advantage in ways that, for many Americans including me, are quite shocking and alarming. 

The Trump administration and its ideological allies seem to be embracing Chinese - that is, more centralized - approaches to economic management, and even matters relating to the expression and flow of ideas, as best practices to be emulated; this represents a major departure from all US past practice in the modern era. If this trend persists beyond the Trump administration - however long this administration might be in office - then it will be possible to speak of the reshaping of the US; but we are not there yet. The damage this administration's China policy and economic policy has done to the US is considerable, but not yet irreversible.

GT: Hard-liners are advocating treating China as an enemy, containing China's development in the field including economy, technology and others. Where will this lead bilateral relations in the coming years? Are the moderate and rational voices able to help bring the bilateral relations back on healthy track?

There is today in the US a fight for the heart and soul of the US-China relationship. The number of people in the US who see and frame China as an enemy of the US and who truly shape discourse on this topic is actually very small, but the voices of these individuals are loud; and in the McCarthyist atmosphere in which we find ourselves in the US, relatively few people on the moderate, for example, pro-engagement, side of the debate have been willing to take what they see as the risk of speaking out publicly and throatily calling out the inanity and self-destructiveness of the current US administration's specific policies toward China. This dynamic skews perceptions of US public opinion. It makes the "China-is-the-enemy" crowd look larger than it really is and the more moderate "we-need-to-work-with-China" crowd appear smaller than it actually is. 

What is therefore often lost in the assessment of the US mood on China is that the majority of the US people do not think of or frame China as an enemy. Rather, there is a "silent majority" in the US that continues to see China as a vital stakeholder in US future and an indispensable partner of the US across a range of issues, including trade, above all. 

Among the important US constituencies that believe that the Trump administration is dangerously off-course in its approach to China is the US business community. As the damage from Trump's counterproductive and self-destructive policies becomes more evident and palpable to greater numbers of Americans, the terms of the US "China debate" are going to shift and the voices of moderation will begin to carry more weight. 

The solution to the trade war is not economic; it's political. And I believe that the US political process will deliver that solution in 2020, one way or the other. Whether or not Trump wins reelection, the trade war will end in 2020. And over time, some level of normalcy will be restored to the relationship - not out of altruism on either side, but because of necessity, and perhaps more to the point, because people on both sides demand it.


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