Almost every commentator says that there can be no real winner if a true trade war breaks out between China and the US. Most also say that US tariffs aren’t the way to solve the problems that are the real heart of the issue.
So why is the US continuing to pursue this course of action??
It get’s your attention. Trump administration will be open to all methods to apply pressure on China to work toward a solution. Trump uses the Tariffs to generate wide spread media coverage which helps him to prove he has been tough on China.
“Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States,” US President Donald Trump said in a statement. Quite simply, the broad aim is cut the trade deficit the US endures with China, which was a key plank in Mr Trump’s “Make US Great Again” election platform. For Mr Trump the deficit is about $US500 billion a year, or “the largest deficit of any country in the history of the world.” The US Census puts it at $US375 billion. China’s transition to a producer of hi-tech goods is a big part of US frustrations, particularly the rapid growth of state-owned or backed enterprises like the telco giant Huawei.
In the present era of globalization, any leaders of a big country who know market rules and the general world situation would unlikely make an absurd decision to shut the door to the world’s second-largest economy, let alone Trump, a businessman-turned-politician who deeply understands the “art” of deals and compromises.
So, behind the seemingly irrational and nearly insane statement is actually the White House’s anger toward China’s vow of tough countermeasures, its panic over a plummeting stock market in reaction to the looming China-US trade war and its anxiety in the run-up to US midterm election. As a result, the Trump administration has no choice but to play the numbers game in an ever-escalating manner to exert continuous pressure on China and present its strong profile to win the midterm election.
Economically, both the United States and China would lose from a trade war. Punitive tariffs would push up import prices, dent exports, cost jobs, and crimp economic growth, so both sides would do best to avoid an outbreak of hostilities. But now that the Trump administration is
threatening
to impose 25 percent tariffs on $46 billion of U.S. imports from China and China has responded in kind, a trade war looms. Trump has since raised the stakes by threatening tariffs on a further $100 billion of imports (so far unspecified), which Beijing promptly said it would match. Trump’s calculation appears to be that China has more to lose and so will back down. He is wrong.
Mr. trump seems to believe that because the United States has a huge
trade deficit
with China — actually $337 billion in 2017, not $500 billion — he is bound to win the impending trade war between the two countries. But even though China sells more to America than it buys in return, Beijing’s position is actually much stronger, both economically and politically, than that crude calculus suggests.