The US-China Trade War Can Turn Into A Disaster For Nation’s Economy

President Donald Trump of the United States lately escalated his trade conflict with China, threatening to enforce a 10% tariff on the remaining 300 billion dollars of untaxed Chinese goods.

If the new tariff comes into force as promised in September, nearly all Chinese exports to the United States would be subject to levies ranging from 10% to 25%. China retaliated by letting its currency’s value drop to the smallest point in over a century and stopping all crop exports.

Now a lot of Americans like me wonder: is there any end in sight?

As a trading strategy scientist, I have constantly pointed out that free exchange is a favorable sum game— meaning that every participating nation can profit— not zero-sum— as Trump seems to think. This is why all respondents are certain to be harmed by business conflicts.

I think the US could have prevented its present predicament by using the existing dispute resolution method of the World Trade Organization to tackle its justifiable Chinese behavior issues.

Nevertheless, starting a trade war could possibly be justified from a single country’s view if the end result eventually changes the conditions of trade to its advantage.

Such a victory can only be accomplished if the nation has more leverage than its opponent — that is, if it can impose more suffering on its opponent than it experiences itself.

And the longer the trade war goes on, the more concessions that the nation will have to win to compensate for the harm that has been caused.

So, after almost 18 months of escalating US-China conflicts, where are we? Is either party winning, and can any concessions justify the already experienced financial damage on both sides?

Above all, it has become increasingly clear that both countries ‘ economies are being hurt by the trade war. Nor will this conflict emerge unscathed.

However, unfortunately, the last 18 months have accomplished little to explain who’s winning — that is, who’s hurting less and can hold out for longer credibly.

Take China with you. Before the trade war, it had already faced a number of major difficulties, including first how to make a shift from its present dependence on inexpensive manufacturing to greater value-added products production. As demonstrated by the latest incidents in Hong Kong and Xianjing, as well as the authoritarian crackdown of Chinese leader Xi Jinping, China’s political stability is also somewhat precarious.

In addition, China’s economic growth has slowed down to 6.2 percent a 27-year low. And perhaps more ominously for the nation, there are increasing indications that overseas businesses from America and elsewhere look outside of China as they expand their operations in sourcing, production, and distribution.

Of course, China’s growth rate still makes it one of the world’s fastest-growing economies, so it’s hard to call the latest slowdown a crisis. And before the trade war, the change away from China, restricted as it is, started, spurred on by increasing prices, theft of intellectual property and other problems.

The issue for the US is that the pinch is increasingly felt by Americans as well.

Most particularly, perhaps, farmers — many of whom continue to support Trump — are starting to tire of the sacrifices they make for their uncompromising roles. With the Chinese government threatening to retaliate if Trump pursues the fresh tariffs, their desire to go forward maybe even harsher

Recent studies have undercut Trump’s assertion that Chinese firms bear the brunt of tariff payments from a wider view, demonstrating that the majority of expenses are passed on to US firms and customers. And the stock market has a negative reaction to the recent threats from Trump.

True, the general American economy stays powerful, with increasing jobs and a rapid, though slowing, 2.1 percent growth rate in the latest era. But China has one more strategic advantage that could make a significant difference: it can wait for the presidency of Trump.

If the strategy of the Trump administration to trade was a bipartisan agreement, the US could maintain long-term pressure. Containment policy during the Cold War, in which the U.S. committed to curbing Soviet impact, is the classic instance of a consensus that was credibly preserved across multiple administrations in one form or another.

But the Chinese government can afford to wait for a fresh president because the tariffs are so linked with Trump’s personality. If a Democrat wins in 2020, he or she will probably retain a tougher line on China than we saw before Trump, but will probably repudiate the penchant for punitive and precipitous tariffs of the present president. 

In a sense, the negotiating credibility of America has become yet another victim of its polarized politics.