As the curtain falls on the first Trump presidency, it is timely to reflect on what has been achieved – or not. And nothing could be more at the heart of US President Donald Trump’s mission to “Make America great again” than an audit of his trade war on China.
It is more than two years since his crassest, most significant and most costly claim: “Trade wars are good, and easy to win.” The shocking naivety of that statement still makes me shudder. But having declared war, he has fought it, and continues to fight it, unflinching in his conviction that one way or another he will eventually succeed, and that the United States will have been made stronger in the process.
Whether Trump wins another term in office or not, he can take comfort that his good fight will continue. His opponent in the presidential election, former US vice-president Joe Biden, has given every indication that Trump’s trade war on China will rage on.
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But how well served have the US economy, American companies and workers been by the tariff wars, and unprecedented efforts to roll back seven decades of globalisation and trade liberalisation?
A Trump loyalist would echo the US president’s clarion call from the podium four years ago: “We cannot continue to allow China to rape our country. It’s the greatest theft in the history of the world.” The solution: “When we are down US$100 billion with a certain country and they get cute, don’t trade any more – we win big. It’s easy.”
In short, the prevailing view is that past US leaders should have acted much earlier, but better late than never. While after over two years of escalating economic conflict, many of Trump’s acolytes would today concede that winning might not be as easy as initially thought, most would still say the trade war is good, necessary, and that in the long term the US will indeed “win big”.
But beyond the party faithful, the hard evidence of the past 27 months is less persuasive. As tariffs have been laid on hundreds of billions of dollars worth of China exports, with China retaliating in kind, the price paid by US companies and consumers has been high, and may have long-term consequences.
The US-based Trade Partnership noted in its August report that US goods exports had been rising steadily from October 2016 to the end of 2018, with the 12-month average rising from US$120 billion to US$130 billion, before falling back to around US$120 billion a month.
They reported that aerospace exports fell 49 per cent in the year to July and pharmaceuticals exports were down 15 per cent. Interestingly, the sharpest export falls were to Japan (26.3 per cent), Mexico (16.7 per cent) and Canada (10 per cent). Only two export markets showed gains: Germany (10.2 per cent) and China (3.9 per cent).
Unnoticed by Trump’s acolytes, because of their focus on goods exports, has been a US$20 billion decline in services exports in the year up to July, with travel-related earnings down 76 per cent, and services earnings from China down by 43.5 per cent.
The US trade lobby group Tariffs Hurt the Heartland complained that US exports impacted by tariff retaliation have fallen by 37 per cent, and have shown no signs of recovery even where tariffs have recently been lifted.
As Ryan Hass and Abraham Denmark noted in an August paper from the Brookings Institution, the US-China trade war and phase-one trade deal “have significantly hurt the American economy without solving the underlying economic concerns that the trade war was meant to resolve.
Hass and Denmark ask if the economic costs paid “were worth the billions of dollars lost in value, the hundreds of thousands of jobs lost, the stagnation of US manufacturing, and the devastating effects of the trade war on American farmers.”
The Tax Foundation calculates that the US Treasury has gathered US$80 billion since the tariff war started, “one of the largest tax increases in decades”, and would double this sum if threatened tariffs were acted upon. In September 2009, Moody’s Analytics estimated that 300,000 job had been lost to the trade war.
At the end of December, Bloomberg Economics estimated that the trade war would cost the US economy around US$316 billion by the end of 2020. A recent research report from the Federal Reserve Bank of New York and Columbia University discovered that US companies had seen their share values cut by US$1.7 trillion because of the tariffs imposed on imports from China.
The US Chamber of Commerce recently noted that more than half of the US’ 50 states had suffered “extremely significant damage” from the tariff war: “Simply put, tariffs are a tax on American consumers and businesses. Tariffs are the wrong approach to address unfair trade practices.”
If this had been the price paid for curbing China’s exports, creating new jobs in the US, or forcing American and other countries’ business to move out of China, then some would argue the pain had been worthwhile. But there is no evidence of any such outcome.
China’s overall trade surplus remains robust – down from a peak of US$594 billion in 2015 to a more modest US$422 billion last year, according to Statista. Meanwhile, the US trade deficit with China has remained stubbornly around US$350 billion and the US’ overall trade deficit around US$620 billion a year.
Whatever the merit of concerns about China’s trade and economic practices, Trump’s trade war uselessly and expensively pointed the guns in the wrong direction. The trade war has been dreadful and has proven impossible to win. A strategic rethink is needed, but who will be able to provide it?
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view
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