Who is the Trade War Loser?
Hours before President Trump met with Jean-Claude Juncker, the president of the European Commission, on July 25, he tweeted: “Tariffs are the greatest! Either a country which has treated the United States unfairly on Trade negotiates a fair deal, or it gets hit with Tariffs.”
Before the meeting, the EU vowed to play hardball with the United States. It threatened that it would slap tariffs on $294 billion of U.S. exports if Trump imposed tariffs on cars and car parts made in the EU.
Many people were worried about the coming strife. The EU is the second largest economy in the world and the closest ally of the United States. A trade war at this scale would be like a fight of two Kilkenny cats. Both parties could be badly hurt.
But the EU apparently caved. The United States reportedly secured major concessions from the EU. The Europeans agreed not only to reduce tariffs, but to import more U.S. agricultural goods and liquified natural gas. In addition, Trump announced that the two major economies would work together towards three zeros: zero tariff, zero subsidies, and zero non-tariff trade barriers.
This is not the only good news in trade. On July 26, U.S. Trade Representative Robert Lighthizer told the Senate Appropriations Committee that a new North American Free Trade Agreement was in sight, which he expected would “benefit American workers, farmers, ranchers, and businesses.”
Trump is winning the trade wars. Critics and some of Trump’s allies questioned his strategy of fighting the trade wars on all fronts. It is too big a risk to take, they said. The conventional wisdom goes, you need to focus on one foe, vanquishing him, before moving onto the next.
Not Trump. This may be where Trump’s genius lies. This is probably why Trump is a billionaire, and the majority of his detractors are not. The rise of Trump as a nifty political force is basically a history of defying conventions.
Trump knows the supreme art of war is to subdue the enemy without fighting. Trade spats can inflict pain, and the midterm elections are around the corner. If the disputes drag on and the economy goes south as a result, American voters could quickly sour on his presidency and the Republican Party. Trump talks boisterously and carry a big stick on trade. South Korea and the EU blinked.
Trump also knows when to pick a fight. Following the passage of the tax reduction bill, Trump could have worked on other important initiatives, such as his infrastructure plan. But he knew they had to take a back seat. The U.S. economy had been humming, U.S. businesses created more jobs than there are workers, a first since the Bureau of Labor Statistics started to collect the data in 2000. It’s a perfect time to settle some scores with trading partners.
Most importantly, Trump knows the weaknesses of his opponents and is not shy to exploit them. Take the EU. In the trade wars, the EU can side with the United States, or it can ally itself with China. The EU and the United States share many core values, such as liberty, rule of law, religious freedom, and human rights, all of which are anathema to China. Also, the United States is the only entity that can provide security and defense to the EU.
China couldn’t care less about, or maybe enjoyed Russia’s aggression and Iran’s nuclear threats against Europe. China is renowned for rule-breaking in rule-based international organizations. European countries, like the United States, are victims of China’s aggressive IP stealing. Trump knew all along that the EU had no choice but choose the U.S..
With the truce with the EU, Trump can now turn his gaze upon the East. China’s economy has showed signs of weakening. Its stocks have tumbled into bear territory. Its corporate bond market is on the brink of collapse. A tsunami of defaults just hit the Chinese peer-to-peer lending sector. In a head-on collision with the United States, China’s economy, already slowing down, would take a nosedive, leading to the destruction of millions of jobs and more social unrest. It’s the last thing the Communist Party wants to see.
Trump won’t let this opportunity go to waste, While the tariffs on $50 billion in Chinese goods are being implemented, Trump has proposed a second wave of tariffs on $200 billion in Chinese goods. More could follow. The Chinese Communist Party doesn’t have the means to counter the blitzkrieg. It knows it’s playing a dangerous game that it can’t possibly win. China will come to the negotiation table and will make concessions to Trump. It’s not a matter of if, but when.
The headlines in the U.S. media are always full of adjectives like “erratic,” “chaotic,” “tumultuous,, and “incoherent,” when it comes to Trump and his policies. This is partly because the majority of the journalists in the mainstream media are unabashedly anti-Trump and pro-Democrat. On the other hand, the journalists seem to make zero effort to understand Trump’s thinking. They dismiss Trump’s ideas out of hand, and believe they should be laughed at and rejected.
They are, of course, completely wrong. The Nation, not exactly a right-wing bastion, ran a commentary on July 24, arguing that Trump’s foreign policy was in fact guided by a well-defined strategy. Trump’s trade initiatives have an overarching theme, too. The goal is reciprocal and fair trade. Tariffs are the means to fight trade wars, never the ends. And It appears Trump’s offensive is working.