Inside Out | Trump’s ‘trade war’ with China won’t be so easy to win
President Donald Trump’s team will learn that finding China’s pain points in terms of trade is more difficult than expected, as Beijing continues to focus on the domestic consumer economy and reduce reliance on the low-value-adding export processing industries
What a fascinating “Trump Trade War” discussion hosted by Bloomberg last Friday. So much alarm. So much consensus. So many unanswered questions. All dominated by the haunting and reckless naivety of Trump’s mantra: “Trade wars are good, and they are easy to win.”
Most of the discussion focused on the universal recognition that trade wars are not good, and that there is no precedent for them being easy to win, in the absence of overwhelming military force.
There are so many reasons why this particular trade war is not good – and that the US warriors’ guns are pointing at quite the wrong targets – that it is easy to imagine many bad outcomes. Trump’s first foray, involving steel and aluminium, provided a marvellous illustration when it became clear from the outrage from Europe, Canada, Japan and South Korea that China was an inconsequential exporter of steel products to the US. Even Taiwan and Vietnam sell more steel to the US than China does – thanks to barriers long in place in the US against Chinese steel.
Many troubling insights arose from the Bloomberg discussion. There was agreement that there is legitimate concern about China’s efforts to cull intellectual property, and about a minefield of local regulations that raise practical barriers for foreign companies wanting to do profitable business inside the increasingly important Chinese domestic consumer market (China’s GDP grew by more than US$770 billion last year – more than the dollar value of economic growth in Europe and the US combined).
But there was also agreement that a tariff war targeting “old economy” exports like steel, shoes, toys or garments would do nothing to tackle these barriers. Wrong guns, pointed in the wrong direction. Back in 2005, when exports accounted for 35 per cent of China’s GDP, a tariff war might have concentrated Beijing’s mind. But today, with most growth being driven by the domestic consumer market, and exports down to 18 per cent of GDP, leverage has been lost.
