President Donald Trump and Chinese President Xi Jinping have exchanged escalating diplomatic threats on tariffs, causing some to speculate that an all-out trade war is looming. While this has not occurred yet, and China appears to have blinked, the rhetorical crossfire is still cause for concern. The Trump administration must exercise restraint in its response to the real problems presented by the trade status quo with China and ensure long-term U.S. interests are at the heart of the matter.
The spat between these two administrations was long coming. Tensions over the U.S.-Chinese trade relationship have been simmering for years and would have presented a challenge to any administration. The challenges China presents are real, but a trade war could potentially hurt the U.S. economy and diplomatic relationship with China and other allies.
Trump is right to point out that China’s protectionist insistence on imbalanced trade ($506 billion in exports vs. $130 billion in imports) is problematic. Exporting goods to the U.S. en masse while limiting access to many American brands hurts American companies and cuts them off from a critical growing market. He also correctly identifies that China’s insistence on “technology sharing” makes it a free rider on American innovation.
First and foremost, China has less to lose in a short-term trade war. While the Chinese economy would suffer from a decrease in exports, China’s economy sits on a massive financial surplus governed by a likely lifetime ruler. This offers significant stability that Trump simply cannot match — the U.S. doesn’t have revenue surpluses to invest in the manufacturing capacity and infrastructure needed to produce domestically the goods Americans enjoy at low cost from China.
Trump's conflicting tweets that range from his friendship with Xi, to harsh criticism of China's intellectual property violations, closed markets and currency manipulation create confusion about the relationship between the two countries. Should a trade war emerge, diplomatic ties would be damaged by pitting the sitting power against the rising power in a very public confrontation.
Finally, a full trade war would also have significant implications for key U.S. allies, namely South Korea, whose economy would suffer drastically.28 comments on this story
In his 2016 article on America’s future relationship with China, Atlantic magazine editor James Fallows said that whoever won the presidential election “would have to deal with a China that was too big to ignore, too strong to insult, too valuable a potential partner (on issues ranging from climate change to North Korea) and too threatening a potential adversary to approach with anything other than a well thought-out plan.” Fallows gets at the crux of the problem: An escalating rhetorical war with China does little to implement a long-term strategy, one that is essential to maintaining America’s status as a world economic power in the coming decades.
The expected Chinese trade dispute is blooming, and the Trump administration is in a position to renegotiate terms to serve U.S. interests. Success will hinge on whether Trump and his advisors stay measured in their rhetoric and keep the end goal top of mind. A brash short-term victory might mean long-term damage to the U.S. economy and international diplomacy. The U.S. should always enter such negotiations with confidence, but never arrogance.