Trump's trade stance is delusional and dangerous

If implemented, proposed tariffs - taxes paid in the end by US consumers - would hurt American firms and households more than the Chinese

FILE PHOTO: U.S. President Donald Trump refers to amounts of temperature change as he announces his decision that the United States will withdraw from the landmark Paris Climate Agreement, at the White House in Washington, U.S., June 1, 2017. REUTERS/Kevin Lamarque/File Photo

US President Donald Trump may sincerely think he’s battling to win Americans a better deal on trade with China.

In fact, he’s making a better deal harder to achieve - and threatening to inflict grave economic damage on the US economy in the process.

In the past few days, Mr Trump has dramatically cut the chances of a negotiated solution to the two countries’ various trade disputes. He announced a first set of tariffs on $50 billion worth of Chinese goods, prompting an entirely predictable Chinese vow to retaliate. Now he’s followed up with a new threat to impose tariffs on an additional $200bn in Chinese imports (and possibly another $200bn after that).

Even as he escalates the fight over tariffs, the president is trying to persuade Congress to go along with his decision to lighten penalties on Chinese telecommunications company ZTE. That decision was questionable in its own right (because it harmed US credibility in sanctions enforcement), but one possible justification is that it might have encouraged China to offer concessions on trade. The tariff fight has most likely cancelled that opportunity, such as it was: no Chinese leader, least of all President Xi Jinping, could be seen to placate Mr Trump under these circumstances.

Meanwhile, the president’s actions are increasingly hazardous to the US economy’s health. If implemented, the tariffs - taxes paid in the end by US consumers - would hurt American firms and households more than they’d hurt the Chinese. The latest ones would be applied in part to finished goods such as electronics and sneakers, directly raising prices for US consumers (even before China’s government chose to retaliate, as it probably would).


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Perhaps the administration thinks China’s ability to punch back is limited, since the country doesn’t import enough from the US to penalise an equivalent $200bn in goods. But China can retaliate in other ways - for example by obstructing US companies operating on the mainland, promoting boycotts of US goods, or throttling the flow of students and tourists to the US. And China’s ability to thwart the Trump administration’s geopolitical goals remains as potent as ever - witness North Korean dictator Kim Jong Un’s surprise visit to Beijing last week.

There’s no need for this reckless unilateralism. The Trump administration’s theory of trade is fundamentally wrong. It sees bilateral trade imbalances as evidence of unfair practices. In fact, in a world without tariffs or trade barriers of any kind, an approximately similar pattern of surpluses and deficits would still arise, as a result of macroeconomic imbalances and other factors. There’s no polite way to say this: Mr Trump’s goal of smaller deficits through better deals is simply delusional.

Granted, the US has valid grounds for complaint about specific trade practices. In remedying these through cooperation rather than trade war, it would have many potential allies. Other governments are aware of the difficulties their businesses face in China. There’s a consensus that its government pursues a legitimate aim - to move up the technology ladder - by sometimes improper or illegal means, including commercial espionage, heavy subsidies, and coerced transfer of technology.

It would be in China’s interests to do more than curb such abuses at the margin and make largely symbolic gestures on trade, as it has up to now. Substantive economic reforms - measures to liberalize finance, increase consumption, cut overcapacity, protect intellectual property and streamline state-owned businesses - would support better-balanced growth as well as answering the complaints of trading partners. But that doesn’t change the verdict on Trump. His clumsy machinations, which alienate allies while hardening China’s resistance to reform, do nothing to advance this prospect.

By all means let the US identify specific instances of rule-breaking on trade and investment, and build a global coalition to persuade China to conform. By all means lead an effort, through new trade pacts, to strengthen the rules and the means of enforcing them, where that makes sense. But no good purpose can be served by taxing trade, rejecting cooperation and isolating the US from its friends.

Just how much damage Mr Trump might do is starting to dawn on financial markets. He’d be wise to change course before he’s forced to.