“It’s done very well for me over the years,” the President continued, justifying his tariff assault on China and other nations at the G7 meeting in France last week. Well, no argument or fact-checker Pinocchio’s there. He is conducting the nation’s foreign affairs and trade policy essentially the way he negotiated deals as a private businessman. When he believes he holds the high cards he takes no prisoners, figuratively speaking, of course. For example, when he had a dispute with contractors who had completed work for him, he held the high cards. He had the product of the contractor’s work as well as the remaining money he owed the contractor. That’s a pretty strong position to be in, especially given US contract law, in which the claimant is entitled to no more than the contracted amount. That’s a huge inducement for a contractor to settle for less than the contracted amount rather than bear the high cost of litigation to pursue the full contract amount.
We won’t make a judgment about the hundreds of suits and liens contractors have, in the past, levied against Trump, the businessman, for non-payment of money they claim was owed to them. In fairness, contractor suits and liens are pretty common in the construction business. Such suits are common because sometimes contracted work is not completed satisfactorily and a builder will withhold final payment until work is completed as specified. There is nothing wrong with that. As everyone in the building business knows, however, many suppliers or sub-contractors will settle for less than the full amount owed when there is a dispute over payment because of the expense of litigation. In other words, the builder holds the high cards and some builders can play those cards ruthlessly. An invoice often becomes an invitation to negotiate.
Likewise, in our trade dispute with China, Trump clearly believed (or, perhaps, still believes) he had (or has) the winning hand with all the high cards. That’s because American consumers buy so much more from Chinese producers than American producers sell to Chinese consumers. In this trade war between the United States and China, it would appear at first blush that the United States can hurt China more than China can hurt the United States because we buy so much more from them than they buy from us.
Why should our trade deficit with China surprise anyone? American consumers, as a group, are much wealthier and want more, much more, of what China produces and sells than Chinese consumers want of what America produces and sells. That’s why we have a negative balance of trade (in manufactured goods) with China. Believe it or not, it’s really that simple. So, because we’re the bigger buyer, it stands to reason that we have much more leverage in a trade dispute than China does. That’s why Candidate Trump and, then, President Trump naively boasted that trade wars are good and easy to win.
But in the final analysis, it isn’t a matter of who can inflict the most pain. It is, rather, a matter of who can stand the pain the longest. President Trump is facing an election in a year-and-a-half, and if his trade war is still raging he will lose support that he simply can’t afford to lose. Surely, he must have calculated that this trade war would have been decided in America’s favor well before the 2020 election and that his big tariff victory would be a big plus in the election. It’s probably not going to work out that way, and, frankly, we can’t figure out how President Trump or anyone else could have assumed otherwise. President Xi Jinping, on the other hand, has no election staring him in the face. Time is on his side.
The Chinese are a stoic people who have known only authoritarian governments for their entire history. Hardship, in spite of their rapidly improving standard of living, is all but hard wired into their DNA. If the trade war continues the odds are that the Chinese people will probably rally around President Xi. President Trump cannot expect the American electorate to rally around him if the trade war continues. His tariffs are hurting far too many people, some, such as the nation’s farmers, severely. Also, if the trade war continues, the American electorate will hear and see recordings of a braggadocio President Trump assuring people how easy it would be to win a trade war with China.
There is no easy way out of this tariff war President Trump has unleashed. President Trump will find it very difficult, if not impossible, to back off. He has “to win.” This is, after all, his Art of the Deal in real-time. It is being played out for all to see. He is either an artful dealmaker or a political bully being faced down on the world stage. Ironically, there is relatively little the Chinese can do. They have been cracking down on outright intellectual-property theft, but they are not going to be bludgeoned, to suit Donald Trump, into changing their joint-venture laws regarding sharing of intellectual property among joint-venture partners. They can agree to buy some additional American soybeans, but that will not be seen as a victory for Donald Trump. He has to prove that trade wars are good and easy to win. Selling more beans just won’t do it.
Sorry, but that’s the way he negotiates.