May 11, 2019

“Trade Wars Are Good…and Easy to Win.” – President Donald J. Trump

by Hal Gershowitz

Comments Below

No, they’re not…and no they’re not.

President Trump believes, as he has told us many times, that we’re “losing” $500 Billion in our trade with China. Actually, our trade deficit with China stands at about $420 Billion. That means we have acquired more goods from China than China has acquired from us. That doesn’t mean we’re losing. We send them paper (dollars) that we print rather cheaply, and, in return, they send us steel, auto parts, solar panels, electronics, clothes, etc. The value of those goods we import and take possession of and use, our President defines, collectively, as our loss with China. They get dollars and we get materials and products, and that’s what President Trump defines as our loss. Huh?

It’s sort of like going to Costco and buying, at attractive prices, a trunk load of steaks, sweaters and jeans, and a case of Kirkland Côtes De Provence Rose wine, and then complaining that the transaction was a loss, because Costco got dollars for the products we purchased.

Of course, what the President is railing about are the jobs, Chinese jobs, that go into producing the products and materials we buy from China and others, and the commensurate “loss” of jobs we experience when we purchase foreign made goods. That’s a legitimate issue, but it is not a trade issue. It is an issue of a shifting economy. We have become more of a service and high-tech information economy and somewhat less of an old-line manufacturing economy. Is that good? Well, it seems our economy is booming right now. We’re employing more people than ever. Minorities are participating in our labor force at the highest rate ever and the cost of labor is being briskly bid up as fewer and fewer unemployed workers are available to fill vacancies.

Here’s a simple fact to digest. Any nation that consumes more than it produces will have a negative balance of trade. And, with a booming economy, we are apt to continue consuming more than we produce. Our production will grow for sure, but we’ll still probably be a net consumer of foreign-made products. So, what? Here’s another fact to digest. American firms are major investors in Chinese enterprises. And China has been a major investor in American enterprises, although Chinese investment in American business has dropped off in the last year or so, while they dealt with economic pressures at home. This is healthy economic activity, benefiting both countries.

This all begs a question. Why in the world is President Trump picking a fight…a trade war, when our economy is surging at record highs? Sadly, the answer is rather simple. He’s delivering on a campaign promise. It apparently doesn’t matter how foolish that promise may have been.  Meanwhile, the manufacturing enterprises we do have, and there are many of them, are suffering because they have to pay more for the raw materials they need because of Trump’s tariffs. Their customers, that is the American consumers, have to bear the added costs. And our farmers? Don’t even ask. Many of our exporting farmers are on life support as the government rushes through special subsidies to compensate for the losses our own tariffs have imposed on our own farmers.

And just what does China do with the dollars it earns from selling finished goods and materials into the American marketplace? It lends us a lot of the money we need to cover our profligate spending. Yes, China is the single largest foreign investor in America. In effect, President Trump has decided to “go to war” with our largest foreign investor (creditor). 

How will it end? We don’t know, but we believe President Trump may have seriously miscalculated. Knowing President Trump as we all have grown to know him, suggests that he assumes the raging American economy puts him in the driver’s seat. On the other hand, China’s first quarter growth of 6.4% contrasts reasonably well against America’s 3.2% growth. The Chinese are much more adept at playing the long game then are we Americans, and that is especially true now that President Trump is facing a grueling election in only 18 months. Trump cannot afford to look weak going into the 2020 election, and, we suspect, President XI may feel President Trump is going to need him in the coming months more than he will need Trump. After all, President XI has no election pressure staring him in the face and he never will.

The entire trade war with China was ill-conceived from the start. President Trump didn’t even try to mediate our differences with China through the World Trade Organization, which was created for that purpose. Instead, he chose the nuclear option, the macho option, a trade war where tariffs would be the weapons of choice. Well, “the easy win” hasn’t been as easy as President Trump thought it was going to be. President XI may slow walk any further talks, or he may send a more draconian signal by taking a pass on upcoming treasury auctions, goosing US interest rates northward.

Trade wars good and easy to win? We don’t think so.

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9 responses to ““Trade Wars Are Good…and Easy to Win.” – President Donald J. Trump”

  1. Prover Stephen E. says:

    Best piece I have read on the topic. Thanks

  2. Paul lubar says:

    You failed to mention the theft and forced turn over of technical and intellectual property which constitutes a significant portion of the negotiations.

  3. Roberta Conner says:

    I agree with reader Paul Lubar. Your arguments against tariffs are incomplete. The purpose of imposing tariffs is not just an algebraic, economic one related to reciprical trade numbers between the two countries. As U.S. Trade Representative Robert Lighthizer recently stated, after a seven-month investigation into China and intellectual property, “… the value of the tariffs imposed was based on U.S. estimates of the actual economic damage caused by China’s alleged IP theft and the forced transfer of technology to Chinese companies.”

    Someone in an American administration must make every reasonable effort to stop China’s determined and consistent efforts to achieve :
    The forced transfer of American technologies;
    The theft of American Intellectual Property;
    The stealing of American trade secrets;
    Continued cyber hacking of American systems;
    The forced imposition of Joint Ventures with Chinese Companies

    The bottom line, which your article completely ignores, is that Trump’s imposition of tariffs is not an ends to a means but rather the means to the end. The ending of all of the above-mentioned corrupt practices by the communist Chinese government. God bless our President in this noble and absolutely necessary effort.

  4. Robert borns says:

    Roberta Conner has explained what trumps goals really are. To implement a situation that will allow our nation to compete on an equal footing with China and the rest of the world. We are no longer the rich uncle and can’t act like we still are. Bob borns

  5. judy says:

    Curious…….. how many folks trust a hard lined security system “Made in China” installed in their home? Check it out ….I’ll pass.

  6. Hal Gershowitz comments: Safeguarding intellectual property is a major issue when doing business in China and elsewhere. In the case of China, there are two elements to the problem. One is outright theft or infringement. The other results from joint venture business arrangements in which one partner (the foreign partner) to the arrangement is coerced into transferring its intellectual property to the other partner (the Chinese enterprise). With respect to the first example, outright theft or infringement, China has enacted IP protection laws and American companies litigating theft or infringement cases in Chinese courts have done surprisingly well. Among international trading nations whose IP law effectiveness have been studied, China rates at the midpoint. The United States is rated best and Venezuela is rated worst.
    The second category of IP transfer in China (which relates to the country’s joint venture requirements) is a far more difficult issue with which to deal. Amerian firms eager to access the Chinese market are confronted with onerous technology sharing demands in order to sell in China. American companies can, of course, say “No,” and set up shop elsewhere. In any event, tariffs which impose costs on American consumers, are an inefficient way to deal with Chinese laws that adversely affect American businesses.

  7. Perry says:

    I am amazed at the rate of ideas and sometimes
    wonderful results of this administrations efforts on an
    international basis. He (Trump) very well knows he is playing
    a very unpredictable hand, let’s see the results before we
    criticize his plan.

    No president since Richard Nixon opened China has confronted
    the Chinese regime. If one believes that Russia is number one
    problem for us they best take a second look at China and it’s
    obvious intentions and world view.

  8. Steve Hardy says:

    This what Ronal Reagan had to say about tariffs, “We’re in the same boat with our trading partners. If one partner shoots a hole in the boat, does it make sense for the other one to shoot another hole in the boat? Some say, yes, and call that getting tough. Well, I call it stupid.”

  9. James Fisher says:

    I must agree wholeheartedly with Ms. Conner’s evaluation above. This is a war America must apparently win on its own. The WTO, which remedy is quoted by the authors, has proven to be totally ineffective in stopping China’s unfair and one-sided trade practices. Yes, the US may win a verdict from the WTO but the Chinese completely ignore such verdicts and continue down the path of world economic domination through outright cheating.
    Let’s hope Mr. Biden comes to his senses about China and its intentions sooner rather than later.

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