Trump Has Lost His Trade War With China

Donald Trump was not far into his term when he declared a trade war with China. He was boastful, telling Americans that a trade war was easy to win.

Well, he is now touting a trade deal with China (although it has not been finalized and signed). Unfortunately, the deal he is touting accomplishes none of the goals he said he would accomplish. In other words, he has LOST that trade war.

He will brag about the deal, and hope that Americans don't notice that he didn't get what he set out to get. He will hope that most people will just hear his boast and not see the truth.

But whether he wants to admit it or not, he lost -- and that has put this country in a worst position than before he declared that trade war.

Here is how Nobel Price-winning economist Paul Krugman describes Trump's failure in The New York Times:

Trade wars rarely have victors. They do, however, sometimes have losers. And Donald Trump has definitely turned out to be a loser.

Of course, that’s not the way he and his team are portraying the tentative deal they’ve struck with China, which they’re claiming as a triumph. The reality is that the Trump administration achieved almost none of its goals; it has basically declared victory while going into headlong retreat.

And the Chinese know it. As The Times reports, Chinese officials are “jubilant and even incredulous” at the success of their hard-line negotiating strategy.

To understand what just went down, you need to ask what Trump and company were trying to accomplish with their tariffs, and how that compares with what really happened.

First and foremost, Trump wanted to slash the U.S. trade deficit. Economists more or less unanimously consider this the wrong objective, but in Trump’s mind countries win when they sell more than they buy, and nobody is going to convince him otherwise.

So it’s remarkable to note that the trade deficit has risen, not fallen, on Trump’s watch, from $544 billion in 2016 to $691 billion in the 12 months ending in October.

And what Trump wanted in particular was to close the trade deficit in manufactured goods; despite giving lip service to “great Patriot Farmers,” it’s clear that he actually has contempt for agricultural exports. Last summer, complaining about the U.S. trade relationship with Japan, he sneered: “We send them wheat. Wheat. That’s not a good deal.”

So now we appear to have a trade deal with China whose main substantive element is … a promise to buy more U.S. farm goods.

Trump’s team also wanted to put the brakes on China’s drive to establish itself as the world’s economic superpower. “China is basically trying to steal the future,” declared Peter Navarro, a top trade adviser, a year ago. But the new deal, while it includes some promises to protect intellectual property, leaves the core of China’s industrial strategy — what’s been called the “vast web of subsidies that has fueled the global rise of many Chinese companies” — untouched.

So why did Trump wimp out on trade?

At a broad level, the answer is that he was suffering from delusions of grandeur. America was never going to succeed in bullying a huge, proud nation whose economy is already, by some measures, larger than ours — especially while simultaneously alienating other advanced economies that might have joined us in pressuring China to change some of its economic policies.

At a more granular level, none of the pieces of Trump trade strategy have worked as promised.

Although Trump has repeatedly insisted that China is paying his tariffs, the facts say otherwise: Chinese export prices haven’t gone down, which means that the tariffs are falling on U.S. consumers and companies. And the bite on consumers would have gone up substantially if Trump hadn’t called off the round of further tariff increases that had been scheduled for this past Sunday.

At the same time, Chinese retaliation has hit some U.S. exporters, farmers in particular, hard. And while Trump may quietly hold farm exports in contempt, he needs those rural votes — votes that were being put at risk despite a farm bailout that has already cost more than twice as much as Barack Obama’s bailout of the auto industry.

Finally, uncertainty over tariff policy was clearly hurting manufacturing and business investment, even as overall economic growth remained solid.

So Trump, as I said, basically declared victory and retreated. . . .

There will, however, be longer-term costs to the trade war. For one thing, the business uncertainty created by Trump’s capriciousness won’t go away; he is, after all, a master of the art of the broken deal.

Beyond that, Trump’s trade antics have damaged America’s reputation.

On one side, our allies have learned not to trust us. We have, after all, become the kind of country that suddenly slaps tariffs on Canada — Canada! — on obviously spurious claims that we’re protecting national security.

On the other side, our rivals have learned not to fear us. Like the North Koreans, who flattered Trump but kept on building nukes, the Chinese have taken Trump’s measure. They now know that he talks loudly but carries a small stick, and backs down when confronted in ways that might hurt him politically.

These things matter. Having a leader who is neither trusted by our erstwhile friends nor feared by our foreign rivals reduces our global influence in ways we’re just starting to see. Trump’s trade war didn’t achieve any of its goals, but it did succeed in making America weak again.