On May 10, President Trump announced 25 percent tariffs on $200 billion worth of Chinese imports, and China retaliated with their own tariffs on $60 billion worth of American imports. Although a temporary truce was initiated at the beginning of March, talks broke down after the Chinese government refused to meet Trump’s excessive demands that directly interfered with China’s internal legislative policies on trade and economic governance. Despite Trump’s goal to save America’s dying manufacturing industries, these tariffs will end up severely hurting American consumers while simultaneously endangering our export markets in China.
President Trump seems to suffer from a delusional understanding of how tariffs work in the first place. By making it more expensive for American consumers and companies to import products from China, he is indirectly raising the costs of domestic products as well. At the end of the day, buyers pay the tariff, not the Chinese. Tariffs work as a de facto sales tax in a regressive manner that punishes middle, working and lower class Americans — those who depend on more affordable imports from foreign markets.
China, unlike the United States, has an authoritarian, state capitalist model of governance. The People’s National Congress recently abolished term limits, which essentially means incumbent President Xi Jinping could continue to serve in office for decades to come. Trump, meanwhile, suffers from double-digit underwater approval ratings in the critical Midwestern swing states that helped him win the presidency in 2016 and the Democratic Party controls the House of Representatives. From a political perspective, it is far easier for the Chinese government to respond and retaliate against Trump’s aggressive impulses because the Communist Party of China is not directly accountable to voters in the same way Congress and Trump are every two to four years.
China has plenty of time to weather the storm. Patience and long-term planning are China’s biggest advantages. Additionally, under their state capitalist model, China can easily manipulate its currency, thereby countering the effects of tariffs by continuing to lower the prices of their exports in foreign markets. Meanwhile, Trump spends his presidency endlessly attacking the Federal Reserve Chair on Twitter, accusing him of not lowering interest rates enough, which Trump believes is keeping the economy stagnant. Because of the Federal Reserve’s independence from Congress and the executive branch, Trump has little to no power over the current value of the US dollar.
However, China’s biggest advantage by far is the sheer size of its population. Boasting over 1.4 billion citizens, there are almost five times as many Chinese consumers as there are Americans. The Chinese economy is already larger than the United States economy. Most importantly, Chinese buyers are far cheaper than American buyers, which gives them more power in moving and influencing international markets, because their cheaper demand is exactly what makes the Chinese market so desirable for American and other export nations in the first place.
Since 1978, China was a closed economy and a far poorer nation than it is today, and even then, it survived the effects of extreme communist ideology. Ever since paramount leader Deng Xiaoping’s policy of “reform and opening up,” the Chinese economy has skyrocketed at the fastest recorded rate in human history, while impressively engineering the single greatest lifting out of poverty of 600 million people. But Trump’s trade war against China isn’t just about the fact that the Chinese buy far less than they sell, which creates a trade deficit against the United States; far more importantly, China is quickly emerging as a global leader and competitor in artificial intelligence, space exploration, military prowess and telecommunications.
Just recently, the Trump administration utilized unfounded fear-mongering to bully our European allies into banning Chinese company Huawei, the world’s second-largest smartphone producer, from being able to introduce 5G technology into the European Union. Surprisingly, several major U.S. allies, including the U.K., France, Germany and Italy broke ranks and refused to support the ban. Additionally, the Trump administration has obsessively criticized China’s new Belt and Road Initiative, a global trade and infrastructure project that involves massive Chinese loans to Eurasian and African host nations with the stated goal of creating more efficient trading routes. Secretary of State Mike Pompeo has nervously attacked the BRI as a form of “predatory lending” and accused China of “economic imperialism” without any authentic evidence to back up his wild claims. Unfortunately for Pompeo, the BRI has made unprecedented progress in the last year, with Italy being the newest G7 nation to join the agreement with China.
It is important to understand the context of the trade war not as a mere matter of economic imbalances, but rather as a clash of civilizations that have extremely different political systems. Many China hawks in the Trump administration fear China’s rise will prove to the rest of the world that it is a viable, if not more desirable, alternative to Western liberal democracies. The United States has attempted, albeit unsuccessfully, to counter China’s influence in the South China Sea with warships constantly being sent into Chinese territorial waters. Trump himself has repeatedly used the thorny dispute of Taiwan as a wedge issue against China by threatening to support Taiwanese separatism from the mainland if he cannot get a trade deal. However, given the blustering failure of Trump’s North Korea strategy, it is unlikely that his threats will amount to anything other than the irrational bluffing of a paranoid politician. Since 2017, China’s military presence in the South China Sea has doubled in both scope and volume, and historically, the United States has failed to score a single military victory over People’s Liberation Army.
Despite the creative yet absurd falsehoods that the Trump administration weaponizes on a daily basis to slander the Chinese economy, Trump’s hypocrisy will end up biting him in the foot. Accusations of intellectual property theft are particularly rich, considering CIA whistleblower Edward Snowden’s exposure of America’s continuous spying on Chinese companies, which only ended after the Chinese successfully destroyed these espionage activities upon learning of their existence. And for a president who rails against “socialism” with boundless glee, Trump’s support for the use of taxpayer dollars to subsidize dying manufacturing industries and farms being hurt directly by his counterproductive tariffs reeks of big government intervention – something Republicans traditionally abhor. Banning Chinese products from entering the domestic market is, arguably, the most socialistic policy a right-wing administration could possibly implement, and yet, it will only cause the Chinese economy to become more resilient and stronger as they inevitably trade the American consumer market for newer markets in Europe and Asia. The less China depends on America, the less leverage we have over them in the long run.
However, with the 2020 presidential election on the near horizon, Trump’s biggest threat by far is a slowing economy and failed promises to the same Midwestern farmers that put him in the Oval Office. Chinese counter-tariffs are designed specifically to make it extremely difficult for the agricultural industry in Iowa, Wisconsin, Michigan, Ohio and Pennsylvania to export their products into China. Over the last few months, farmers have already lost millions in sales due to these same tariffs.
Until Trump is willing to sit down and negotiate in good faith with China, defeat and indignity for America is all but certain in this grand economic struggle.