Monday, April 9, 2018

Are We Fighting a Trade War?

It’s difficult to think clearly through all the caterwauling, but Holman Jenkins has presented some cogent analysis of our current trade negotiations with China.

Clearly, Trump is playing chicken. He is taking risks. He is not playing nice. Neither, for that matter is Xi Jinping. We note, in passing that Trump and Xi have developed a good working relationship. Like it or not, the constructive developments on the Korean Peninsula show this clearly. One suspects that the current trade confrontation is more like two friends competing at golf than about two nations revving up for war.

True enough, the stock market has been gyrating on every new move in the game. As several people have noted extreme movements are not a good market sign. While everyone believes that the market is worried about a trade war, I suspect, if I had to take a wild guess, that it is far more worried about the blue wave election coming up in November. If the Republicans get clobbered in the midterms, the market will not like it. As I said, it’s a suspicion. Take it as such.

Jenkins begins by pointing out that while Trump is playing chicken with China, America’s leading media lights are ramping up the hyperbole. Trump is playing chicken, which is simply a different negotiating strategy, and the media geniuses are running around like Chicken Little, yelling that the sky is falling.

A game of chicken can always end badly, but why is the U.S. press doing China’s work for it?

Right now a bargaining game is under way that could leave the world trading system better off, with China cheating less. Not the least benefit, this would strengthen the political sustainability of trade in the U.S. and other Western nations—an outcome of high strategic value even to China.

Both sides are in the crotch-grabbing phase at the moment. They want their threats to be treated as credible even if they aren’t.

The problem is, many Americans are salivating over the prospect of a Trump failure. And this has made it impossible for them to think clearly about the ramifications of the competitive negotiation. Consider, Jenkins says, the trade in soybeans and airplanes:

So eager are some Americans for a Donald Trump failure, though, they rush to convince the world that Americans can’t tolerate the slightest risk of pain or loss in a good cause. U.S. soybeans are on China’s target list, but let us calm ourselves. If China buys Brazilian soybeans, the world doesn’t end. Brazil’s customers would buy U.S. soybeans. The net effect would be only slightly damaging to all concerned, except for the rail and shipping companies that would benefit from the world opting for second-best logistics in getting the global soybean crop to market.

Ditto Boeing . Its jets are on China’s retaliation list too, but a reality check is in order. Boeing and Airbus have backlogs stretching out almost a decade. If a Chinese carrier cancels a delivery for next year, it can’t just cut the Airbus line, at least not without paying through the nose for another customer’s delivery slot. Or it could settle for an older, secondhand aircraft, knowing it would pay a penalty in fuel efficiency, passenger amenities and maintenance downtime that could be the difference between a successful service and a money-losing one.

Jenkins wants us all to calm down. He suggests that Trump, as a businessman, tries above all else to maintain good relationships with people. He is not driven by ideology or by animosity. We know that he has wanted to try to get along with Vladimir Putin and has declared Xi Jinping both a "gentleman” and a friend. The term “gentleman” is notably a very high compliment in a Confucian ethic.

What’s more, Mr. Trump is not a bridge burner, whatever you think of his Twitter habits. He is always ready to be best friends tomorrow with whomever he’s at war with today. His relationship with the “failing New York Times” is the cognoscenti case in point. No news organization has been so relentlessly denounced and yet so relentlessly courted by Mr. Trump. He can’t give up. He is not likely to lead us down a path of permanent hostility with China (or anybody else) from which there is no return.

The truth of the matter is that the United States has far too often allowed itself to be treated unfairly by other countries, especially by China:

The Chinese deny it but they know the U.S. has legitimate gripes, especially with respect to Beijing shaking down U.S. companies for their trade secrets as a price for getting access to the Chinese consumer.

How are the parties to this conflict to save face? Jenkins offers a formula for compromise:

Look for a settlement in which Beijing insists it never engaged in technology theft and now will stop. It will launch new laws and courts to hear complaints of its foreign partners. Sure, these reforms you wouldn’t take to the bank right away. But, long term, China’s interest in profiting from its own intellectual property should propel it in the right direction.

Jenkins concludes that we should not sell America short. He suggests that bending over for the Chinese does not earn respect. It earns contempt. Isn't that what we saw when the Obama administration chose to bend over for Iran?

Americans, though, have to be ready to accept some risk if they want China to change its behavior. Danger can always be avoided by bending over for whatever China wants. Happily, the U.S. economy is strong right now, verging on a labor shortage as rising wages can’t lure the Obama-discouraged back into the workforce fast enough.

Stock markets will never be happy with uncertainty, and you might wish to put your portfolio in a medically induced coma for the duration. But it pays not to sell America short, given its inherent, deeply rooted strengths. These strengths are admired by others, including China. They were apparent even on President Obama’s watch, with all its dreary regulatory and antibusiness overkill. His tenure will still be remembered, if dimly, as the time when America’s frackers revolutionized the world energy scene.

He concludes:

Mr. Trump is not the idiot his detractors say, and nobody says the Chinese are idiots. The omens are propitious for a major advance in trade relations. But the Chinese should remember one thing: Mr. Trump is a teetotaler, so the eventual congratulatory toasts should be nonalcoholic.


Sam L. said...

"Jenkins begins by pointing out that while Trump is playing chicken with China, America’s leading media lights are ramping up the hyperbole."
"A game of chicken can always end badly, but why is the U.S. press doing China’s work for it?" The Enemedia Strikes Back! Again, and again, and again, to the end of their time. Loyal to the Dems and the Left; enemies of the GOP and the conservatives of all stripes. Oooooooooh, that TRUMP makes them so MAADDDDDDDDDDDDDDDDDDDD!!!!1111!!!

Ares Olympus said...

Its certainly risk-taking activity, which is cannon fodder for the opposition. And if Trump really isn't a political animal, and doesn't care how badly his party fails in November, he can take the biggest risks, and be responsible for the biggest rewards if he doesn't fail. But the most important consequences often are far down the line, so its hard to evaluate early outcomes, and Trump may prefer short term things that look good but are not in our best interest long term.

We can compare Trump was against the TPP, which excluded China, but of course Hillary was against it too, after she was for it. I'm sure China appreciates our fear of international agreements that strengthen our ability to trade in Asia. Meanwhile China's willing to play hardball with us because they're using their surpluses in trading with us to expand their trading networks.