Trump's China Strategy

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Many years ago, Nobel laureate Paul Samuelson was challenged by a mathematician to name a single proposition in all social science that was both true and nontrivial. Samuelson proposed the principle of comparative advantage, first developed by economist David Ricardo in 1817. It was true, Samuelson argued, as a matter of mathematical deduction, and yet its nontriviality was attested by thousands of intelligent men “who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.”

The “doctrine” in question asserts that trade gains follow when a country specializes in those activities which, at world prices, it is relatively better at, even though it may not have an absolute advantage in them.

President Donald Trump seems to grasp that the doctrine claims only that trade will be mutually profitable, not that both parties will be better off. Accordingly, he announced the U.S. would impose a 10 percent tariff on $300 billion of Chinese imports, in addition to the existing 25 percent tariff on $250 billion in goods introduced last spring. The U.S. then declared China to be a currency manipulator, after it allowed the yuan to drop to 7-to-1 against the dollar—its lowest level in 11 years.

Since then, Trump has scaled back the tariff threat. He announced that the tariffs, which had been scheduled for Sept. 1, will be delayed until Dec. 15 on $160 billion of consumer products—toys in particular. He framed the decision as no concession to China, but as a Christmas-season gift.

Trump’s decisions have prompted an instant barrage of criticism from the upholders of Ricardian orthodoxy. The new tariff will add to the global downturn in manufacturing, they claim, and prompt retaliation from Beijing. It will inflict pain on American businesses, farmers, workers, and consumers. Nobel laureate Paul Krugman predicted the trade war would become a significant drag on the U.S. economy and asserted that “the Chinese aren’t crying uncle.”

The list of Trump’s critics is long, but they are all wrong on two key counts.
They are overtly or implicitly committed to the notion that “free trade” is a plus-sum game, and that it is therefore irrational to disrupt it. The theory does not claim that everyone gains, however, only that gains for some exceed losses for all. This means that importing tariff-free goods into the U.S. is equivalent to importing the Chinese workers who produced these goods. In practice this has translated into exporting the American manufacturing base to China.

Trump’s detractors are also wrong on China’s supposed ability to retaliate. Total Chinese tariffs on U.S. goods have reached their limit at $110 billion. By devaluing the yuan, the Chinese have made their products cheaper for U.S. consumers. This means that Chinese producers, not American consumers, are absorbing the actual cost of Trump’s new tariffs.
Far from retaliating effectively, Beijing is running out of options. Data released on August 14 show China’s industrial output growth is now the weakest in 17 years. Stimulating domestic demand won’t work: Trump’s measures are taking a toll on consumer spending as well. Selling some of its $1.1 trillion of U.S. Treasury bonds would merely enable the Fed to buy back its suddenly undervalued paper.

The Chinese leaders may have stalled on a comprehensive trade deal because they hope that a more pliable Democrat will win next year. They are seasoned pragmatists, however, and must be aware that Trump’s odds are rising—and that his resolve would only harden in his second term.

The alleged cost of tariffs to the American consumer, even if calculated correctly, has to be viewed against the incalculable cost of allowing China to continue her meteoric rise unchecked. To use a military metaphor, the global context of U.S.-Chinese relations reduces the issue of tariffs to the level of operations.

At the higher level of strategy, China is the only challenger capable of undermining America’s global position—and Beijing is openly intent on altering the global balance in its favor. While it is self-defeating for the United States to seek open-ended full-spectrum dominance, it is both prudent and possible to check China’s potential bid for hegemony by non-violent means. It is preferable to a belated and potentially destabilizing attempt to do so at a later stage.

Correcting trade imbalances, and making a distinction between friendly and adversarial trading partners, is a time-tested device in the foreign policy-making process. It had been used many years before the term “international community” was even invented. China has been very successful in gaming global trade flows. It has enjoyed an unnatural (never mind “unfair”) advantage for decades, thanks to the dogma of “free trade,” which is inherently inimical to any notion of America as a real nation and a living community.

The elite class, whose scribes now warn us of the dire consequences of Trump’s tariffs, is steeped in globalist ideology. It has presided over the devastation of the U.S. manufacturing base, which has gone hand-in-hand with the demographic consequences of its open-borders dogma. The cost to this country’s social fabric—and to America’s national security properly understood—has been incalculable.

Whose flag flies over some man-made islands in the South China Sea is not an issue worth the bones of a single U.S. soldier. On the other hand, who makes the bulk of products Americans need every day—and to whose long-term benefit—is ultimately inseparable from the question of whose children will inherit their country.

Here is an issue worth fighting for. Donald Trump seems to intuit that much. His approach to the problem of China’s rise may seem erratic and heavy-handed at times, but it is preferable to the alternatives.

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