Trade War with China is Worth It

There’s a lot of disingenuous scuttlebutt flying around about a looming recession, the inverted yield curve, and the costs of the trade war with China.  I can’t help but think such doom and gloom reporting is part of an effort to undermine President Trump.  Investor and consumer confidence are emotional, fickle things, based as much on feeling as they are on hard economic data.

As such, I suspect that major media outlets are attempting a bank-shot:  scare investors and consumers enough, and they panic into a recession.  President Trump’s greatest strength at present is the booming economy and low unemployment rate; take that away, and loopy, socialist Democrats have a much better shot in the 2020 elections.  With Leftists like Bill Maher actually hoping for a recession to unseat President Trump, that’s not a far-fetched speculation at all.

The inverted yield curve is a bit academic, though, and I don’t think it’s going to have the scary impact its prophets of doom hope.  Oh, a curve on a graph is inverted—scary!  Most Americans aren’t going to respond to that in any substantial way.

On the other hand, the negative media attention around the trade war with China could negatively impact perceptions of the president.  Trade wars, in which countries throw up tariff barriers against one another’s imports, often ratcheting up the duty levels, is a game in which both sides lose out over the long-run—that is, assuming they don’t have other viable trading partners, and that they’re both evenly matched economically.

And, yes, the trade war has had some drag on the American economy—but it’s been so minuscule, only a few sectors have really felt the pain.  Meanwhile, China is really struggling.  Getting Trump out of office would serve China beautifully, as narrow-minded neoliberal economists would likely push a Biden (or Harris—gulp!) administration to end the tariffs.  China has the dubious luxury of an authoritarian system that can direct its economy, while President Trump must survive reelection to keep his trade policy going.

The case for maintaining the trade war is compelling (and it pre-dates Trump:  one of Mitt Romney’s advisers in the 2012 election, Oren Cass, wrote an essay for National Review calling for a trade war with China in 2014).  The best recent summary for why the trade war is beneficial actually comes from my hometown paper, The Aiken Standard (kudos to my Dad for sharing this piece).

Greg Roberts spells out the case in “Facts behind the U.S.-China trade war“; I highly recommend you give it a read.  As Roberts points out, in a normal trading relationship, the price of each trading nations’ currencies would fluctuate based on its relative trade imbalance with its trading partners; this fluctuation would occur until some rough equilibrium in currency values is reached.

China—in violation of its agreement not to do so upon entering the World Trade Organization—has continually depressed the value of its own currency in order to encourage a trade imbalance with the United States.  Because the Chinese currency is held artificially low, it is cheaper for the United States to import Chinese goods than to export American goods to China.  Why?  Because the Chinese currency is cheaper, Chinese goods are less expensive, and can be bought and imported cheaply.

Because China is a currency manipulator, it is not acting per its agreement upon joining the WTO.  Further, Roberts points out other violations, including China’s requirement that firms wishing to manufacture in China turn over their patents, blueprints, and other intellectual property to the Chinese government as the cost of doing business.

Here are two relevant paragraphs:

Has China kept its promise? The answer is a resounding no, since the Peoples Bank in China, which is controlled by the Communist Party, routinely devalues its currency to maintain, in the case of the U.S., a positive trade balance, which, for us, means we have a trade deficit with China, now totaling more than $300 billion annually.

China agreed to many other provisions when it joined the WTO which the country has not kept, to wit not requiring the transfer of foreign technology as a condition of market access; enterprises in China that are owned or controlled by the government have expanded rather than diminished; foreign banks have not been given the access that had been agreed to; the theft of intellectual property has not abated; among many others.

Clearly, China has acted in bad faith repeatedly.  Further, the United States has a number of alternatives for trade in the region, including Vietnam.

Also, the goods China receives from the United States are the stuff of life—soybeans and other agricultural products.  Does the United States need more cheap plastic crap?

Give Roberts’s analysis a read.  It’s the best, most succinct summary of the trade war I’ve read recently, and it will convince you of the necessity of holding the line against Chinese economic aggression.

9 thoughts on “Trade War with China is Worth It

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