Trump is stuck between a rock and a hard place

US President Donald Trump seems to be stuck between a rock and hard place on the trade war issue. He cannot end the dispute unless China meets all his demands, including abandoning its development architecture. His domestic opponents would view that as “weak” and the majority of Americans don’t like having “wimps” as leaders.

Neoconservatives and other “China hawks” insist that Trump must get “tough” with China. His supporters also expect him to fulfill the promise of bringing manufacturing back to America. Thus, a trade deal without China surrendering its economic development architecture might not be acceptable.

However, Trump the businessman probably wants a trade deal with China. Indeed, his daughter’s fashion lines – clothing, shoes and jewelry – are largely produced in the “communist” country. His brand, “Trump Towers,” is also displayed in the country. To that end, it would be naive to suggest that Trump does not understand the benefits of international trade and investment.

Further, his trade war is hurting American businesses, consumers and farmers. As indicated in past articles, for many businesses relying on Chinese parts to assemble their final product, the tit-for-tat tariffs have raised production costs, which in turn has increased consumer prices.

Trump’s political fortunes are also tied to the US-China economic relationship. As explained earlier, the US economy is being damaged (by the trade war) more than he is willing to admit. And since no president is ever re-elected for a second term while the economy is tanking, Trump is in need of a trade agreement that can put the country back on track, thus boosting his re-election bid in 2020.

What will Trump do?

It is, therefore, no surprise that a deal to end the trade war did not materialize after many rounds of talks held within the truce period. Unless Trump is willing to back off from his “outrageous” demands, a deal to end the trade war will be a “dream in the distant future.”

But to minimize its cost to the US, China and the world’s other economies, Trump has no choice but to extend the truce and negotiate a deal. However, an agreement that does not involve China caving in to his demand that it abandon “socialism with Chinese characteristics” would be a loss for Trump and the US economy. As alluded to earlier, without a Chinese concession, Trump would not gain any more than what President Xi Jinping offered him during his state visit to China in 2017 – over US$250 billion in investment and trade deals.

Taking the debate to its logical conclusion, extending the trade talks (as long as possible) is Trump’s only choice unless he is willing to risk a global economic meltdown or even a military confrontation with China

Taking the debate to its logical conclusion, extending the trade talks (as long as possible) is Trump’s only choice unless he is willing to risk a global economic meltdown or even a military confrontation with China.

First, extending the trade truce could give Trump some breathing room. He can accuse China of being “unreasonable” and “eating America’s dinner.” It is this kind of anti-China rhetoric that generated support for the trade war, after all.

Second, continuous negotiations give Trump the appearance of being “tough” on China, pacifying his domestic opponents. Indeed, anyone who presents positive commentaries on China is considered a “panda hugger” or a “propagandist” for the “evil commies.” For example, Columbia University scholar Jeffrey Sach’s comment that the US asking Canada to detain Meng Wanzhou, Huawei’s chief financial official, on a stopover in Vancouver was hypocritical was criticized so severely that he was forced to close his Twitter account.

Third, extending the trade war truce and talks would boost Trump’s political fortunes. He would be seen as “pragmatic” in dealing with China and “tough” on Beijing at the same time. Not imposing additional tariffs or even de-escalating the trade war could reverse the US economy’s downward trend, sending stock market prices upwards. But keeping the threat of following through with imposing tariffs on all Chinese “imports” if China “does not come to its senses” makes him look “macho.” Most Americans, for some strange reason, like their leaders to be strong. Jimmy Carter didn’t get a second term because he was viewed as “weak” on Iran during the hostage crisis.

Fourth, escalating the trade war, geopolitical tensions, etc is so risky that even the most staunch China hawks in the US might not be able to stomach the outcome. Fighting smaller, weaker adversaries is one thing, but getting into an economic and military conflict with China is quite another.

The US and China are not only the world’s two largest economies – they are also increasingly intertwined. For example, imposing tariffs on Chinese “imports” (at least most of them) is actually taxing American firms and consumers. The US economy is already showing signs of “distress” – growth has slowed from 3% in 2018 to 2.5% in 2019, stock market prices have fallen and investment is shrinking.

In spite of their “tough” talk on China, the anti-China crowd would not want to fight a war with the “communist” country, which explains why they simultaneously provoke China and  hold talks to avoid an actual war. China may not be militarily as strong or advanced as the US,  but its armed forces have the capacity to inflict huge losses. In short, if America is unwilling to bomb North Korea, it will not do so to China.

A comment

It seems Trump might have heeded Xi Jingping’s counsel, addressing trade issues through dialogue. The alternative is far less attractive as it would threaten economic and geopolitical stability.