National Review Online
Friday, August 23, 2019
A question in the
spirit of Donald Trump’s tweets this morning might be: Who’s trying harder to
crash U.S. markets, the president of the United States or the president of
China?
After Federal Reserve chairman Jerome Powell didn’t
forecast the loosening of monetary policy that Trump craves and China announced
an imminent new round of tariffs, the president launched a Twitter barrage for
the ages. He asked rhetorically whether Powell or President Xi is the enemy. He
also “hereby ordered” U.S. companies to look for “an alternative to China.”
FedEx, Amazon, USPS, and UPS were singled out and instructed to “SEARCH FOR
& REFUSE” illegal Fentanyl deliveries. The stock market duly tanked.
The first thing to say about this is that in no world is
it appropriate to compare the chairman of the Fed (even one who is allegedly
too tight!) to a Communist dictator who runs a gulag and might yet crush the
Hong Kong demonstrators.
As for Trump’s “orders” to American business, of course,
he has no such power, and it’d be better if he didn’t think in such terms, let
alone air them in public, even in impulsive, ineffectual tweets.
Besides Fed policy, the underlying question is the trade
war with China, which is intensifying, counter to what had been market
expectations of a deal. As we’ve noted in the past, Trump has good cause to
want to confront China over its cheating and unfair trade practices, but
tariffs are a blunt instrument that hurt us as well as China, and invite ready
retaliation from the Chinese.
It is a basic finding of economics that trade
restrictions, on balance, reduce economic growth and harm consumers. Numerous
analyses have shown that the current tariffs are costing each American
household hundreds of dollars each year — and hundreds of thousands of dollars
for each job they save in the protected industries — not to mention the
suppression of business investment.
The tariffs — along with the uncertainty created by the
trade war — are obviously one reason that there are warning signs of rough
economic waters ahead, including major downward revisions to recent
job-creation estimates. Xi can see this as easily as anyone else. The Chinese
economy is more vulnerable to the trade war than ours, and is sustaining more
damage, but Xi isn’t running for reelection in 2020. Only Trump is.
We shouldn’t lose sight of the fact that the Chinese have
been completely recalcitrant and acted in bad faith, across the decades and
during these negotiations. It wasn’t Trump who ripped up on almost-completed
agreement earlier this year, but the Chinese. They struck what would have been
all the meaningful constraints on their behavior and put the two counties back
on a collision course.
That said, there are all sorts of ways, besides tariffs,
to pressure the Chinese. We could cooperate more closely with others in the
region, including by reviving the Trans-Pacific Partnership. We could put a
higher priority on concluding free-trade
agreements with Japan and Britain. We could bring more cases against China
through the World Trade Organization. We could use rifle-shot retaliation
against specific instances of Chinese cheating. We could limit Chinese access
to our financial markets and our schools. None of this would be as thunderous
as announcements of new tariffs, but it’d be more sustainable and likely more
effective over the long term.
What to do now? Perhaps the Chinese have determined to
try to wait Trump out through the 2020 election and there’s no way out of the
current confrontation. If not, Trump should be willing to accept a limited deal
that effects a cease fire. Then, we can re-calibrate and build a more strategic
pressure campaign with the help of allies.
Despite his prior assurances, the president is learning
that trade wars are hard. Certainly much harder than sending table-thumping
Tweets.
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