Trump’s trade policy is a disaster. Here’s what the next president should do.
"AP fact check: Trump’s fog of misinformation on trade "Trump Is Losing His Trade Wars "The S Word, the F Word and the Election"" "
Six ideas to fix trade policy.
By Jared Bernstein Aug 16, 2019, 8:00am EDT
Chinese Vice Premier Liu He (R) looks over as United States Trade Representative Robert Lighthizer (3rd L) gestures near Treasury Secretary Steven Mnuchin (2nd L) before the start of talks at the Xijiao Conference Center in Shanghai on July 31, 2019. Ng Han Guan/AFP/Getty Images
When it comes to President Trump and trade, it’s been all pain, no gain.
But if Trump’s trade policy has been a disaster, with the potential to do lasting damage to supply chains, trade flows, and global stability, it does raise an important question: What does good trade policy look like?
Democrats might know that they stand against Trump’s policies, but coming up with their own plan is harder than you think. For a long time, the party’s top echelon has been captive to free trade orthodoxy. Since Bill Clinton, the theory of the case among the Democratic Party’s elite has been the more globalization, the better — with mostly a deaf ear turned to the people and places most badly affected. Worse, their response to globalization’s excesses has been: “Here’s a new trade deal, much better than the last one.”
Working people were right to disbelieve them. Trade deals, which are necessary to set out the rules by which countries with different systems engage in international commerce, haven’t improved much from the perspective of working-class people on either side of the border. Who benefits from the deals is, unsurprisingly, a function of who gets to write them. For the Trans-Pacific Partnership .. https://www.vox.com/policy-and-politics/2016/7/25/18076450/trans-pacific-partnership , Obama’s signature trade pact that never did get ratified, 85 percent of those who gave direct input to US trade negotiators were from “corporate interests and their related trade associations,” according to the Washington Post .. https://www.washingtonpost.com/news/wonk/wp/2014/02/28/how-companies-wield-off-the-record-influence-on-obamas-trade-policy/ .
There’s a better approach, one that avoids Trump’s reckless trade war and Democrats’ longstanding alignment with the corporate class on trade. We’ve already heard glimmers of this in the campaign, with Sens. Elizabeth Warren .. https://medium.com/@teamwarren/trade-on-our-terms-ad861879feca .. and Bernie Sanders .. https://berniesanders.com/issues/fight-for-fair-trade-and-workers/ .. having the most detailed plans thus far. Tellingly, even moderates like former Vice President Joe Biden explicitly recognize the need for a new direction for Democrats on trade. (Disclosure: I was Vice President Biden’s economic adviser from 2009 to 2011.)
The following is a rough guide for a progressive trade policy, one that aims to preserve the benefits of global trade flows while ensuring that those gains flow more equitably to working people both here and abroad. Targeted, not sweeping tariffs; an understanding of what trade deficits mean and what they don’t; export-oriented industrial policies; trade deals representing a very different group of stakeholders; a laser focus on those left behind — these are some of the foundational ideas that any Democratic trade policy should champion.
No more sweeping tariffs
Tariffs can be a useful tool, but the problem with Trump’s is that they’re far too sweeping.
An effective approach to tariffs would be more surgical. Tariffs should be targeted at specific goods that are being dumped in our country — that is, sold far below cost to capture market share.
Not as sexy, perhaps, as Trump’s tariffs on essentially everything from China but a far more legit path to fairer trade.
The trade deficit is not a scorecard
Another problem with Trump’s current approach is that its goal is balanced trade. On the other side, globalization’s cheerleaders — the dominant center left/right coalition noted above — view trade deficits as always benign, which is also problematic.
To be sure, there are times when a growing trade deficit is not undesirable. When our economy is doing notably better than others, we pull in more imports than exports, as both our relative demand and our currency are stronger than those of our trading partners. In this way, trade deficits enable American consumers and investors to spend and invest more than we produce. And because such periods are typically associated with high employment, those in sectors that have to compete with imports can find jobs (though the quality of those jobs may be worse than the ones they lost).
The policy prescription calls for a trade balance serenity prayer. First, we must admit the problem: Trade deficits are not always benign. Second, we must recognize periods when the trade deficit is hurting our markets and sapping demand that’s not being replaced from other growth components. Third, at such times, we must reduce trade imbalances by investing in our own exporters and pushing back on currency misalignment .. https://www.barrons.com/articles/forget-tariffs-heres-a-better-way-to-close-the-trade-gap-51565348401 .
Speaking of which …
We need export-oriented industrial policies
Shaping globalization doesn’t mean trying to shut it down with fantasies .. https://www.vox.com/policy-and-politics/2019/6/19/18683987/trump-tariffs-mexico-china-trade-imports-exports .. of widespread import substitution, producing here what we’re now buying abroad. Nor does it mean hoping that more of trade’s benefits will finally trickle down to workers if only the next trade deal were even more protective of Big Pharma and international investors.
It means looking around corners to find new, remunerative, productive opportunities for American exporters to meet global demands, and positioning American producers to meet those demands. Green technology, including solar, wind, and energy storage capacity, are obvious targets, as are robotics, AI, genomics, transportation, and sustainable agriculture.
Two ways to move this process along: a) help smaller manufacturers link up to global supply chains, and b) strengthen connections between R&D and expanding production and exports into new areas. As it happens, we already have government functions that perform both of these roles, but they need to be scaled and strengthened. The Manufacturing Extension Partnership .. https://www.nist.gov/mep .. is designed to help smaller manufacturers make both these supply and R&D connections; the 14 Manufacturing USA Institutes .. https://www.manufacturingusa.com/institutes .. are public-private partnerships focused on the diffusion of advanced manufacturing technology.
Aerial view of cargo ships and containers at Wuhan New Port on June 6, 2019, in Wuhan, Hubei Province, China. Xiao Jinsong/VCG via Getty Images
Trade deals must be written by a broader set of stakeholders
From NAFTA to the Trans-Pacific Partnership, our trade deals have not been about lowering tariffs and, you know, freeing up trade. They’ve been technical rulebooks on how to manage trading among countries with different legal, financial, labor, and environmental systems and standards.
The new rules of the road must be written by labor, environmental, and consumer advocates. Yes, there must be room for the usual suspects — investor protections are necessary if we want to see capital flow to countries with weaker rule of law than our own. But there’s no reason for such protections to crowd out the others.
Trade deal expert Lori Wallach and I wrote an essay .. http://jaredbernsteinblog.com/wp-content/uploads/2016/09/The-New-Rules-of-the-Road.pdf .. on what the new rules of the road should include, but the way forward is through a much more inclusive, transparent processes, with enforceable rules that replace the corporate capture of the current system with ones that raise sovereign rights and labor, consumer, and environmental standards.
We must get currency right
Here’s something that’s long been missing from US trade policy: mechanisms to push back on currency manipulation. In the wake of the recent China dustup, this problem of countries holding down the value of their currency relative to the dollar to make their imports cheaper (and our exports more expensive) has been elevated. The media warns .. https://www.npr.org/2019/08/11/749655951/a-u-s-china-currency-war-what-you-need-to-know .. of a “currency war,” or, in economists’ lingo, “competitive devaluations” (using your currency to purchase the foreign currency you want to strengthen).
In fact, while China did for years suppress the value of its currency in a powerful and successful effort to gain a trade advantage, it has not done that for a few years now, though some other countries still do so .. https://www.piie.com/blogs/trade-investment-policy-watch/currency-manipulation-continues-decline . This includes what happened in China last week: This latest fall in the value of the yuan is market-driven, as the People’s Bank of China had been propping up the currency (when the bank stopped for a moment, it tanked).
The most effective ways to push back on currency manipulation is to offset it by either taxing it, thus making it more expensive, or doing unto others what they’re doing unto us: If they buy dollars in international exchange markets to push up the dollar exchange rate, we buy the same amount of their currency to offset their misalignment play.
Truly helping those left behind
Finally, Trump has usefully blown away the false notion that everybody wins from expanded trade — though he never had any intention of truly helping those left behind. To the contrary, similar to the tilted trade deals described above, his tax plan further redistributes income upward, exacerbating the ongoing forces of inequality. A fulsome, alternative trade policy must correct this.
The two most promising policy ideas to do so are refundable tax credits to those whose earnings are too low for them to make ends meet, and subsidized employment in places where trade imbalances have long sapped labor demand.Both ideas are in play, as Democrats have a spate .. https://itep.org/taxcreditproposals/ .. of tax plans that work in the opposite direction of Trump’s and job-creating programs targeting people and places where, even at low national unemployment, gainful opportunities are limited and the jobs they lost have higher value added and compensation than the ones they can get.
Of course, there are many details to flesh out. How do we recognize misaligned currencies? What’s the most effective jobs program for workers displaced by trade? What are the best sectors in which to seek new, global market share?
These are tough questions. But they’re the ones we want to be asking if our goal is to finally build a policy architecture that neither ignores nor exacerbates the challenges posed by international trade.
Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities and was the chief economic adviser to Vice President Joe Biden from 2009 to 2011.
AP fact check: Trump’s fog of misinformation on trade
Faced with internal warnings about a slowdown, President Trump pursued chaotic, contradictory responses.
By Damian Paletta, Robert Costa, Josh Dawsey, Philip Rucker
August 22, 2019
Top White House advisers notified President Trump earlier this month that some internal forecasts showed that the economy could slow markedly over the next year, stopping short of a recession but complicating his path to reelection in 2020.
The private forecast, one of several delivered to Trump and described by three people familiar with the briefing, contrasts sharply with the triumphant rhetoric the president and his surrogates have repeatedly used to describe the economy.
Even as his aides warn of a business climate at risk of faltering, the president has been portraying the economy to the public as “phenomenal” and “incredible.” He has told aides that he thinks he can convince Americans that the economy is vibrant and unrattled through a public messaging campaign. But the internal and external warnings that the economy could slip have contributed to a muddled and often contradictory message.
Administration officials have scrambled this week to assemble a menu of actions Trump could take to avert an economic downturn. Few aides have a firm sense of what steps he would seriously consider, in part because he keeps changing his mind.
Ideas that have been discussed include imposing a currency transaction tax that could weaken the dollar and make U.S. exports more competitive; creating a rotation among the Federal Reserve governors that would make it easier to check the power of Chair Jerome H. Powell, whom Trump has blamed for not doing all he can to increase growth; and pushing to lower the corporate tax rate to 15 percent in an effort to spur more investment. Some, if not all, of these steps would require congressional approval.
“Everyone is nervous — everyone,” said a Republican with close ties to the White House and congressional GOP leaders. “It’s not a panic, but they are nervous.”
This article is based on interviews with more than 25 current and former administration officials, lawmakers, and external advisers who have been in contact with Trump and his team throughout August. Some spoke on the condition of anonymity because the White House has been requesting that allies and aides keep its economic message intact.
Compounding Trump’s situation, some of the economy’s strains appear to be of his own making, as uncertainty surrounding his trade war with China has frozen much investment nationwide.
VIDEO - White House downplays recession fears
“The China trade war is causing most of this,” said Sen. Lindsey O. Graham (R-S.C.), who is close to Trump. “It’s just the world economy is affected when China has a problem.”
Trump has publicly gloated about economic problems in China and Europe — even declaring last Sunday that “the world is in a recession right now” — but those strains appear to be holding back U.S. growth as well.
The economic message emanating from the White House is a product of tensions and debates about how to handle that bracing reality — and Trump’s own stubbornness on trade strategy and his anger about news coverage of the economy.
That has led to a month of tense economic policymaking and markets. On Aug. 1, Trump announced new tariffs against Chinese imports. On Aug. 13, he delayed most of them, worried about the impact on the U.S. economy. On Aug. 20, he said he was considering new tax cuts. The next day, he said he had changed his mind.
Amid it all, stocks proved highly volatile and the U.S. and global bond markets rang numerous alarm bells, a far cry from the era of synchronized global growth that had marked Trump’s first two years in office. Other economic soft spots also have emerged, particularly in U.S. manufacturing, a sector Trump had promised to revive.
Trader Thomas McArdle works on the floor of the New York Stock Exchange on Aug. 14, the day the “inverted yield curve” spooked markets. (Richard Drew/AP)
Although Trump sold himself to voters in 2016 as a master businessman who knew just what to do to rev up the economy, his stewardship could now have major implications for his reelection chances, especially if the more pessimistic forecasts prove prescient.
But beyond the political impact, Trump’s handling of the economic slowdown has opened up the White House to scathing criticism from members of past economic teams, who have contended that the flailing process and lack of traditionally credentialed economists at the helm could exacerbate a downturn.
“The irony here is that Trump’s erratic, chaotic approach to the economy is probably the most significant economic risk factor in the world right now,” said Gene Sperling, who served in top economic roles during the Clinton and Obama administrations. “Their response is just to show even more erratic behavior. It’s economic narcissism. It’s economic policy by whim, pride, ego and tantrum.”
White House spokesman Judd Deere defended the administration’s approach and said officials remain very optimistic about the economy’s performance.
“The White House does not think we are imminently headed for” a downturn, he said. “The fundamentals of the economy are strong because of this president’s pro-growth policies.”
Trump has lauded the economy as the best in U.S. history, while some of his Democratic rivals have said it is barreling toward a recession.
Neither of those descriptions is quite accurate, most economists say. Parts of the economy, particularly consumer spending and the labor market, remain robust. Retail sales are strong, and wages are rising. But business investment, the ballooning federal deficit and trade concerns are creating pressure that White House officials have struggled to explain away. And some of these problems are worsening.
“This administration has not done itself a whole lot of favors in talking about the economy,” said Tony Fratto, who served in senior roles during the George W. Bush administration at the White House and the Treasury Department. “They have done a lot of communicating that is verifiably false on the economy.”
Trump has a lean and increasingly combative economic team, whose members often are at odds with one another on trade and tax policy. Almost all are deferential to the president, but they habitually jostle to advance their causes with him, sometimes maneuvering behind one another’s backs.
Treasury Secretary Steven Mnuchin, left, and White House National Economic Council Director Larry Kudlow after Trump delivered remarks on immigration in May. (Jabin Botsford/The Washington Post)
White House National Economic Council Director Larry Kudlow and Treasury Secretary Steven Mnuchin have fought for months over Kudlow’s push to index capital gains taxes to inflation, for example, with Trump caught in the middle. The proposal would reduce taxes on investment income, primarily benefiting people with higher incomes, but most economists think that would do little to spur immediate economic growth.
White House economic team meetings are less structured than when Trump’s aides collectively pushed a giant corporate and individual income tax cut into law two years ago. Sometimes aides walk out unsure of what was agreed on. Sometimes nothing was agreed on.
But that format drew little scrutiny when advisers were used to primarily boast about the economy’s strength to the news media in the past year. Now, these aides have come under extreme pressure this month as Trump has gyrated in his economic approach and vented his frustration inside the West Wing.
Mnuchin has privately disagreed with key aspects of Trump’s approach to the economy, according to people familiar with the matter. But he has largely disappeared from public view during the turbulent month. Kevin Hassett, a former Council of Economic Advisers chairman and a frequent media commentator, has left the administration.
U.S. Trade Representative Robert E. Lighthizer, left, and senior trade adviser Peter Navarro before Trump imposed tariffs on steel and aluminum in March. (Jabin Botsford/The Washington Post)
Stepping into their void is Kudlow, a Reagan administration official and longtime television commentator; senior trade adviser Peter Navarro, an academic with a long history of anti-China positions; and Trump himself, who often undercuts or contradicts his aides, only to reverse himself the next day.
Republicans on Capitol Hill have sensed the White House’s stress and said the goal is to beat back negative public opinion.
“It’s not economic data that’s driving the concern as much as headlines and the stock market having a big drop,” said Rep. Mark Meadows (N.C.), a close Trump ally. “It becomes a headline, then it can become a self-fulfilling prophecy that is not based on any underlying economic fundamentals. There’s a real proactive effort by the White House to try and make sure the economy continues in a robust manner.”
The current economic drama began on the first day of this month, when over the objection of some senior advisers, Trump announced that he would impose tariffs on $300 billion worth of Chinese imports. Just days earlier, the president had signaled that he was ready to back down from his fight with the Chinese, speculating that Beijing wanted to wait until after the 2020 election to negotiate a trade deal.
But a fruitless visit Mnuchin and U.S. Trade Representative Robert E. Lighthizer made to Shanghai infuriated Trump, several people briefed on his reaction said, and he announced the tariffs in a Twitter post shortly after they returned. At the time, Navarro was the only aide who supported the move.
Mnuchin, left, and Lighthizer met with Chinese Vice Premier Liu He in Shanghai in late July. (Pool New/Reuters)
That announcement began a chaotic chain of economic and political events that White House aides have struggled to control ever since.
The following weekend, China’s currency weakened, a move that would make its exports more competitive, and Chinese officials signaled that they would not be increasing purchases of U.S. farm products, as Trump had demanded.
So on Monday, amid fears that the trade war would spiral out of control, the Dow Jones industrial average fell 767 points. Trump strongly urged Mnuchin to label China a currency manipulator, a symbolic yet harmless shaming that the secretary had resisted because the Treasury Department’s indicators didn’t show that China qualified for such a label. But under pressure, the treasury chief did so shortly after the stock market closed.
Meanwhile, U.S. business executives panicked about the scope of Trump’s new tariffs, and White House officials were bombarded with complaints. So Trump began drawing up plans to delay the tariffs on products such as laptop computers, shoes and clothing. This posed a problem, though.
Trump had insisted for more than a year, without evidence, that China was paying all of the tariffs. This was false, because tariffs are paid by U.S. importers and collected by U.S. Customs and Border Protection. For the first time in months, Trump’s economic message showed signs of cracking. He would soon admit that his economic approach could harm consumers.
On Aug. 13, Lighthizer’s office issued a news release with little fanfare announcing that tariffs on nearly $160 billion in Chinese imports had been delayed until Dec. 15. Trump would later tell reporters that the intent was to ensure that Americans didn’t pay higher costs during the holidays, one of the first times he had acknowledged that the tariffs raised costs.
“What we’ve done is we’ve delayed it so they won’t be relevant in the Christmas shopping season,” he said at the time.
The stock market rallied amid a sense that Trump was preparing to back down, but economic fears grew deeper the next day.
On Aug. 14, key parts of the U.S. bond market tipped over, creating an “inverted yield curve,” an unusual condition in which investors are rushing to buy ultrasafe long-term assets and that often precedes a recession. The Dow Jones industrial average fell 800 points.
In the middle of the day, Trump tried to spin the inversion as a positive thing, saying it was a reflection of how attractive U.S. debt was to consumers. But after the stock market closed, his Twitter feed took on a more furious tone.
He cited the “CRAZY INVERTED YIELD CURVE” and blamed a “clueless” Powell from the Fed.
Through the week, White House officials became increasingly agitated that the public sentiment about the economy seemed to be tipping. Trump, aides said, is obsessed with media coverage of the economy, and thinks Americans will believe negative news and stop spending money. This exasperation began several months earlier.
“In the last couple of weeks, when the market dipped down, it did strike an amount of fear within the White House,” a White House official said. “There’s been a sense going into 2020 that we can bounce back from virtually everything if the economy stays strong.”
LEFT: Steel tubes stacked on shelves in Albuquerque, N.M. An economic soft spot has emerged in American manufacturing. RIGHT: A pedestrian carries a Nike shopping bag in San Francisco. Retail remains an economic bright spot.
The day after the yield curve inverted, Kudlow said in an interview with The Washington Post that the economy was much stronger and more resilient than people were making it out to be.
“What I see is a pretty good second half coming up,” he said.
Trump, however, kept talking with advisers inside and outside the White House and was getting a mixed picture. Still, White House officials complained that news outlets were elevating negative economic news in a way that discounted the progress the White House had made.
Kellyanne Conway, counselor to the president, said the media coverage of any economic downturn is “way overblown.”
“If it’s not Russia, it’s racism. If it’s not racism, it’s a recession,” she said.
Kudlow took a lead role in the White House’s pushback on Aug. 18, appearing on two television programs to try to quell fears of a recession.
“I don’t see a recession at all,” he said on “Fox News Sunday.” On NBC’s “Meet the Press,” he urged Americans, “Let’s not be afraid of optimism.”
A few hours later, though, Trump stepped on that message. Speaking to reporters in New Jersey before returning to Washington, he said, “The world is in a recession right now,” attempting to draw a contrast with the United States, which is not.
By the time Kudlow and Trump made their comments, a freewheeling policy process had taken hold. Some White House officials had begun discussing whether to slash payroll tax rates, although a number of senior officials were never told this was under consideration. Americans pay 6.2 percent of their paychecks to fund Social Security, but in the past Congress has temporarily reduced this payment as a way to spur more spending and help the economy in a downturn.
When The Post reported that the idea was being discussed on Monday afternoon, the White House issued an anonymous statement saying the idea wasn’t “under consideration at this time.” The reason for trying to shoot down the news, two people briefed on the planning said, was a sense that the public would think the White House was panicking if it was revealed that it was contemplating what could be a $100 billion tax cut.
Bad economic news continued. On Monday night, news outlets reported that U.S. Steel could be temporarily laying off up to 200 workers at a Michigan facility. Trump had claimed that his trade policies had revived U.S. Steel around the country, but the company was confronted with lower steel prices and weaker demand than expected.
By Tuesday, Trump was under growing pressure to explain how he was preparing for a possible slowdown.
He said that he was considering a payroll tax cut, as well as the capital gains change for which Kudlow had long advocated. His comments stunned some aides but others shrugged them off, aware that it is nearly impossible to be up to speed on what Trump is thinking at any given moment, even on particular issues such as tax policy.
When Trump made the comments, his economic team was scattered. Mnuchin was on vacation, and acting chief of staff Mick Mulvaney was 2,000 miles away at a donor event in Jackson, Wyo.
Mulvaney struck an upbeat but realistic tone about the economy, according to one attendee who was not authorized to speak publicly.
He noted that there were signs of an economic slowdown but argued at length that the fundamentals of the economy are strong. He said if there was a recession, it would be “moderate and short,” according to an attendee who wasn’t authorized to disclose the comments.
When aides presented Trump with the news that the economy could weaken in the next year, it was just one scenario.
White House officials stressed that they still expect the economy to perform very strongly this year, with the gross domestic product growing 3 percent from 2018. Few others are as optimistic. The Fed estimates that GDP will grow just 2.1 percent.
By Wednesday, Trump had reversed himself again. He told reporters before boarding a helicopter that he had decided to rule out any new tax cuts after all.
“We don’t need it,” he said. “We have a strong economy.”
Trump stops to talk to reporters before departing from the South Lawn of the White House on Wednesday. (Jabin Botsford/The Washington Post)
Graphics by Aaron Steckelberg. Design and development by Lucio Villa.
Why a US-China deal that once looked close now seems far off
"AP fact check: Trump’s fog of misinformation on trade "Trump Is Losing His Trade Wars "The S Word, the F Word and the Election"" "
By PAUL WISEMAN August 8, 2019
1 of 3 - Specialist Lingbo Jiang works on the floor of the New York Stock Exchange, Wednesday, Aug. 7, 2019. U.S. stocks fell broadly in midday trading Wednesday as central banks around the world cut interest rates and increased fears that global growth is being crimped by the U.S.-China trade war. (AP Photo/Richard Drew)
WASHINGTON (AP) — A deal seemed so close.
As recently as May, the Trump administration and China seemed on the verge of resolving their dispute over Beijing’s combative trade policies.
Then it all collapsed. A cease-fire, declared by Presidents Donald Trump and Xi Jinping in June, failed to stick.
Now, global financial markets are shaking and central banks across the world are trying to cushion their economies from the worst by slashing interest rates — all in the expectation that a trade war between the world’s two biggest economies will continue to rage, probably through the 2020 U.S. presidential election.
“The U.S.-China trade talks are in serious trouble,” said Wendy Cutler, a former U.S. trade negotiator who is now vice president at the Asia Society Policy Institute. “There is less and less trust on both sides, coupled with a growing sense in both Washington and Beijing that they may be better off without a deal, at least for the time being.”
The past week has been especially rocky. A week ago, Trump abruptly announced that starting Sept. 1, he would impose tariffs on the remaining $300 billion in Chinese imports that he’s so far spared. On Monday, Beijing struck back: It halted purchases of U.S. farm products — a blow to a critical Trump political base in the Midwest — and let its currency sink to its lowest level in 11 years. A lower-valued Chinese currency, the yuan, gives its exporters a competitive edge over foreign rivals.
Beijing’s currency move led the U.S. Treasury Department to declare China a currency manipulator for the first time since 1994. That step could eventually pave the way for additional sanctions. But for now, it stands mainly as a symbol of the increasingly rancorous feud between Washington and Beijing.
“Both sides are retrenching,” said Timothy Keeler, a former chief of staff at the Office of the U.S. Trade Representative and now a partner at the law firm Mayer Brown.”
The prospect that the U.S.-China trade war will go on indefinitely poses a serious threat to a global economy that was already weakening. It rattles financial markets, discourages trade and paralyzes businesses that must decide where to situate factories, buy supplies and sell products. When companies caught in the crossfire put such plans on hold, they collectively depress trade and growth. The International Monetary Fund expects world trade to slow in 2019 for a second straight year.
Central banks are moving to try to limit the economic damage, although reducing borrowing rates provide only a limited benefit when rates are already low. The Federal Reserve last week cut a key U.S. interest rate for the first time in a decade. On Wednesday, the central banks of Indonesia, New Zealand and Thailand announced rate cuts of their own.
“We’ll be talking about China and the trade-war dynamic over the next decade,” predicted Nate Thooft, head of global asset allocation at Manulife Investment Management. “It’s not going away permanently.”
The Trump administration and Beijing are fighting over a thorny set of issues. The U.S. side says the Chinese are cheating in their drive to dominate such cutting-edge technologies as artificial intelligence and quantum computing. In particular, the administration alleges that Beijing is stealing trade secrets, forcing foreign companies to hand over technology and unfairly subsidizing Chinese tech firms while burying foreign competitors in red tape.
Reaching a substantive deal was bound to be difficult, not least because it would require China to scale back its economic aspirations — aspirations that have become central to its self-identity. Yet at the start of May the two sides seemed to be moving toward some kind of meaningful agreement.
Abruptly, Trump accused Beijing on May 5 of reneging on commitments it had made earlier and said he would raise tariffs on $200 billion in Chinese products, a threat he made good on five days later. The administration also began readying tariffs on an additional $300 billion in Chinese goods — an escalation that would target virtually everything China sells the United States.
“People were way too optimistic in early May,” said Philip Levy, chief economist at the San Francisco freight company Flexport who was an adviser in President George W. Bush’s administration.
Trump and Xi offered a respite in June. Trump agreed to delay the new tariffs while broken-off talks resumed. After a 12th round of negotiations in Shanghai last month made scant progress, Trump busted the truce and said he’ll tax the $300 billion on Sept. 1. He accused Beijing of trying to slow-walk the talks until 2020 in the hope that he would lose the election and they could negotiate with a Democratic president instead.
Whether or not Trump is correct, there is little doubt that his mercurial style has made him difficult to trust in negotiations.
Chart shows Trump's imposed tariffs on China since July 2018. (AP graphic)
Trump “remains a New York real estate salesman whose abrasive tone and slippery style of haggling is not suitable for international negotiations and diplomatic relations,” said Jeff Moon, a former U.S. diplomat and trade official specializing in China.
Beijing might have drawn a lesson from Trump’s dealings with Mexico: After pressuring Mexico into agreeing to a revamped North American trade deal last year, Trump refused for months to lift tariffs on Mexican steel and aluminum.
Finally, in mid-May, he announced that he was dropping those tariffs, restoring harmony to regional trade ties — only to turn around two weeks later and threaten Mexico with new tariffs in a dispute, later resolved, over immigration.
“I’m sure the Chinese were watching the Mexican experience,” Levy said. “From the Chinese perspective, it was getting harder and harder to see what a deal would look like that would buy you trade peace.”
Other factors, too, are working against a compromise. As the 2020 election near, Trump may have less incentive to reach a trade deal that would likely draw fire from Democratic presidential candidates.
Xi, meanwhile, has his own reasons for avoiding concessions that might make him look weak. His regime faces protests in the semi-autonomous region of Hong Kong. And this fall, he will oversee the 70th anniversary of Chinese Communist rule — a time for patriotic chest-beating, not compromising with a foreign rival.
“Washington’s repeated bullying has made it meaningless to continue trade talks in the short run,” tweeted Hu Xijin, editor-in-chief of China’s nationalistic newspaper Global Times. “China is mobilizing internally to fight firmly with the US.”
Dean Pinkert, a former member of the U.S. International Trade Commission now at the Hughes Hubbard & Reed law firm, said he still holds out hope for “a quieter set of conversations that get things back on track.”
But for now, the talks are stalled. Moon, who runs the China Moon Strategies consultancy, said, “My guess is that both sides will come to regard the relatively apolitical pre-May 5 period as a missed opportunity.” ___
AP Business Writer Stan Choe in New York contributed to this report.
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