President Trump claimed in a tweet that “trade wars are good, and easy to win.” Unfortunately, the American people are about to experience firsthand how wrong the president is and how painful and hard it really is to “win” a trade war. This difficulty is magnified when such wars are waged against authoritarian regimes such as in China.
Tariffs imposed by any government are, first and foremost, penalties on those of its own citizens who buy imports (or import-competing domestic goods). Uncle Sam’s tariffs, therefore, are penalties imposed on Americans. That’s what they are, period. Likewise, Chinese tariffs are penalties imposed on the Chinese people. But surely at this game of abusing its own citizens, the Chinese government has the upper hand. Compared to Uncle Sam, it will be the less likely to flinch, largely because its officials bear no political costs for the tariffs they impose.
You can already see it by the way China promptly retaliated to last week’s announcement. The U.S. hasn’t even published the details about how its trade policy will be implemented, yet the Chinese have already promised to retaliate and implemented their retaliatory measures. From the Wall Street Journal:
The Chinese Finance Ministry said in a statement dated Sunday that the previously announced tariffs on the imports of American goods would take effect Monday.
Penalties range from 25% on American pork and eight other kinds of goods to 15% on fruit and 120 types of commodities, the ministry said.
The Finance Ministry renewed China’s criticisms of the Trump administration’s 25% tariffs on steel and 10% tariffs on aluminum under Section 232 of the Trade Act as violating global trading rules. …
Beijing has promised retaliatory measures in response to specific actions by the Trump administration. Soybeans and other products from American farm states are high on the list of potential targets, as well as other big-ticket U.S. goods like Boeing Co. aircraft.
Interestingly, as the announcement was made in Beijing, the stock exchange in China went up or at least overlooked the retaliation and its impact. The same can’t be said about the Dow, which went down.
Mr. Trump wants a trade war and it looks like he is getting his wish. This war is bad news for all but a tiny handful of politically influential Americans: Most Americans — consumers and producers alike — will be used as pawns in Mr. Trump’s effort to protect markets for the tiny fraction of American producers who have his attention. This trade war is bad news also for America’s neighbors: They will inevitably feel the negative effect of the battle between China and the U.S. As one writer noted, Trump may have tweeted us back to the Cold War.