The Morning Jolt

Economy & Business

Trade Wars Are Bad and Hard to Win… But China Isn’t Innocent Here

A crane unloads shipping containers at a port in Lianyungang, China, in 2014. (China Daily/via Reuters)

It’s awful to see the way this administration is constantly accusing China of unfair trade practices — export duties on various metals, imposing duties on American chicken, exempting domestically made aircraft from certain taxes while imposing them on American-made aircraft, and excessively subsidizing its corn, wheat, and rice production.

Wait, wait, never mind — all of those U.S. actions before the World Trade Organization were filed during the second term of the Obama administration.

It’s easy to tire of President Donald Trump’s surface-level understanding of trade; he seems to think that only a perfect equilibrium of even value of imports to exports is fair. His public fuming against Harley Davidson, and threats that if they move production overseas, the company will be “taxed like never before!” go right up to the line of abuse of presidential power. His declaration that “trade wars are good and easy to win!” suggests an astounding ignorance of economics and history.

But down the street and around the corner from Trump’s position is the legitimate point that China does not play fair — it signs trade agreements, and then violates them, and the U.S. has to go to the WTO to sort it out. The good news for the United States is that they’ve won their past 16 fights against China before the WTO. The bad news is that the WTO can take years to hash out these fights, and while the WTO is reviewing and deliberating, American companies have to live with unfair tariffs.

In December 2011, China imposed duties ranging from 2 percent to 21.5 percent on imports of large American-made cars and SUVs. On July 5, 2012, the U.S. government filed a complaint with the WTO, contending that China had claimed, rather implausibly, that the U.S. automakers were selling their cars below the cost of production, and that their tariffs were retaliation for U.S. government support of the American auto industry, like the government bailout of GM and Chrysler. The Obama administration argued that China could not prove any harm to Chinese automakers. China eventually backed down in December 2013, and the WTO offered its official ruling in May of 2014. In other words, U.S. automakers had to live with the unfair, unjustified tariffs for two years.

The WTO touts that less than half of the disputes brought before it require dispute resolution panels; most of the time the two countries work out an agreement before that step — and that the average time for the panel to investigate and decide is about ten months.

But sometimes resolving a case at the WTO takes a lot longer, and sometimes China will insist that it is complying with a WTO ruling and simply doesn’t. The fight over chicken parts stemmed from duties imposed in 2010; the United States went to the WTO in 2011. The WTO ruled that China violated its agreements in February 2013. China lowered the duties in 2014, but the United States said the new levels still violated treaty agreements. The United States went back to the WTO in 2016. The U.S. Department of Agriculture calculated that the Chinese tariffs have cost American companies a billion dollars in sales. Then in January of this year, the U.S. won at the WTO again.

On the one hand, it doesn’t make much sense for the United States to withdraw from an international organization like the WTO that rules in its favor so often. On the other hand, Trump has a fair gripe that the WTO is very slow-moving in its enforcement. It’s easy to picture Chinese leaders knowing that their positions are indefensible and that their arguments are weak, but, because they can drag out the WTO process so long, their companies enjoy long stretches of competitive advantages from tariffs, duties, and subsidies.

In this light, maybe someone needs to take a tougher stance with China. But that doesn’t mean the coming months or year will be easy:

U.S. tariffs on $34 billion worth of Chinese goods kicked in on Friday, escalating a war of words between the world’s two largest economies into a full-blown trade conflict.

Washington’s 25 percent duties went into effect at midnight EDT, and China immediately implemented retaliatory tariffs on its $34 billion list of goods issued last month, including soybeans, pork and electric vehicles. Beijing called it the “biggest trade war in economic history.”

It’s unlikely to stop there. In fact, there will be probably be “escalation upon escalation,” warned Geoff Raby, Australia’s former ambassador to China.

Ahead of the Friday implementation of American and Chinese tariffs, Raby told CNBC that “it looks like the first shots to the trade war are about to be fired.”

As Yoda would say, “Begun, the trade wars have.”

Good Riddance, Scott Pruitt

Yes, conservatives generally liked what he was doing in terms of policy. But at some point, something was going to have to give.

In December, our Kevin Williamson did a deep dive into the changes Pruitt was making at the Environmental Protection Agency: “Pruitt has ended the “sue and settle” process under which the EPA effectively outsourced regulation to activist groups and paid them for the courtesy, and he has barred, as an obvious conflict of interest, parties receiving EPA grants from serving on EPA advisory panels. He is rhetorically sharp, but his administration so far has been far from slash-and-burn.” By April, Jonah was arguing Pruitt should apologize for bad judgment when arranging his condominium in Washington and giving raises to staffers without authorization.

By June, the National Review editors were fed up with the stories of lavish spending and general irresponsibility: “He seems to have used government employees to secure a job for his wife and to get a discount on a mattress. His top aides got hefty raises, and Pruitt first told Fox News he did not know about those raises and then told a House committee that he did. He reportedly told aides to find reasons for him to take official trips to countries he wanted to see, and had security aides run errands such as searching for his favorite lotion. And that’s just the start.”

Finally, Ramesh concludes that Pruitt’s time in Washington came to an ignoble end because of his own inexcusably bad judgment: “The aides who told journalists, or congressional investigators, or both about Pruitt’s misbehavior weren’t all or even mostly liberals or deep staters. Several of them were conservative Trump supporters who were disturbed by Pruitt’s behavior and thought he was serving both the president and taxpayers poorly. Some of them had come with Pruitt from Oklahoma because they believed in him. The more they saw him in action in D.C., the less they did. Today it caught up with him.”

Building Social Unity and a Sense of National Connection Requires Trust First

Michael Brendan Dougherty ate his Wheaties this morning:

GDP goes up. Incomes sometimes go up. Real wages tick up. But, at a basic level, people live in a world where fewer and fewer people owe them consideration, compassion, favors, tips for getting ahead in a career, or consolation for getting through life’s disasters.

This is the background noise behind our politics today. And it is unsurprising that the two insurgent ideological trends on the left and on the right — socialism and nationalism, respectively — emphasize shared burdens, our duties to one another.

If you’re on the right side of the aisle, your worldview probably includes a healthy, heaping serving of individualism — a belief in being independent and self-reliant, a wariness or skepticism towards authority, perhaps membership in some portion of Grover Norquist’s old “Leave Us Alone” coalition — home schooler, gun owner, business owner.

But a country is more than just a collection of individuals. It would be nice to have more universal American experiences and something that cultivated a sense of unity and connection. (I think Megan McArdle is on the right track in her discussion of the human need for unifying, identity-affirming rituals.)

But social cohesion is extraordinarily difficult to build without trust. The slogan “We’re all in this together” is less compelling when people regularly see evidence that we’re not all in this together — watching Wall Street banks get bailed out, watching high-level officials escape consequences of breaking the law, watching the incompetent get promoted, watching Harvard accept a class that is nearly one-third “legacy students,” and learning that powerful men lived as sexual predators for years and almost everyone they encountered averted their eyes.

ADDENDA: I’m scheduled to appear with my friend and co-author Cam Edwards at 2 p.m. today on NRATV.

Look, they’re all good potential Supreme Court nominees. At this point, the argument is whether you prefer steak, lobster, or barbequed ribs.

Thanks to everyone for the birthday wishes yesterday.

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