When President Donald Trump first imposed heavy tariffs on Chinese imports into the United States, everybody assumed, as he said, that they were intended to pressure Beijing to change its currency manipulation and other policies that have led to a massive trade imbalance.
But, now that the sanctions have remained in place for a while and China has not buckled, a new possible scenario is emerging. The “solution” to the tariff/trade impasse may be just to let the high tariffs remain in place indefinitely and end the “negotiations.”
What would the U.S. get from such a “deal?” The trade imbalance would self-correct as the tariffs made Chinese products too expensive for American buyers.
Many of the goods now being made in China would be manufactured at home in the USA. Other importers would just reroute their supply chains around the Middle Kingdom and go through Vietnam, Bangladesh, or other low-wage havens. China would eat the loss and move on, albeit with a reduced trade surplus.
And what would China get from the “deal?”
That’s the scary part.
With the trade imbalance solved, the American negotiators would stop badgering China to cease its theft of U.S. technology. Beijing’s cyber and human intelligence efforts to learn our secrets — technologies it took us years to develop — would continue unabated. And China would accept the permanent loss of its trade surplus in return for the removal of diplomatic barriers to its march toward global domination.
Already, there are indications that the Trump administration is backing off its pressure on China to curb its government subsidies and other benefits to Huawei, the leading Chinese tech company. With its ties to the Chinese military and its role in monitoring and cracking down on dissent in China, Huawei is truly the face of the new Chinese imperialism.
China always thinks in terms of history. Its surplus in exports of goods and services is what helped propel China past the economic disaster of Mao’s policies into the era of recovery under Deng. But the surplus has served its purpose. And China has always been willing to trade its past for its future. If giving up their surplus is necessary to allow Beijing to lead the world in new technology, that’s a trade it will make any time.
The question is: Why would Trump take such a deal?
First, he may feel that he has no choice but to declare victory and leave his sanctions in place, doing their job, day after day, of saving American jobs and promoting our exports.
Second, he needs relief from the agricultural sanctions with which China has retaliated. While their dollar amount is small compared to the impact of U.S. sanctions on China, the geographic and electoral implications of the farm sanctions hurt Trump. They could cost him Iowa, Ohio and a bunch of midwestern states.
Third, Trump’s economic team may feel that the trade war is, indeed, hurting the U.S. economy as the election approaches, a price no president can tolerate. A “victory” in the trade war would help the economy and Trump’s own electoral prospects.
The casualty would be America’s national security interests. I believe Trump may have launched the trade war in the first place to discipline China for stealing our technology and used the trade imbalance as the visible excuse for his aggressive acts.
But now, he may be prepared to walk away, declaring a victory in the battle of the past: The fight to protect U.S. manufacturing at the price of the battle of the future: The fight to overtake China in high technology.
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