Trump’s presidential campaign and his victory to a large extent banked on the ‘America First’ message which resonated with voters frustrated with declining US prestige on the world stage, stagnating US economy and disappearing Jobs thus quality of life. The ineffectiveness of US government under an impotent or paralyzed bipartisan Congress induced American citizens to demand a change. Trump, being an outsider of Washington DC, has chosen the strategy to blame the country’s problems to incompetency of the previous administrations and delivered the most inciting campaign rhetoric calling for policy changes in defense (reversing the declining defense budget and strength), diplomacy (employing unpredictable actions and negotiations to get results), trade (tearing up existing agreements and renegotiate in favor of the U.S.), environment (retreating from international commitments on environmental control) and immigration (building American ‘Great Wall’ to stop illegal immigrants and overhauling immigration laws). Trump won the election as a dark horse over nearly a dozen finger-pointing politicians with little exciting proposals other than Sanders’ unreasonable proposal of granting free tuition for all college education, which energized some young people for obvious reason.
It is perfectly understandable that the Trump Administration in its first year or so is focusing on making visible deliverables on Trump’s campaign promises whether his team had completely understood the complex issues at hand or developed thoroughly considered solutions for the problems. Recently, Trump announced a set of orders to place tariff and quota on imports based upon the recommendation of the U.S. Trade Representative (on wash machines and solar cells) and the Commerce Department (on steel and aluminum imports and a list of imports amounting to $60 billion). Trump’s action on the above mentioned imports appeared to be principally targeting at China since exemptions were offered or granted to selected US Allies.
Trump’s actions triggered a global fear of trade war. The Wall Street reacted with a number of sharp falls accumulated to 1149 points on Dow Jones Index over two days (3/22-23). Most reactions in the press are negative. Worldwide economists are expressing concerns about the consequences of these tariff measures leading to retaliations which will escalate to a mutually damaging trade war and possibly a global recession. The Nobel Laureate (2001) and former Chief Economist of the World Bank (1997-2000), Professor Joseph Stiglitz of Columbia University has expressed his views on trade war in a number of public forums and most recently at China Development Forum in Beijing on March 24, 2018. His main opinions can be summarized as follows: 1. “The U.S. is constrained to act .... as the U.S. depends on low-cost imports. Tariff increases cost of living making Fed to raise interest.” 2. “China has more ability to direct some parts of the economy ... to shift to domestic consumption”. Colin Grabow of Cato Institute also expressed his concern: “China may retaliate by not buying American.....Trump will pay the price.” These remarks seemed to be reasonable, even though it is too early for anyone to predict what events may take place in days to come.
When comes to China policy, there is no shortage of either ‘pro-China’ or ‘con-China’ analysts in the U.S. voicing their opinions. However, on the trade issue, I found an incredible view expressed by Gordan G. Chang in his article, Why China Will Lose a Trade War with Trump, published in Daily Beast, on March 26, 2018. Gordon is best known for his book The Coming Collapse of China (2001) predicting the fall of China in 2011. Gordon repeatedly made the ‘collapse’ prediction (The Coming Collapse of China, 2012, e-Edition Foreign Policy; China’s collapse is coming, more so than ever, 2016) eventually receiving criticism from peers (Chang’s Predictions of China’s Collapse destroy his own credibility, Shen Dingli, 1-5-2016 Global Times). Gordon in his Daily Beast article disputed Grabow and Professor Stiglitz’s analyses and again made a prediction that China will lose the trade war to Trump. By now, we can say that Gordon Chang is somewhat a ‘China Basher’ as evidenced by his publications. Time has proven him wrong; so far, not only China has not collapsed but instead has grown stronger to the point that the U.S. is feeling threatened. If China would collapse easily as Gordon persistently wished, there shouldn’t be any China threat, should it?
Gordon repudiates experts’ views on “China holding more leverage (than the U.S.)” by arguing the following: 1. China is more dependent on the U.S. because China maintained a trade surplus for decades, China’s trade surplus related to US trade increased from 68% in 2016 to 88.8% in 2017. 2. The U.S. economy, $19.39 trillion, is greater than China’s $12.84 trillion in 2017. 3. The U.S. economy is more stable than China’s; China has more debt and capital flight problem. Gordon further disputes Stiglitz’s first point stated above by using his wife, Mrs. Chang’s shopping experience that China is no longer the most low-cost goods supplier. Taking apparel as example, Gordon argues that Americans will buy from other Indo-China and Latin American low cost suppliers. On this argument, a consumer’s observation can be considered as one data point but it is hardly a crucial point to cover up the fact that China has been conscientiously upgrading her products to higher technology and higher value added goods. In addition, China has made significant investment in Indo-China and Latin American countries in their manufacturing sectors.
Gordon does not believe Stiglitz’s second point nor Grabow’s prediction. Gordon said: “ Stiglitz has misunderstood China’s economy…...China is not a consumption driven economy but an investment driven one. ...China cannot create growth by investing because of her debt problem.” Gordon brushed off the possibility of losing Boeing airplane and US soybean sales to China. I think it is Gordan who failed to understand that for trade items like the two above, China and the U.S. are mutually tied because they are the biggest buyer and the largest seller respectively. Since the U.S. has no monopoly on airplanes or on soybeans, the biggest buyer sure has more leverage than the seller. It is difficult to predict how the domino effect of tariff and counter tariff will play out. However, South Korea, a smaller trader, seems willing to make a modest if not fake concession to the U.S. For getting waived from the US steel tariff, South Korea would take a voluntary quota of 70% of the average steel export to the U.S. over last three years (A modest concession considering sales was declining) plus doubling American car import quota to 50,000 units. This may appear as a big win for Trump, but whether or not the Korean consumers would change their long held bias preferring Korean to American cars is a big question.
At this point, China’s Ministry of Commerce on March 23rd took a small step to announce tariffs of 15 percent and 25 percent on almost $3 billion of American products in 128 categories in retaliation for Trump’s Section 232 tariffs on steel and aluminum products. China is yet to respond to Trump’s tariff on $60 billion of Chinese import based on the 301 Trade Act of 1974. Whatever measures China will take, they sure will make some impact on US economy. The U.S. needs steel and aluminum at low prices for her infrastructure upgrade. There is no advantage for jacking up prices by tariffs. I firmly agree with the warning from the majority of experts that tariff or trade war is not a solution to balancing trade or to creating jobs. Let’s hope the two major trading partners in the world will find ways to negotiate out a compromise.
Ifay Chang. Ph.D. Producer/Host, Community Education - Scrammble Game Show, Weekly TV Columnist, www.us-chinaforum.org . Trustee, Somers Central School District.