China Recognized Something Trump Did Not



As the "trade war" has played out, it is becoming more and more clear Trump will be the loser, not the winner. I remember writing about this a year or so ago and, although I did not understand as fully at the time why things would go south for Trump, more tariffs on Chinese imports seemed like a losing strategy.

First, we need to define "winning" the trade war. There are several ways of defining it. I would guess Trump will claim he is winning even when he is not. For the sake of this discussion, I will define "winning" as returning to approximately the level of profit and trade and terms in the U.S that existed before the trade war. This this would also a "win" for China. If trade does not return before the 2020 election, Trump has lost.

In retrospect, China correctly saw a low cost strategy for painting Trump into a corner. Trump needs a set set of electoral college votes to win reelection. These states are being made worse off by his trade policies. These states can be hammered by China with little risk by not buying our agricultural production. Trump is raising tariffs on Chinese goods but the U.S. will buy lots of them anyway because there are no alternatives.

Today the Chinese introduced currency devaluation. This will make U.S. agricultural products even more expensive in China and Chinese goods cheaper in the U.S. Trump can try to devalue the U.S. dollar to retaliate, but that has many consequences and he rejected this a while back.

Trump's complaints that China impeded some U.S. investment in China and stole some U.S. technology were actually just the cost of doing business with the best trading partner in the world. As to who will be hurt most, a professor summarized it this way. China will take a bigger economic hit, though it will remain the world's fastest growing economy. The U.S. President is in a more vulnerable political position.

It will be the ultimate irony if Trump loses his reelection because his is an incompetent negotiator.

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