Trump’s trade war lurches forward

September 24, 2018

The Trump administration is at odds with much of the U.S. ruling class over the specifics of trade policy, but there’s a lot more to it than meets the eye. Dorian B. explains how.

IT’S ANOTHER dramatic week for U.S. trade relations, as Donald Trump and his administration simultaneously intensify their economic attacks on China and struggle to find a solution to complex trade issues in North America.

On September 24, the Trump White House imposed its second round of tariffs on $200 billion worth of Chinese imports, and the Chinese government of Xi Jinping hit back with its own duties on $60 billion in U.S. products.

In a sign of the hesitations and disagreements within Trump’s administration, Trump chose to bring down the tariff rate on this latest round of Chinese commodities from 25 percent to 10 percent, and to remove most Apple products from the line of fire.

These partial retreats are meant mostly to placate Trump’s domestic critics. Trump continues to threaten a third set of $267 billion in tariffs covering the rest of China’s total exports to the U.S., and promises to raise the rate on the second set from 10 percent to 25 percent after the new year.

Donald Trump and U.S. Trade Representative Robert Lighthizer in the Oval Office
Donald Trump and U.S. Trade Representative Robert Lighthizer in the Oval Office

Outwardly, Trump is as belligerent as ever on the trade front. He took to Twitter last week to assure his followers: “Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars and Jobs, flowing into our Country — and yet cost increases have been almost unnoticeable. If countries will not make fair deals with us, they will be ‘Tariffed!’”

INWARDLY, HOWEVER, the Trump administration is riven with conflicts. The Treasury Department under Steve Mnuchin has repeatedly called for talks with Chinese officials to reach a negotiated settlement.

The Commerce Department under billionaire Wilbur Ross, on the other hand, looks to be totally uninterested in initiating talks. Ross has announced that China is “out of bullets” in this trade war and bound to submit to U.S. demands (for whatever reason, Ross loves shooting metaphors, as we find here and here).

Most importantly, Trump’s U.S. Trade Representative (USTR) Bob Lighthizer — the official actually putting these policies into practice — is arguably a more dedicated Trumpian than the president himself.

Lighthizer has spent four decades since his time leading Reagan’s trade fights with Japan preparing for an opportunity to implement a protectionist trade policy, and he sees himself as the latest in a long line of American economic warriors to take up this cause, going back to Alexander Hamilton.

Still, the combined pressure of the National Association of Manufacturers, the Business Roundtable and the U.S. Chamber of Commerce — the three largest advocacy organizations of U.S. capitalists, all of which want Trump to negotiate a rapid solution — can’t be ignored indefinitely.

The U.S. and Chinese economies are closely woven together by thousands of businesses that trade and invest large volumes of capital. Billions in profits are made annually off this relationship. It’s difficult to imagine that Trump could wrench these highly integrated economies apart, which leaves many analysts asking how exactly the trade officialdom in Washington, D.C., plans to end this conflict.

Meanwhile, Xi Jinping’s state officials are essentially mirroring Trump’s moves at each step of the process. They have also divided their tariffs into three phases to counter the U.S. attacks. Analysts Chad Brown, Euijin Jung and Zhiyao (Lucy) Lu report that the Chinese government has walked back its second set of retaliatory tariffs somewhat, lowering rates on import duties from 5-25 percent to 5-10 percent.

China imports around $160 billion in goods from the U.S. annually, giving Xi fewer targets to tax. But there are other tactics that the Chinese state can follow to impose countermeasures: selling off U.S. Treasury bonds, restricting exports of parts to U.S. manufacturers and disciplining U.S. companies operating within China, among others.

Now that phase two of this tariff battle has begun, the stage is set for a volatile and uncertain period ahead. With U.S. midterm elections just six weeks away and an atmosphere of chaos eating away at the Trump presidency, it’s anybody’s guess how this conflict will play out.

PART OF the trouble for Trump and his team is that they can’t put in place a coherent strategy in the trade conflict with China without resolving their approach on another major front: the NAFTA renegotiations.

Since coming into office, Trump has insisted that he would renegotiate the North American Free Trade Agreement — which he no longer calls NAFTA — raising the stakes on his promise to reach a better deal with two of the U.S.’s largest and most economically integrated trading partners, Mexico and Canada.

Consistent with his scorn for multilateralism, Trump has decided first to find an arrangement with the Mexican government of the outgoing President Enrique Peña Nieto, and only afterward to invite Canada to join the agreement. This approach, which destabilizes the NAFTA renegotiations from the start, has put Trump and Bob Lighthizer in something of a time crunch.

The Trump administration reached an agreement with Peña Nieto on September 1. Under U.S. trade law, the president has only 90 days after the announcement of a trade deal to sign an accord — otherwise, it is considered null. This leaves U.S. and Canadian negotiators a very short time to come up with a solution acceptable under the terms of the U.S.-Mexico deal.

That outcome seems increasingly unlikely. And if Canada and the U.S. don’t reach an understanding in time to incorporate the Canadian economy into a three-way agreement, the battles — both within and between all three countries — will only intensify.

The Trump administration will have to choose between signing a new agreement without Canada or relaunching negotiations with Mexico after the incoming left-populist president of Mexico, Andrés Manuel López Obrador (AMLO), is inaugurated on December 1.

If Trump chooses to proceed toward an agreement without Canada, he will trigger a conflict with Republicans and Democrats in Congress and most U.S. capitalists, the vast majority of whom don’t want to see trade barriers erected against Canada.

Trump administration officials understand that they can’t successfully wage a trade war with China if they open up a spiraling trade conflict in North America. The White House will be forced to decide where to escalate and where to conciliate as these confrontations come to a head simultaneously.

AGAINST THIS backdrop, most of the U.S. elite appears less worried than one might think, given all of the lucrative investments that hang in the balance in these trade fights.

One reason is because Trump’s tax cuts for Corporate America and the wealthy continue to fuel buoyant growth in profits and a bullish stock market.

The S&P 500 and Dow Jones Industrial Average continue to hit record highs, and both Apple and Amazon recently became the first corporations to break $1 trillion in the total value of their stock. The outlook is rosy for the 1 Percent, and for the time being, the profits coming in are worth far more than the losses caused by Trump’s trade measures.

That said, most sectors of U.S. capital, with some notable exception like the steel industry, are trying to persuade and pressure the White House to de-escalate trade tensions with China. The number of trade lobbyists registered in Washington, D.C., has more than quadrupled since Trump took office, according to the Wall Street Journal.

Yet big business has also found some significant common ground with Trump.

While a strong majority of the U.S. ruling class clearly opposes tariffs and trade barriers, there is also widespread support for the idea promoted by the administration that China is a growing economic threat, an “unfair” and “corrupt” actor in the world system and a violator of U.S. corporate and intellectual property rights.

As the spokesperson for the Business Roundtable said, “The [Trump] administration has correctly identified the real problem of China’s discriminatory trade practices. But unilaterally imposing tariffs is the wrong way to achieve real reforms.”

A statement from the National Association of Manufacturers (NAM), whose president Jay Timmons has maintained a close working relationship with Trump, further elaborated the point, and summed up the perspective of most U.S. factory bosses:

Two things are abundantly clear to manufacturers: China cheats, and another round of tariffs on China will not fix the problem. As the administration rightly notes, China attempts to force U.S. companies to hand over valuable technology, restricts foreign investment, distorts the free market to give their own companies an advantage, undercuts us in the global economy and steals manufacturers’ intellectual property. While these additional tariffs may be an attempt to create more leverage, they also increase the risks for manufacturing in America and add to mounting uncertainty.

Set aside the upside-down view that China “cheats” while the U.S. follows the rules, and the NAM statement turns out to be very revealing. While NAM is a vocal opponent of Trump’s tariffs, the group doesn’t sound that out of tune with Trump’s own right-wing, nationalist discourse on trade.

The differences between the White House and this section of the U.S. ruling class appear to revolve around the strategy and perspective for preserving U.S. dominance, but they certainly share the view that U.S. industrial power is facing a real challenge by new global competitors.

THE THOUGHT process among U.S. trade officials runs along similar lines.

Observers were given a window into their outlook during a recent event at the Center for Strategic and International Studies (CSIS), an establishment think tank in Washington, D.C. A panel discussion earlier this month brought together six of the last nine U.S. Trade Representatives, dating back to the Reagan era, for a conversation on Trump’s tariffs and the future of U.S. trade policy.

All six disapproved of Trump’s overall approach to trade. But they also pointed out that the current global trading system is, in their view, out of date and in need of serious change to better serve the interest of U.S. businesses.

The task of reconfiguring the World Trade Organization (WTO), the global trading system’s most important rule-enforcer and arbiter, has been a priority of U.S. politicians and capitalists since before Trump was elected — even though the WTO was founded under U.S. imperialist leadership.

Trump’s practice of blocking appointments to the WTO’s Appellate Body is actually a continuation of an Obama-era tactic to pressure the organization into more strict obedience of U.S. commands.

Beyond this, the panelists spoke of the need to build new multilateral institutions to help preserve U.S. influence. Charlene Barshefvsky, Bill Clinton’s first trade representative, pressed for a “rewrite of the global rules” and a “new WTO.”

Obama’s first trade representative, Ron Kirk, repeated the point that Trump’s officials “haven’t misdiagnosed any of the problems. We’re basically talking about the best ways to resolve them.”

When the moderator half-jokingly asked, “Anybody want to make the case for tariffs?” the answer was somewhat surprising.

Susan Schwab, who served George W. Bush as trade representative, made the case that Trump was having more success than any other U.S. administration in curbing China’s ambitions since the Chinese state acceded to the WTO in 2001. Schwab argued:

[Y]ou could see this backtracking from commitments made [by China]...leading up to 2001 and a growing movement against not just the spirit, but also the letter of commitments with their WTO accession. And guess what? This administration has gotten their attention...

I don’t like tariffs, I’m an economist. I don’t like unilateral action, I’m an economist. And let us note for the record that these are self-imposed wounds. Anyone who pretends that U.S. imposition of tariffs isn’t hurting the U.S. economy is fooling themselves. However...we’ll find out if it’s part of a strategy at some point.

It has gotten the attention of the Chinese authorities, which I was unable to do and which you all were unable to do. Maybe — maybe — the outcome will be a change in behavior on the part of the Chinese that, in the long run, will result in a positive outcome for China and the United States and the rest of the world.

What all this makes clear is that, although prior trade leaders disagree with Trump’s specific policies, they, too, believe that the status quo in global trade is unsustainable from the vantage point of U.S. capital — and some are even willing to entertain the idea that Trump’s tactics might be working.

Socialists will have to keep their eyes on the relationship between the Trump White House, the old political establishment, and U.S. corporations and business organizations as these trade conflicts unfold in the coming months and years.

We don’t know how these clashes will bring about shifts in the global economic order. But we can predict that significant changes to the way that international trade works are likely, whether Trump remains in the White House or not.

And that just heightens the urgency of building a fighting left that can put forward its own alternative to a system that is increasingly putting economic giants on a collision course.

Further Reading

From the archives