The Problem Isn't the Trade Wars, It's Trump

There is a definite risk of economic fallout, but the deeper worry is that the White House is incapable of handling the crisis

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U.S. President Donald Trump arrives at Morristown municipal airport for a weekend at the Trump National Golf Club in Bedminster,  New Jersey, U.S., August 2, 2019.
President Donald Trump Credit: \ YURI GRIPAS/ REUTERS
David Rosenberg
David Rosenberg

How many times has Donald Trump has come close to ushering America and the world into a crisis with inflammatory tweets and hamfisted policy initiatives? It’s hard to keep track, yet remarkably, he has managed after two-and-a-half years in office to stay one step away from disaster.

As serious as the issues involving North Korea and Iran are, their global impact has been limited. The world moves on even as Pyongyang tests more missiles and Tehran takes tankers hostage.

The latest escalation of Trump’s trade war with China is something different.

This time Trump has a true global crisis on his hands, and the reason it became one isn't just about the economics involved. It's just as much about the president’s personal abilities, or more accurately, the lack thereof.

The economics are bad enough. Trump’s decision to up the ante with China by expanding tariffs to include another $300 billion in Chinese imports; Beijing’s retaliatory moves by stopping purchases of U.S. farm products and to let the yuan depreciate beyond the psychologically important barrier of 7 to the dollar; and finally Washington declaring China a “currency manipulator” are going to upend global trade relationships in ways that no one can predict with any certainty.

Until now, the assumption was that China and the U.S. were playing chicken, but eventually, they would sit down and negotiate an agreement. Their maneuvering might do some short-term economic damage, but it was containable.

The latest round of tit-for-tat, however, is being interpreted as something different. It’s the end of maneuvering. Now both sides are digging in in expectation of a long fight. Given the enormous size and influence of the U.S. and Chinese economies, the fight is going to impact globally. 

The war is on

There may be some winners that emerge from it (Vietnam was winning some of the outsourcing business China has been losing, for instance), but there will be many more big losers.

If China and/or the United States slide into recession, the winner-loser balance will tilt heavily to the latter. It’s no wonder that stock markets around the world plummeted Monday and Tuesday. Even the Tel Aviv Stock Exchange was hit hard, even though Israel comes as close as any economy to being an innocent bystander in the U.S.-China conflict.

The war is on, but is Donald Trump the general you want?

Despite a flimsy record of accomplishment in either field, Trump marketed himself in the 2016 election as businessman and deal maker par excellence. In the Oval Office, however, he has excelled at pulling out of deals; his record of reaching new ones is near zero.  Even when he does jawbone his partners into an agreement, like a replacement for the NAFTA accord, he can’t get Congress to ratify it.

To put it in the property development terms that Trump would appreciate, he’s more like a wrecking ball taking things down than a crane putting them up.

Perhaps if he had a strong team behind him, his worst tendencies could be reined in. But the White House is staffed by just the kind of people that exaggerate his worst tendencies. They are the kind like John Bolton who have little respect for the global system and the power of negotiated agreements. Others too closely committed to the idea of China as enemy (Peter Navarro and Robert Lighthizer) to make realistic compromises. The responsible adults either refused to work for Trump or left in frustration.

Thus, the crisis Trump faces isn’t just about the economic impact, but his ability to cope with it.

The situation looks even grimmer if you consider the people who are supposed to be sitting on the other  side of the negotiating table. Trump likes dealing with autocrats such as Korea’s Kim Jong-un and Turkey’s Recep Tayyip Erdogan, but they rarely give him what he wants. It’s not in their nature: they are people who rose to power not by finessing the art of the deal but by banging heads. China’s Xi Jinping is no different.

The last hope of the world economy is China’s relatively weak position in the trade war.

Xi comes with some assets, among them a grip on China’s economy that Trump can only dream of. Compare the U.S. president vainly calling for a weaker dollar versus the evident decision of Beijing’s leaders to order a yuan depreciation at the snap of a finger.

But even autocrats don’t have carte blanche. Beijing’s leaders understand that their power rests largely on economic growth. If they can’t ensure jobs and a rising standard of living, there’s no reason for the masses of Chinese to put up with the corruption and political restraints they have to live with. That’s all the more the case after so many years of economic growth; a recession is something younger Chinese have never experienced and will have little tolerance for one.

The protests in Hong Kong must be giving Xi and his colleagues much angst. The headline cause of them is about political freedom, but the underlying cause is economics. They have plunged Hong Kong into just the kind of chaos the rulers in Beijing fear could happen in China. They may make Xi just nervous enough to give Trump much of what he wants to save the Chinese economy from sliding into a trade war-induced recession. The question is, are Trump and his team capable of making a deal?

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