No one wins when the world's two largest economies fight a trade war. But as President Donald Trump on Monday added levies on another $200 billion in Chinese imports and China's leaders responded in kind with tariffs on $60 billion in American goods, economists and consumers were left wondering where it might end. Will there be winners — or only losers?
Earlier this year, Trump tweeted that trade wars are "easy to win." No, they are not. He is right, however, to demand that China play fair. China is a vast and expanding market, and the government unfairly leverages access to its consumers by demanding that companies wishing to sell there hand over intellectual property as a ticket to entry. That is wrong, but Trump piles on by complaining about the trade imbalance between the two countries and acting like an old-school mercantilist following the outdated idea that profitable trade balances, encouraged by protectionism, build wealth. Trade wars don't build wealth. Like other kinds of wars, they destroy it.
With Monday's new tariffs, Trump is now penalizing nearly half of the value of imports from China, which can't retaliate tit for tat simply because it imports fewer American goods. In fact, it soon will be putting a tariff on nearly everything American sold in China.
But China has other advantages. President Xi Jinping is a strongman who can let his people suffer far more than a democratically elected leader could. And while neither Xi nor Trump is showing any signs of backing down, the pressure is hitting some American producers quite hard — and the Chinese are letting the Americans know it. For example, China is the largest importer of American soybeans — think livestock feed, among other things — and Chinese state media took out a four-page supplement in the Des Moines Register to say that China may have to buy soybeans from South America instead.
Continued escalation of tariffs will simply hurt both countries, and pain is no path to progress. It would be better for both sides to ratchet down the rhetoric and the retribution. The non-partisan Tax Foundation has estimated that tariffs will cost tens of thousands of American jobs. The tariffs are paid not by the Chinese, but by whomever is importing their goods. Trump is right to take on the Chinese for their trade abuses, but a scalpel would work far better than a sledgehammer.