Reading everything and listening to everything being said in the Trump camp about tariffs against China, there are two critically flawed assumptions:
–One, as articulated by a scholar from the Heritage Foundation (a conservative think tank) on Bloomberg Radio, is that in a trade war, “the Americans might catch a cold but the Chinese will catch the flu.”
This is a serious misreading of how deeply the two economies have become intertwined. The Chinese know exactly how to find our pain points and we have a lot of them. What if they targeted Intel, Microsoft, and Cisco systems for sanctions? What if they interfered in General Motors’ ability to sell more cars in China than it is selling in the United States? What if they stopped buying Boeing airplanes?
Then we have pain points in terms of who is buying all the government debt that Trump’s government is issuing? The Chinese would not have to do much to restrain their purchases and the U.S. Treasury would be facing big hurt. That could spark a financial crisis.
–The second is that the Chinese will sue for peace and be willing to negotiate an end to their Made in China 2025 campaign, which seeks to establish leadership in many key areas of technology.
The reality is that the Chinese, under President Xi Jinping, are trying to restore what he calls “the Chinese dream,” which means that they become a world-class player in technology, economic and military terms. There is simply no way that they are going to negotiate to to limit their own ambitions. And then there’s the issue of “face,” which is critically important in East Asia. If you publicly attack the Chinese, they have no choice, culturally, but to attack back. They are not going to be intimidated by the European and American powers as they were starting in 1840 when the British seized Hong Kong. The Chinese are standing up in the Western world and asserting power whether we like it or not.
There are right ways to respond to China’s emergence, which I outlined here. But Trump’s current approach is critically flawed and is guaranteed to fail.
