The United States and China are waging a trade war. Relative to the indiscriminate trade battles President Trump has pitched against the rest of the world, a conflict with China might seem small or even justified. China, after all, is an adversary. It has taken American jobs and threatened to topple democracy in Taiwan.
But open conflict with one of America’s three largest trade partners is still a big departure from decades of U.S. policy. It will bring higher prices and lower economic growth, experts say. Is it worth it? Today’s newsletter will look at the arguments on both sides.
The case for
There are two main arguments for Trump’s 145 percent tariffs on China.
The first is about the trade imbalance. America has bought a lot from China over the years, and China has not returned the favor. To sell stuff there, American companies bend over backward to comply with Communist Party rules. Chinese companies don’t face the same barriers. Consider video games: U.S. companies have to censor their games to get into Chinese markets, if they can get in at all. Chinese developers ship their games to the United States replete with pro-China censorship.
Trump and his allies say tariffs will force China to negotiate friendlier trade rules with the United States. China can’t afford to lose America, its biggest customer, if it wants to keep its economy growing quickly. It will have to capitulate and allow more U.S. products into its markets.
The second argument is about national security. America relies on China for electronic chips, pharmaceutical ingredients and rare earth metals. (Beijing has suspended critical rare earth exports, and U.S. companies don’t have an alternative supplier.) At the same time, China is working to weaken the United States on the global stage, and America could go to war with China if Beijing invades Taiwan. The tariffs on China force the countries to decouple; companies will have to find other places, including within the United States, to source and make their products.
Notably, these arguments — on trade imbalances and national security — are at odds with each other. If the trade balancers get their way, the United States could actually trade more with China. If the national security side gets its way, America will shut China out. Still, the administration has made both points at different times.
The case against
Trump’s critics make two main arguments against his tariffs — one on the merits and one on the tactics.
On the merits, they argue that a trade war with China will leave the United States worse off. China has built expertise and resources for manufacturing that no other country has — with advanced machine tooling, for instance. So it’s not possible to shift production to, say, Mexico or Vietnam and expect the same affordable goods. The cost of living will go up and the quality of life will go down.
Maybe the economic pain is worth it if the United States wins the trade war, but victory is not guaranteed, experts argue. And if the United States loses, it could suffer all the pain of tariffs only to end up with less-favorable trade conditions with China.
On tactics, even supporters of a trade war with China question Trump’s methods. The president increased tariffs on China to 145 percent from 20 percent in a little more than a week. But companies are not able to shift manufacturing to the United States or other countries so quickly, which means Americans will have no choice but to pay higher prices while that process plays out. If Trump had phased in the tariffs over time, companies could have left China without interrupting production.
Narrower tariffs could also achieve the same goals, critics say. Tolls on computer chips or other parts used in military equipment could help protect national security. Levies on clothes and smartphones don’t. (Trump plans to impose additional tariffs on computer chips, he said yesterday.)
What’s next
So far, Washington and Beijing have responded to each other’s tariffs with more tariffs. But the impact of even higher levies is small, because the difference between a toll of 105 percent and 145 percent is less than meets the eye. If you’re looking for a $20 toaster, the distinction between a $40 and $50 price tag is irrelevant — both are far more than you’re willing to pay.
The consequential next phase of the trade war, then, will not play out in tariff announcements but in shops and at kitchen tables across both countries. People in America will pay more for the same stuff, if they can get it at all, and people in China will have fewer customers and make less money. Their respective economies will grow slower, if not shrink. Eventually, America’s or China’s leaders will decide they’ve had enough and try a negotiated peace.
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