If, after seemingly endless volleys of tariffs and counter-tariffs, you are inclined to question President Donald Trump’s assertion that trade wars are easy to win, you need to remember how he defines victory. Define it as he does and belief in easy victory makes sense. If you’re a farmer or rancher, though, you might not agree with his definition.
For as the president has repeatedly made clear, he would declare victory if U.S.-China trade ceased altogether.
“If they don’t want to trade with us anymore, that would be fine with me,” he said in early August. “We’d save a lot of money.”
Later in the month, he tweeted that, “We don’t need China and, frankly, would be far better off without them.”
In the continuation of that tweet, Trump said something else, something that has attracted a lot of commentary: “Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.”
Critics mocked his use of the archaic, legalistic “hereby” and declared he doesn’t have the power to order companies out of China. (Trump later cited a decades-old law to insist he did have the power, but by my reading of the legal commentary that law would at most allow him to ban new investments, and only if he could convince Congress a national emergency existed.)
As bizarre as the “hereby ordered” part of the tweet was, the “we don’t need China” part was in many ways more significant. It explains why Trump is making such maximalist demands on China, essentially insisting it revamp its entire economy along free-market, Western lines. He feels he can’t lose: If the Chinese go along with his extreme demands, he wins. If they don’t and trade ends, that too would constitute victory in his eyes.
To which Americans who’ve worked hard to develop a China market might respond, “Some victory.” To many of them, victory is when China buys more American products, including soybeans, pork, and even beef. Victory is when China no longer extorts and steals intellectual property from American companies. Victory is a level playing field for American investors in China.
But no more trade with China? Trump may call that victory; people who do business with China would call it decoupling.
Decoupling would be the natural economic complement to a cold war.
No one should underestimate how different the world would be if the U.S. and Chinese economies are decoupled and a cold war sets in. Complex manufacturing supply chains that have taken years to build would unravel. New ones in other countries, mostly other Asian countries, would eventually take their place. Trump wants American companies to come home, and a few will, but American wage rates are too high for labor-intensive manufacturing. The factories that come back will be highly automated.
As Americans depart, European, Japanese, and even Chinese companies will buy up American assets in China at fire-sale prices. Doing business in China’s feverish business climate will give them a competitive advantage over American companies in other parts of the world.
World trade will shrink, and as it does worldwide economic growth will slow. American economic growth won’t be spared.
“In the worst-case scenario, the new world trading system will be dominated by discriminatory trade blocs that raise the costs of commerce, make trade negotiations harder, and encourage retaliation,” wrote Chad P. Brown and Douglas A. Irwin in Foreign Affairs.
As other countries choose sides, many will probably prefer to align with China, the rising power with what is probably already the world’s largest economy, over the U.S.
Needless to say, rebuilding market share in China for U.S. ag products would be difficult to impossible if this world comes to pass. Chinese officials are already seeking to lessen China’s dependence on the U.S. for agricultural products.
And those are just the economic consequences. Decoupling would exacerbate the geopolitical tensions of the cold war. Part of what’s mitigating those tensions now is the mutual economic dependency of the U.S. and China.
Do we want to go down this road? Not necessarily, but we also don’t want to continue with the policies of the past that have tolerated China’s increasing misbehavior. The problem, for U.S. agriculture and the country as a whole, is we’re running out of time to come up with a policy that challenges China when challenge is warranted but remains committed to economic ties when they’re mutually beneficial. — Urban Lehner, DTN editor emeritus