Posted by on September 7, 2019 11:10 am
Tags: , , , , , ,
Categories: Top Page Links Trade

 

 

 

 

 

 

 

 


 

 

Donald Trump’s famous claim that “trade wars are easy to win” has attracted much “I told you so”-ing from economists and pundits, as the U.S. dispute with China drags on and on in the face of Chinese intransigence, apparently with no end in sight. However this attitude discounts the possibility, now dawning on some editorial pages, that Trump never really wanted or expected a deal with China, but is instead aiming for a long-term “decoupling” of the world’s two largest economies, to free the U.S. from dependence on a trade partner committed to anti-democratic ideals and opposed to trade transparency — for reasons of national security. That’s the insight Jake Novak presents in a new commentary for MSN:

 

 

  • Novak notes a marked, recent change in Chinese rhetoric over trade tactics, as the U.S. and China prepare to resume trade negotiations in October, prompting him to ask what’s behind the change in the Chinese stance.

 

 

  • According to Novak the change is down to the threat of “decoupling,” a scenario in which the U.S. isn’t so much seeking to zero out trade imbalances or eliminate unfair Chinese practices, but instead diversify supply chains away from an economy ultimately under the thumb of an authoritarian regime.

 

 

  • In short: “Even if China’s economy weren’t so closed off to so many American goods and services, a strong argument has long been made that the U.S. needs to diversify its sources for imports. While finding those new sources wouldn’t necessarily do anything to dent America’s trade imbalances, it would reduce the risks of a major disruption to the U.S. economy based on disputes or other problems connected to a single foreign country.”

 

 

  • Novak notes that this long-term strategic goal is certainly plausible, citing Google’s recent decision to move production of Pixel smartphone from China to Vietnam as an example, following over 50 other big companies making similar moves.

 

 

  • In this scenario, Chinese leaders may be realizing (belatedly) that Trump does in fact have a long-term strategic vision motivated by a deep-seated distrust of China as a trade partner, and that this vision does not at all resemble the last two decades of relatively open trade. In other words, Trump doesn’t necessarily want to resolve the trade war, even at the risk of substantial economic fallout in the short-term. That gives the self-proclaimed master negotiator the ultimate negotiating position — the threat of simply walking away. It is this possibility that could finally force China to compromise, Novak argues.

 

 

  • This possibility would seem to be supported by recents statements by Trump advisors, including Larry Kudlow, envisioning an economic cold war with China.  Kudlow told reporters at the White House: “The stakes are so high. We have to get it right. And if that takes a decade, so be it.”