Trump Never Had a Grand Strategy for China: They Were Just Tariff Tantrums

By Marshall Auerback, a market analyst and commentator. Produced by Economy for All, a project of the Independent Media Institute

President Trump has delayed the new tariffs he threatened to impose on Chinese imports in the early fall, and exempted some other Chinese imports altogether. The de-escalation of the Sino-U.S. trade war is especially welcome, given the markets’ renewed concerns about impending recession. Also striking was the president’s tacit acknowledgment that the tariffs threatened to harm the American consumer (which is probably the closest approximation we’ll ever get to an actual admission of error on his part).

The truth is that we’ve had more than enough time under this “stable genius” to realize that there is no long-term strategic coherence to his trade policies, let alone signs of any “art of the deal.” Rather, the Trump presidency has been characterized by arbitrary goals and capricious tariff announcements that appear to be crafted with a view to securing plaudits on “Fox and Friends.”

Unfortunately, “moderate” Democrats have not been much better on trade. Figures like former Vice President Biden continue to dismiss the competitive threat posed by China’s trade practices, and harken back to supposedly halcyon days of lobbyist-written “free trade” agreements that largely funneled income gains to the top tier. Millions of casualties from hyper-globalized trade have emerged in places like Biden’s own Scranton, Pennsylvania, where the ravages of NAFTA and other trade agreements were ignored by the political class and made proto-fascist politics more appealing.

Many rationales have been deployed by the president to explain his ongoing embrace of the tariff weapon. None, however, fully stack up.

Trump has been compared to previous “tariff men,” such as former Republican President William McKinley, who explicitly campaigned in the 1896 election on a protectionist platform. Like McKinley, Trump has expressed his support for tariffs in nationalistic terms. He sees them less as a tax on the domestic consumer, more a key tool to make American business great again, as well as claiming that tariffs represent a valuable source of government revenue. This appeal to historical precedent is another worn-out lie to justify a stupid policy. As the Washington Post points out, “tariffs haven’t been a major source of U.S. revenue in 100 years,” and Trump himself explicitly exempted certain products from tariff increases until December 15 because of his concern about the costs that they would impose on U.S. consumers as we head into the Christmas shopping season. The revenue generation argument is particularly laughable, coming from a man whose entire working life, both in the public and private sector, has been marked by a complete indifference to debt buildup, let alone fretting about paying it back. It’s a true perversion of history to connect Trump’s tariff legacy in any way to that of McKinley.

Conversely, is the goal to disrupt supply chains and re-domicile them back to the U.S.? If so, then where is his administration’s support for R&D, education, and other industrial policies that could enhance national development, thereby making the U.S. a more attractive place to reclaim high valued-added supply chains? For example, Apple CEO Tim Cook, justifying his company’s decision to manufacture iPhones in China, pointed to the abundance of skilled manufacturing labor in that country, along with Beijing’s decision to emphasize vocational training at a time when the idea has been virtually abandoned in the U.S. This a problem that predates Trump, but the president has done nothing to rectify the deficiency. In fact, his secretary of education is viscerally hostile to the very concept of publicly funded education (of any kind), as well as being a shill for charter schools and privatized voucher programs (in which her family has vested economic interests).

As Robert Atkinson and Michael Lind argue in a recent American Affairs article, “Trump proudly touts his tax cutting and deregulation prowess, while his budgets slash support for key national investments in building blocks like research and development, manufacturing support programs, infrastructure, and education and training.” This comes at a time when America’s infrastructure is already one of the worst in the developed world.

Does the president just want to offer American businesses a temporary respite from hostile Chinese mercantilism via tariffs? If so, his tariffs have hitherto been singularly unsuccessful in stopping Beijing’s mercantilist efforts to try to maximize global market share by dumping below cost until its foreign rivals are driven out of their home markets. Furthermore, as recent events have illustrated, there is little Trump can do if and when China devalues its currency to offset the impact of the increased tariff charges he has introduced (or threatened to revive).

Is Trump concerned about national security? U.S. lawmakers and intelligence officials have claimed, for example, that both Huawei and ZTE could be exploited by the Chinese government for espionage and sanctions-busting respectively, presenting a potentially grave national security risk.Yet the president has often appeared prepared to ignore these concerns, in the interests of using these companies as trade bargaining chips, designed to secure some additional purchases of American soybeans or, more generally, as part of a bigger trade deal.

To be sure, some of the president’s criticism of the historic status quo in trade is valid, as the post-industrial wastelands strewn across the country illustrate. China’s entry into the World Trade Organization had a profoundly negative impact on U.S. manufacturing jobs. We therefore need a national development strategy that breaks with many of the shibboleths of the so-called “Washington Consensus.” As I’ve written before, the policy goal should be to “change the labor share of the production equation, so that production vastly increases general welfare and living standards for the largest possible majority of people. By conducting policy with a view toward favoring labor over capital, the aim is to produce a larger economy, and more stable (albeit restrained) profits.”

Historically, America has not always approached things simplistically through the lens of the free market/market fundamentalist paradigm. After World War II, figures such as A.A. Berle and John Kenneth Galbraith advocated global cartels in commodities to raise incomes in developing countries, and thereby become additional sources of demand for American manufacturers. They also looked benignly on transnational industrial cartels at home in the U.S. Berle, Galbraith and others were advocates for local content requirements so as to sustain America’s industrial ecosystem. And they favored buffer stocks to reduce global booms and busts.

If Elizabeth Warren and her team better appreciated this history (and Warren is the leading Democrat offering a significant reassessment on American trade policy today), they would see that there is a rich counter-tradition that goes beyond a mindless resort to tariffs or simply breaking up successful multinational companies that are among America’s most profitable. Warren and others might reassess the virtues of selective cartelization and cooperation. She and other Democratic presidential candidates could give consideration to constructing a size-neutral regulatory framework to ensure that such companies operate in the interest of national economic strategy consistent with military security and widespread prosperity in order to obtain maximum benefits for American workers and regions. As venture capitalist Peter Thiel has recently argued, it is perverse for Google to refuse to do business with the U.S. Pentagon, while conducting artificial intelligence work in China, which uses AI to sustain its own authoritarianism and mass surveillance.

Embracing national champions does not mean supporting inefficient state white elephants that dole out political favors. There is a large body of research from Joseph Schumpeter onwardto suggest that large enterprises are usually the leading avatars of innovation and productivity. Moreover, small and medium enterprises (SMEs) can also reap benefits of scale by pooling R&D, exporting marketing boards, etc., as alternatives to mega-mergers. Government can also play a significant role here, at a minimum by upping research and development expenditures (at its peak during the 1960s, federal government R&D was more than 2 percent of GDP but is now less than half of that).

Likewise, Big Three tripartism—a form of economic collaboration amongst businesses, trade unions, and national governments—should be further embraced to enhance economic prosperity and cope with the challenges of state-sponsored Chinese mercantilism. Both market fundamentalists and pro-business oligarchs like Trump may dismiss collective bargaining as another kind of labor cartel (the Clayton Antitrust Act, however, exempted unions from antitrust). One can be both pro-business and pro-labor (i.e., pro-“national developmentalism”), as Warren appears to be. There is nothing inherently contradictory in terms of favoring limited pooling in employer federations that can bargain with unions, R&D consortiums, export consortiums, etc., while allowing these entities to retain their identity even as they compete with one other. Policies can also be designed to compensate for the higher cost of labor in SMEs via Fraunhofer industrial extension services that enable small producers to compete on the basis of technology, not low wages.

Enough with the “tariff tantrums.” Or the silly idea that a modern economy can forfeit manufacturing to its rivals and specialize in finance, entertainment, tourism, and natural resource industries like farming, while making empty pledges about retraining and relocation to help the “losers” of global integration (promises seldom kept). We have a domestic crisis, and must do better than simply retreat to the delusions of neoliberalism or mindless protectionism if the American people are to come out as winners in a viable future trade framework with Beijing and the rest of the world.

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18 comments

  1. Sound of the Suburbs

    A multi-polar world became a uni-polar world with the fall of the Berlin Wall and Francis Fukuyama said it was the end of history.

    It didn’t take the US long to lose that advantage.

    The US was immersed in the cult of individualism and didn’t think about the bigger picture.

    “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.” Warren Buffett, 25 May 2005

    That’s all very well Warren, but how is the US doing against China?
    Who cares, I’m making loads of money.

    Oh dear.

    US elites have had their snouts in the trough, and have been so busy gorging themselves they didn’t notice a new superpower rising.

    PANIC!

    Reply
      1. inode_buddha

        It’s always entertaining to watch them flip out when someone dares to treat them the same way they treat others. I make a hobby of it.

        Reply
  2. Sound of the Suburbs

    The 1950s American Dream was captured by John Kenneth Galbraith in “The Affluent Society”.

    “The family which takes its mauve an cerise, air-conditioned, power-steered and power-braked automobile out for a tour passes through cities that are badly paved, made hideous by litter, lighted buildings, billboards and posts for wires that should long since have been put underground. They pass on into countryside that has been rendered largely invisible by commercial art. (The goods which the latter advertise have an absolute priority in our value system. Such aesthetic considerations as a view of the countryside accordingly come second. On such matters we are consistent.) They picnic on exquisitely packaged food from a portable icebox by a polluted stream and go on to spend the night at a park which is a menace to public health and morals. Just before dozing off on an air mattress, beneath a nylon tent, amid the stench of decaying refuse, they may reflect vaguely on the curious unevenness of their blessings. Is this, indeed, the American genius?”

    Private luxury, public squalor

    In those days his book made quite a stir and made policymakers rethink their priorities. I don’t think it would have the same impact now.

    It’s a very good book and as relevant today as it was then.

    Reply
  3. Sound of the Suburbs

    Did you know capitalism works best with low housing costs and a low cost of living?

    It’s obvious really.

    Employees get their money from wages and the employers pay high housing costs through wages, reducing profit and driving off-shoring.

    This is how Asia did so well at the expense of the West during globalisation. You just can’t pay those wages in the West, workers can’t afford to live. Multi-national corporations could make higher profits in Asia due to the low cost of living that they had to cover in wages.

    It’s easier to see with this little equation.
    Disposable income = wages – (taxes + the cost of living)
    (Michael Hudson condensed)

    There is another term in the brackets with taxes.

    Current ideas of capitalism comes from neoclassical economics, which is very different to classical economics.

    William White (BIS, OECD) talks about how economics really changed over one hundred years ago as classical economics was replaced by neoclassical economics.

    https://www.youtube.com/watch?v=g6iXBQ33pBo&t=2485s

    He thinks we have been on the wrong path for one hundred years.

    We think small state, unregulated capitalism is something that it never was, which is leading to all sorts of problems.

    The West never realised that in an open globalised world, the West would be at a severe disadvantage due to its high cost of living. The West set the rules in a game where China was guaranteed to win, and it went from almost nothing to become a global superpower.

    Observing the world of small state, unregulated capitalism in the 19th century

    “The interest of the landlords is always opposed to the interest of every other class in the community” Ricardo 1815 / Classical Economist

    “But the rate of profit does not, like rent and wages, rise with the prosperity and fall with the declension of the society. On the contrary, it is naturally low in rich and high in poor countries, and it is always highest in the countries which are going fastest to ruin.” Adam Smith / Classical Economist

    Boy, is it different.

    Reply
  4. doug

    I suspect ‘they’ notice. Just a shift of their assets. ‘US Elites’ can leave anytime they want as they have multiple nice homes around the world. No real allegiance to anything except money.

    Reply
  5. Louis Fyne

    This article touches on it but really should dwell on it more—-the big picture is that China policy is a bipartisan failure since before China entered the WTO, apart from the transfer of wealth from the American middle class to the 1% and China and turning America into an addict of low(er)-cost, disposable consumer goods.

    Feature, not a bug. Trump is a reaction to the disease, not the cause.

    Reply
  6. The Rev Kev

    Many years ago I read a book about the Japanese exporting machine and how it worked in practice. What would happen was that every time a Japanese-built car left the docks on a boat to an overseas country, the Japanese government would write out a cheque to the car manufacturer for I think about for $600 for every car. That way, when those cars hit the docks wherever they were being delivered to, that car could be sold for $600 cheaper than the locally made cars which was designed to send them out of business. France got wind of this scheme so what they did was to impose a $600 tariff on those very same Japanese cars when they hit their docks which brought them up to their real cost. Smart move that though probably illegal these days.
    At the time I read that book I thought perhaps a tariff system might work where for any import that had a local competitor, a tariff could be imposed so that the imported and the local product were equally priced. Then it would be up to the customer to choose on the basis of quality. Well it is far too late for that idea as globalization has hollowed out western manufacturing ability. As Auerback has pointed out, tariffs make no sense unless you are willing to put in the money to develop R & D, education and industrial policies. I thought that a core of technical and industrial expertise would be fenced off around the US’s military production abilities but from an article that appeared on NC recently, the horse has long bolted here too. I think that real change will only take place when our just-in-time global supply chains are broken down either through trade conflict or through the effects of climate change. There is too much money being made in the present set up to have it change.

    Reply
    1. Wukchumni

      Doesn’t being a tariffist fill in nicely, for a fellow who instigated a lawsuit every 10 days on average for 30 years?

      Reply
  7. rc

    Yes. This is one of the better articles written about the absolutely insane and almost suicidal trade policy our elites have pursued and what goals we should pursue. These are key points made:

    “where is his administration’s support for R&D, education, and other industrial policies that could enhance national development, thereby making the U.S. a more attractive place to reclaim high valued-added supply chains? ”

    “the policy goal should be to “change the labor share of the production equation, so that production vastly increases general welfare and living standards for the largest possible majority of people. By conducting policy with a view toward favoring labor over capital, the aim is to produce a larger economy, and more stable (albeit restrained) profits.”

    “presidential candidates could give consideration to constructing a size-neutral regulatory framework to ensure that such companies operate in the interest of national economic strategy consistent with military security and widespread prosperity in order to obtain maximum benefits for American workers and regions. ”

    I would say that these may imply lowering total factor costs in the economy through efficient universal healthcare (10% of GDP), massive investment in infrastructure, increases in educational attainment in trades and sciences and engineering, plus research and development investments. We should also improve our defense structure to build strategic depth and resiliency.

    Reply
  8. Pelham

    Granted, there may be many better strategies for optimizing trade to favor the US. Still, if tariffs alone are so bad, why does virtually every other country use them? And maintain them, often at stratospheric levels, for decades?

    And decades happens to describe how long Democrats have done precisely nothing at all to better US trade. In fact, they’ve advocated just the opposite.

    So Trump can legitimately make a powerful and irrefutable argument that he has at least taken concrete steps of some sort to fix the problem. And he can simply cite the Democrats’ very plain record as proof they cannot be trusted on this score, no matter what any of them say in primary season.

    Reply
  9. Chauncey Gardiner

    Could be wrong, but when considering the success of failure of the China tariff initiative under some “Grand Strategy” that has been implemented to reorder US relations with China and restore a US manufacturing base, I think it might be useful to move upstream a bit and consider whether it aligns with this administration’s overall “Grand Strategy”. To distill it down to its essence, it’s “Move Fast and Break Things”.

    IMO the objectives are to keep opponents off balance, maintain momentum toward further concentration of power in the executive branch, enrich and politically empower the donor base (and oneself), divert and redirect the public conversation into social issues, and assure influential elements in media that resonate with the voter base remain supportive. Chaos, fostering a perception of unpredictability, state erosion of civil liberties, active use of markets as a policy tool, foreign military actions that are aligned with the objectives of influential members of the base, killing congressional legislation in the Senate or regulations that might disrupt neoliberal policies, and state subsides of favored constituencies are viewed as positives under this overall strategic framework.

    We see this overall strategy repeated in department and agency staffing decisions and in executive orders on policies ranging from China and trade to the environment, climate change, public lands and resources, deregulation and public subsidies for Wall Street, military initiatives, immigration policy, government shutdowns over the budget, etc. In the eyes of his “true base”, as one of his predecessors called them, I suspect this guy is considered to be doing a great job. “[S]upport for R&D, education, and other industrial policies that could enhance national development” isn’t really even on the table.

    Reply
    1. Isaac

      Thank you. Exactly. Trump is a shameless opprtunist with a standard set of tactics, used solely for his own benefit. His only policy goal is more personal power.

      Reply
  10. Temporarily Sane

    These pieces that characterize China as some sort of “evil empire” undermine their authors’ credibility. Before complaining in a self-righteous and aggrieved tone over another country’s unfair trade and “national security” practices American commentators might want to take a closer look at this country’s conduct vis a vis its international partners and competitors. (They could also benefit from reading what Michael Hudson has to say about China’s economic practices.)

    At the end of the day the the west made its own bed and now it has to lie in it. Trying to pin the blame on China and Russia and roping them into a new nuclear arms race or terrorizing much weaker countries like Iran and Venezuela will not change the fundamental fact that the system we created is broken and unsustainable.
    We broke it and only we can fix it.

    Reply
  11. Synoia

    Trump Never Had a Grand Strategy for China….

    Are we inferring that Trump has “Grand Strategies” for everything else he has done?

    or should it be:

    Trump Never Had a Grand Strategy for any action, Including China

    Reply
  12. Scott1

    The US moved West. Competition in the US was between the East & the West too. US had cheap portable energy & people could pay their rent and have some money left over.
    Obviously those who are collecting money from houses others move in and out of have the opportunity to raise more money than those hoping the boss will give them a raise.
    It seems that most of the land close to work has been purchased.
    Michael Hudson has this situation figured out.

    Reply
  13. AbateMagicThinking But Not Money

    Choices, Choices!

    Does anyone force US businesses to buy foreign? Or is the US part of the Chinese empire and therefore forced to buy its goods? I wonder whether the US military will wake up to the lack of love of country in the US business sector and close the current forex driven version of the racket down.

    Pip-pip!

    Reply

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