What are our stated objectives with China?
- We want to bring them into the world economic system on appropriate terms of fair play.
- We want access to their markets according to those rules of fair play.
- We want protection for our businesses and workers, also according to those rules of fair play.
Those are perfectly normal and achievable objectives. We can be specific about how to get there, and the probability of success is high.
What are our actual objectives in the trade war?
Those are not the same as the stated objectives (although the press seems confused about the difference). They are objectives for a real war. And if you’re going to fight a real war—with bullets or with tariffs—you had better be sure you’re going to win, or the results won’t be pretty.
Problem #1: We don’t run the world. We are 18% or Chinese exports, same as the EU. We’ve gone out of the way not to have an alliance with the EU on this issue. (It’s worth noting that the EU already has a far lower balance of payments deficit with China than we do.) The Chinese domestic economy is already larger than ours. We can inflict pain, but we can’t put them out of business.
Problem #2: China’s technological and military strength is not just because they’re stealing from us. That genie is already out of the bottle, and it is an imperialist delusion to believe we can keep them poor and dumb.
Problem #3: We’ve converted an issue of international good behavior into a matter of domination. Without boots on the ground there’s no way in hell we’re going to enforce an agreement of subjugation. (The distinction is not a gray area—we’re either thinking about rules we’d be willing to apply to ourselves or not.)
What’s going to happen?
The Chinese will go build their (very large) part of the world without us. We will have no effective access to their markets or their technology (already today technology is a two-way street). We’ll be back in a cold war with all that entails in risk, mutual hostility, military spending, and stunted world growth.
What should we do?
- The first step is to cool the chest-beating jingoism. (China is in fact a mixed bag for the US economy.) That way we can at least recognize the difference between the two types of objectives. It’s the only way to behave rationally.
- If what we want is a correct and viable world order, then that means we need an alliance supporting our view. Ultimately this should end up in the WTO, but a first step is to codify what we want and assemble wide support. That will add both carrot and stick to achieve our objectives. The Business Roundtable of corporate CEO’s was explicit about this from the beginning.
- History shows that the best way to avoid war is mutual commerce. That means establishing rules we can all abide by.
- If we’re worried that the Chinese are going to take over anyway, then the best thing to do is to recognize and play to our strengths. Overall the odds are well in our favor. The fact is that we’ve been here before. Not so many years ago the perceived technology threat was Japan. In China, Xi’s thirst for control makes him an enemy of what made for China’s success.
History is full of disastrous, inconclusive wars that no one wins. Trade wars too. We’re not so weak that we have to blunder our way into this one.