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Trade & Investment

Is it possible Trump is on the right track with China?


President Trump at the Economic Club of New York

President Trump at the Economic Club of New York

“Trump’s trade war is losing, not gaining, support,” Paul Krugman wrote this week in his column “Why Is Trump a Tariff Man?” So why does the president avoid making the deals that might end this perpetual state of economic uncertainty? In a word, freedom.

“Tariffs let him exercise unconstrained power, rewarding his friends and punishing his enemies,” Krugman continued.

Readers had questions: Other than tariffs, how could the United States encourage other countries to adopt better trade practices? What’s the effect on foreign policy relations? Could electing a new administration reverse damage?

Any silver lining is a long way off, according to Krugman. “To really get back on track, we’d need a defeat — not just of Trump but also of Trumpism, which would take multiple elections,” he wrote in response to one reader.

That exchange, and others, are below. They’ve been edited for length and clarity. — Rachel L. Harris and Lisa Tarchak, senior editorial assistants

Vitor, Greensboro, N.C.: I fully agree that tariffs are bad, there are no winners. However, these tariffs can also be of some use to control unfair trade practices (labor, environment and other issues). Other than tariffs, how could we influence other countries to adopt better trade and industrial practices?

Paul Krugman: It’s O.K. to link trade policy to other goals, as long as it’s transparent and consistent with a rules-based system. The North American Free Trade Agreement actually contains labor-rights conditions, although they haven’t been well enforced.

In the past, I’ve supported tariffs to counter Chinese currency manipulation — which was a real issue circa 2010, but isn’t now — and carbon tariffs in support of climate policy if we ever do impose carbon taxes or cap and trade here. Basically, the threat of tariffs can be used to induce other countries to play by the rules; but we can’t do that unless we ourselves are playing by the rules!

Meggan Dissly, Paris: All of the business people I know appreciate that Trump is standing up to China — the first president to do so — and they approve. Is it possible that he is on the right track as far as China is concerned but completely off base with other countries like Canada, France and Brazil?

Krugman: None of the businesspeople I know think that. China is a bad actor in some ways, especially in not respecting intellectual property and arguably in de facto subsidizing some industries. But Trump isn’t taking on China over those issues, and hasn’t even made any clear demands.

He also hasn’t rallied other countries to join America in pressing China to change. Instead, he’s picking fights with everyone. So even if you think China should be confronted, Trump is doing it wrong.

Michael Wilson, Boulder, Colo.: Peter Navarro (assistant to the president and director of the Office of Trade and Manufacturing Policy) makes the claim that Americans are not incurring much increase in costs from tariffs on goods from China because China is devaluing its currency in order to offset any such increase. In this way, it’s China that’s paying the cost of the tariffs. To what extent is that true?

Krugman: We have numbers on this! If China were bearing the tariff, the price of imports to the United States from China would be falling a lot. They aren’t. All the evidence says that United States consumers are bearing the tariffs, and that Navarro is just making stuff up.

Barbara De Matteo, Setauket-East Setauket, N.Y.:Does anyone look at his family’s investment moves when Trump makes these trade announcements? I am curious about the impact on their wealth when he makes these seemingly arbitrary announcements. I wonder if this is all one big strategy for him.

Krugman: Everything suggests that Trump is using his office to enrich himself. But I think it’s a lot cruder than that — more about extortion (don’t expect any favors unless you book my hotels) than stock market manipulation. It’s a sort of corruption Occam’s razor: never assume sophistication when crude thuggery is sufficient.

Jan Saver, Brussels: Is it possible to put a value on certainty — or uncertainty?

Additionally, I think there is a significant cost attached to giving up the rules-based trading system, which the United States should try to factor in. The General Agreement on Tariffs and Trade and World Trade Organization rules have kept trade conflicts from escalating (tit-for-tat tariffs or, worse, wars). The brakes now seem to be off.

Krugman: Really hard to put a number on it, but given what has happened to business investment despite huge tax cuts, it looks as if the costs are pretty big. As I said in the column, the costs of the trade war have surprised even those of us who opposed Trump’s policies.

Rickard Waern, Göteborg, Sweden: What are the ramifications of Trump’s trade war on the global economy? Is there a risk of recession?

Krugman: The trade war is hurting, but nothing I see is big enough to produce a global recession, at least so far. At worst, it’s a contributing factor to a bunch of other things that may be weakening the world economy — nothing remotely on the scale of, say, the late 2000s housing bust.

Those other things, by the way, include a Chinese slowdown that some of us have been predicting for years and finally seems to be happening; the troubles of Europe, which have a lot to do with a drastic slowdown of population growth; and, maybe, shifts in United States business that have moved us toward technology companies that don’t need to do a lot of physical investment. Again, on their own, none of these things are huge, but collectively they add up.

Bob Sharak, Chesapeake, Va.:How difficult will it be to unwind the damage Trump has done in just this one area? Is it realistic to say that it could be fixed in one or two presidential terms?

Krugman: I don’t think we’ll ever reverse the damage. We can fix some things, but neither countries nor businesses will ever go back to believing that United States trade policy can be counted on to be predictable or that we will honor our commitments. Even once Trump is gone, the possibility that America will elect another leader like him will shadow everything for decades to come.

To really get back on track, we’d need a defeat — not just of Trump but also of Trumpism, which would take multiple elections. Remember how Obama’s victory was supposed to change everything? We’re going to need an extended period — maybe three presidential elections in a row — that makes it clear that voters are insisting on politicians who care about the rule of law.

Source: New York Times – Is It Possible Trump Is on the Right Track With China?

About Craig Hill

General Manager at Craig Hill Training Services * Get an Australian diploma by studying in your own country * Get an Australian diploma using your overseas study and work experience * Diplomas can be used for work or study in Australia and other countries. * For more information go to www.craighill.net

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