Just don't call it a trade war: US v. China

Last Friday’s news that President Donald Trump has upped the ante with China by increasing the tariff to $200 billion on Chinese exports, was a move that sent the Dow and global exchanges into a downward spiral that made both Wall Street and Main Street nervous as a threat to a strong US economy, since consumer spending is its main driver.

Despite saying that “The relationship between President Xi and myself remains a very strong one, and conversations into the future will continue,” Trump’s threat to increase by 25 percent on another $325 billion of Chinese exports, seemed less than a good faith measure.

Chinese Vice Premier Liu He appeared to minimize the impasse as one of distractions, and said, “But China is not afraid, nor are the Chinese people,” adding that “China needs a cooperative agreement with equality and dignity.”

Despite long running concerns over several American administrations over allegations of stealing of business strategies and price hikes, joined by European concerns, Bloomberg reported, “Before the rebound late Friday, U.S. markets had posted their worst week of the year so far, as the trade truce that had been in place for months was shattered by the new U.S. tariffs.”

China announced it would raise tariffs on $60 billion of American goods in a tit-for-tat move that has made every market nervous.

CNN Business reported that “Asian stocks dipped lower on Monday, with Japan's Nikkei Index (N225) dropping around 0.7% and the Shanghai Composite Index (SHCOMP) closing more than 1% lower. Hong Kong markets were closed for a holiday.

Major European markets like the DAX (DAX) and CAC40 (CAC40) fell more than 1% on Monday. Stocks in Germany, which exports heavily to China, were among the hardest hit. BMW (BMWYY) and Volkswagen (VLKAF) both dropped around 1.5%, Daimler (DMLRY) fell 3.3% and ThyssenKrupp (TKAMY) closed 8.3% lower. Losses on the FTSE 100 (UKX) were narrower, as rising oil prices gave a lift to BP (BP) and Shell (RDSA).”

“China has used its WTO membership to flood other countries with exports, while limiting foreign access to its own market. "Their vision is in a lot of ways zero sum," said Blaine Johnson, a policy analyst who specializes in Asia at the liberal Center for American Progress.

The result is a badly lopsided trading relationship: The U.S. trade deficit with China last year hit a record $379 billion,“ reported US News and World report, using an AP post.

In February of this year, The Economist said, “At the heart of these complaints is the role of China’s government, which funnels cheap capital towards state firms, bullies private companies and breaches the rights of foreign ones. As a result, China grossly distorts markets at home and abroad.”

Summing up the long, nearly 20 year problem, they also noted, “the U.S. says China is trying to meet its [market] aspirations by stealing trade secrets, coercing technology transfers, subsidizing its own firms and burying in red tape foreign companies that want to compete in the Chinese market. Last year, the U.S. began imposing tariffs to pressure China to drop the aggressive tactics.”

Trump has noted that the next round will begin when “he expects to meet Xi in late June at the G-20 summit in Osaka, Japan.”

Tariffs have had a long chapter in US history and after the weak Articles of Confederation, there was no room for taxation, other than requesting by the nascent federal government from the states, and tariffs, the brainchild of Alexander Hamilton, the first Secretary of the Treasury, created the idea that was also supported by George Washington and Abraham Lincoln, as a way of protecting American industry and goods.

It was a point of departure between President Cleveland and Candidate William MckInley as they argued whether a republic, a free nation, could use them. And, all came to increasing controversy with the Smoot-Hawley Act of 1930 that some felt exacerbated the oncoming Depression.

While seen as a success at first the failure of global banks decreased the benefits of the Act, but  the tide turned, and later, “The 1932 Democratic campaign platform pledged to lower tariffs. After winning the election, President Franklin Delano Roosevelt and the now-Democratic Congress passed Reciprocal Trade Agreements Act of 1934. This act allowed the President to negotiate tariff reductions on a bilateral basis, and also treated such a tariff agreement as regular legislation, requiring a majority, rather than as a treaty requiring a two-thirds vote. This was one of the core components of the trade negotiating framework that developed after World War II. The tit-for-tat responses of other countries were understood to have contributed to a sharp reduction of trade in the 1930s. After World War II this understanding supported a push towards multi-lateral trading agreements that would prevent similar situations in the future,” summed Wikipedia.

Now it’s Trump’s turn to return to high tariffs, and its alignment with his nativist stand, replete with the infamous Make America Great Again slogan; but now it promises to be a threat to his 2020 reelection campaign, just after he pinned his star on the strong economy, as a lead to keep the presidency for a second term.

He does this despite the opinion of most economists, and observers, who have shown the successful economy to be attributable more from the efforts of former Federal Reserve Chair Janet Yellen, and President Obama, with data-driven formulas, and saving the auto industry, and banking industry from fiasco, early on in his first term.

Illinois farmers have seen decreased profits over the last six years, and “Evan Hultine, a sixth-generation corn and soybean farmer in Princeton, Illinois, said a trade war is the last thing he and his fellow farmers need,” in an interview with CBS This Morning.

Pointedly he also said that "I'd tell him that we supported him from the get-go on trying to bring China to the table and make them more accountable for their practices, but every day that this ticks on, farmers are the ones that are taking it on the jaw," Hultine said.

Trump will, in turn, have to ask himself if the risk of alienating some of his most ardent supporters is worth the risk.

Despite, what many say is a strong and consistent approval base of at least 44 percent according to a recent Gallup poll, it makes some wonder if this trade war with China may chip away at support from his base, as the concern from Hultine expressed.

Some feel that China may have the upper hand, thus further jeopardizing the economic platform that the president has trumped as the means to staying in office, and created a backlash with what is essentially a tax on the American consumer.

What-a-coulda-shoulda, is an old American saying and perhaps,there was an alternative, as Washington Post columnist, Robert J. Samuelson noted in a recent column: “What the United States should have done is create a global coalition of major trading countries — itself, the European Union, Japan and other advanced societies — that would negotiate limits on subsidies, coerced technology transfers and a level playing field for competition between domestic and foreign firms. If China violated the rules and refused to join, the other countries could take action against its exports.”

Chinese state media, according to The Economist, issued this statement: “If you want to talk, our door is wide open,” said an anchor on China’s most-watched news programme on May 13th, in a clip that went viral. “If you want to fight, we’ll fight you to the end.”