The national politics of international trade conflict

By Josef Gregory Mahoney 

A much-trumpeted trade war between China and the United States has yet to fully materialize despite already roiling markets and provoking a general unease among commercial and political interests. So far we have seen a number of trade “skirmishes.” While a larger trade war might still be prevented, it is important to understand that domestic politics over and above shaky foreign relations or even major trade disputes tend to drive such conflicts from start to finish.

In this Thursday, April 12, 2018 photo, a visitor walks by U.S. soybean companies' booths at the international soybean exhibition in Shanghai, China.[Photo: AP/Andy Wong]

In the US, President Trump faces five intersecting concerns. First, he has a weak record of accomplishments despite enjoying a Republican controlled Congress and a conservative majority in the Supreme Court. While supporters can point to tax reform and judicial appointments as conservative victories, he has not delivered substantially on his more populistic promises to his political base. Additionally, his tax plan was front-loaded in terms in terms of its benefits for individuals and families, but by most indications it is already contributing to a major increase in national debt, which can in turn negatively affect the nation’s credit rating and ability to borrow money, as well as undercut his brand of “Making America Great Again.” Because presidents are generally strongest in terms of their ability to shape and drive foreign policy and comparatively weaker in their ability to enact a domestic agenda where they face entrenched interests and the separation of powers (despite Republican control of all three branches of American government), it is not surprising that he is facing increasing pressure to score political points through foreign policy, where the power of the presidency is relatively unchecked.

Second, Trump’s political base is sometimes described as being nationalistic and by turns, xenophobic if not racist. While these elements surely exist to some extent among his core supporters, many of them are more reliably described as economic nationalists. These include white voters who belong to the middle and working classes whose economic positions have not much improved much or even have declined in recent years, especially since the Global Financial Crisis of 2008. Trump appealed to these voters during the presidential campaign by blaming elites in both the Republican and Democratic parties for colluding with special, corporate and foreign interests at the expense of American industry and jobs. Thus, while his domestic accomplishments are relatively narrow, he can shift emphasis to blaming others like China for the economic difficulties faced by his supporters, and they are likely to agree with him wholeheartedly. 

Third, given approaching mid-term elections, there is a growing urgency to “do something.” On the one hand, every president is concerned about how well his party performs in the midterms because many interpret it as an referendum of support for his policies, as well as making sure than he has enough supporters in next Congress to enact his agenda. On the other hand, Trump is facing by many accounts an eroding legal position with respect to special investigations related to alleged collusion with Russia to manipulate the election, campaign finance violations, illegal business practices, and obstruction of justice. If the Republicans lose their majorities in either the House or the Senate, then the Trump will see an increase in the number of investigations and the possibility of impeachment proceedings, either of which could effectively end his presidency. 

Fourth, Trump continues to demonstrate a compulsive need to denigrate his predecessor, President Obama, and his former opponent, Hillary Clinton, who were both advocates of the sort of trade deals that Trump has attacked and who would have been much less likely to spark open trade conflicts with China. In fact, Trump continues to play this card because it continues to delight his base, which in its unabashed zeal, still view Obama and Clinton as being corrupt and even, anti-American. Nevertheless, Trump appears to be softening his position on the Trans-Pacific Partnership (TPP), which his predecessors supported openly or privately, and from which Trump withdrew upon taking office. While some believe this softening is merely a feint to undermine Chinese confidence with respect to a trade war, I predicted last year in an interview excerpted in the ASEAN Post that Trump would likely find a way to rejoin TPP in exchange for a few relatively cosmetic changes to the agreement that would allow him to declare victory over Obama. 

Fifth, the two main and competing schools of thought in American thinking about China are frequently referred to as “collapse” vs.  “threat.” Over the course of China’s reform and opening up, the collapse thesis has had a stronger influence on American policymaking, driven by the basic assumption that increasing economic liberalization undermines China’s one-party system and leads inevitably to political liberalization. This influence has been most powerful among American intelligence agencies and has been fostered by a number of leading academics who continue to advance this position. The “China threat” school has been more influential in the military, and holds that a rising China poses many risks to American interests and power. Over the past five years, the collapse school has been undermined by Chinese reforms that have reigned in corruption and improved governance, but these developments, in tandem with the perception of a broad American decline, have emboldened the threat school. By some accounts, with Trump’s turn towards generals and policy hawks while undercutting the CIA and FBI, the threat thesis appears more influential now. While treating China as a serious adversary conveys a type of respect that was formerly lacking among the collapsers, it can also encourages more aggressive and defensive postures on many fronts, including trade. 

In China, President Xi and more broadly the Chinese political system faces less direct pressures or the need to respond to them as Trump must, but there are likewise a number of concerns that will guide how China responds to American threats. First among these is the economic restructuring currently underway in China. As China reforms its economy, it is more vulnerable to a trade war. 

Second, by many accounts, China benefits more from its trade with the US than the US does, or at least, the imbalances favor China more. President Xi appeared to acknowledge this as a historical condition during his address at the recent Bo’ao Forum for Asia, and the need to improve. 

Third, as China moves from being a “major country” to being a “major power,” there is increasing pressure to push back against American hegemony across the board, particularly as relations in Asia encounter turbulence over competing strategic aims and shifting spheres of influence. 

Fourth, since 2008, China has increasingly tried to insulate itself in some ways against potential American economic turmoil, but this has also had the effect of deleveraging to some extent Chinese influence on the American economy, particularly in terms of holding massive dollar reserves and financing American debt. 

Fifth, while Chinese capital is increasingly “going out,” and while Chinese innovation and technological development is rising and drawing even in some keys areas, like green tech and artificial intelligence, China still wants and needs access to advanced technologies that countries like the US refuse to sell it. Thus, China has recognized the need for improving intellectual property right (IPR) protections as a critical element of fostering domestic innovation as well as encouraging foreign countries to sell more advanced technologies to China. Indeed, the US claims that poor IPR protections are a key concern driving a potential trade war, while China asserts that American restrictions on selling advanced technologies to China is one of the reasons the trade imbalance is so large. Everyone seems to agree therefore that improving IPR in China will go a long way to resolving a lot of problems.

Trump has repeatedly claimed the US can easily win a trade war with China, asserting that the US has less to lose economically. But unfair trade is not merely an expression of trade imbalances, tariffs, restricted markets or IRP concerns, and trade wars are not driving solely by concerns for trade itself. A more careful examination would reveal a lot of inequalities that have benefited the American side; however, unless China presses these, such points will be ignored for now, as trade itself is actually a secondary concern, as are shifting great power relations. 

Instead, as I have pointed out, the American side particularly is being driven by domestic political battles and a popular and not unreasonable concern that the national economy was grossly mismanaged by previous administrations, especially at the expense of the working and middle classes. The extent to which China is blamed for this, and the extent to which China is willing to accommodate various American concerns, may determine the extent to which a trade war is averted. Again, at the Bo’ao Forum, Xi acknowledged the imbalances and agreed that more equitable exchanges can be created; but he also asserted that threats would be counterproductive. It should be clear that Trump is less concerned about relations with China or even the negative affects on trade than he is with shoring up his base ahead of midterms. To this end, even if it’s merely political theater, he will be threatening, and will continue to do so until he can declare a victory of sorts, or is compelled to leave office.

(Josef Gregory Mahoney is Professor of Politics and Director of the International Center for Advanced Political Studies at East China Normal University in Shanghai. )