Translating Trump on trade

Editor's note: James H. Nolt is an adjunct professor at New York University. He has been a senior fellow at the World Policy Institute for 22 years. The article reflects the author's opinion, and not necessarily the views of China Plus.

Chinese leaders must be annoyed and bewildered about how to avert the trade war with the US.

It is not obvious exactly what US President Donald Trump wants. What he repeatedly says he wants, bilaterally balanced trade, is nearly impossible.

At the very least it would require extensive and permanent government intervention with tariffs and exchange controls, the antithesis of free trade.

U.S. President Donald Trump speaks during a meeting in the Cabinet Room of the White House in Washington, D.C., U.S., on Thursday, Aug. 16, 2018. [Photo: VCG]

China tried to offer a concession package in May, including lower auto tariffs, buying more natural gas and agricultural products, and greater opening of its financial sector. US Treasury Secretary Steven Mnuchin negotiated the package, but Trump shot it down.

It included the sort of pro-trade reforms that might have impressed the Obama administration, but China is only slowly realizing that Trump's objectives are way different.

One difficulty for China is that Trump is coy about what he wants, at least in public, even in private if it might leak to the press.

What Trump wants is not more reform in the direction of liberal principles, what he wants is to preserve what he considers key American industries. He does not want free trade, he wants managed trade.

Unfortunately for Chinese comprehension, he cannot proclaim that outright because in American politics free trade is a necessary mantra. Advocating government managed trade is an anathema, especially within the Republican Party.

The concept of managed trade or "industrial policy" was popular among certain segments of the Democratic Party during the 1970s and 1980s when Japan seemed the greatest industrial competitor of the US.

Even supposedly free-market champion Republican President Ronald Reagan pressured Japan to institute so-called "voluntary export restraints" to limit the number of cars it exported.

This was possible only because the Japanese automobile industry was already highly centralized, so implementing an export cartel to limit output was not difficult. In fact, Japanese executives were pleased.

While they somewhat restricted the number of cars exported to the US each year, by curtailing output and raising prices they significantly increased their profit margin on each car sold. Suppressing free competition is good for profits. Business knows this, but politicians can't admit they sympathize.

Former Democrat Trump probably harks back to the industrial policy previously advocated by Democratic leaders like former Sen. Richard Gephardt. Trump disdains liberal principles in favor of negotiated results.

This is the inspiration behind his campaign rhetoric that so resonated with industrial workers in Middle America, perplexing bicoastal liberals like candidate Hillary Clinton and House Speaker Nancy Pelosi.

Trump speaks a language no longer in fashion in either party; it is somewhat cryptic to the uninitiated. It must be translated for those ignorant of American political history.

One needs to listen closely to what Trump says about trade and to the diatribes of his more unorthodox advisors, such as Peter Navarro. Trump himself scrawled “trade is bad” on a draft of one of his speeches, according to the new Bob Woodward book "Fear: Trump in the White House."

The book describes the president's idea that if he wreaks havoc on trade by tearing up trade agreements and raising tariffs, our trading partners (he would say, “adversaries”) will soon return to the bargaining table and offer tangible deals for managed trade.

Trump's vague trade demands confuse not only China, but also other major US trading partners that have been targeted. Trump has now invited further negotiations prior to imposing tariffs on another 200 billion US dollars' worth of Chinese exports, far more than the 50 plus billion US dollars already affected.

If that next sanction fails to induce satisfactory Chinese remediation, he threatens tariffs on all the rest of China's exports to the US. Even if China offered to reduce all its tariffs to zero, this would not come close to satiating Trump. He wants to force China to help him preserve key American industries. This is one of the few things (another is immigration) that does actually obsess Trump.

As his former strategist Steve Bannon said, "Donald Trump may be flexible on so much stuff, but the hill he's willing to die on is China."