Ending the trade war with or without Trump

Editor's note: The article reflects the author's opinions, and not necessarily the views of China Plus.

The trade war between the United States and China seems to be spiraling out of control, after fast-paced increases in tariffs, further threats, and no visible way out. That increasing tariffs are bad for economic growth and therefore bad for the people in both countries is common knowledge and therefore won't be discussed here. Instead, three questions are of interest: After initially friendly talks between China's President Xi and America's President Trump when the latter was newly elected, how did this trade spat become so fierce, so fast? What is the true motive of the United States? And most important of all, how long will it last? 

US President Donald Trump looks on at the crowd during a rally at JQH Arena in Springfield, Missouri on September 21, 2018. [File Photo: VCG]

As for the first question about the rapid worsening of the situation, I see three main influencing factors: China's political stance, the personal character of President Trump, and the political situation in the United States. 

China's stance is that it will not be bullied, and its decision to respond with strength is – although not the only option – a legitimate one. China could, for the sake of economic growth and good relations with the United States, give the Americans some of the things that they want. But I see risk in such a stance, as China would set a precedent that might entice the United States to push China around in other areas – giving in to these demands will only lead to further demands. So I see little that China can do to ease the tensions in the short run.

The second factor is President Trump's character, which is that of an ego-centric bully. We can debate whether President Trump is indeed as banal as he appears, or whether there is a cunning scheme behind his facade of boorishness. Regardless, he is clearly in a state of panic, fearful of appearing weak, as his personal brand is that of a strongman. From a branding perspective, he can't tone himself down. He has said that, if China responds in-kind and doesn't cave, he will get even tougher. That is, of course, very insulting: I slap you in the face, and unless you do what I say, I will punch you. This is how bullies work. Unfortunately, he could not improve his own character even if he wanted to, so this is a factor that cannot be changed.

The third factor is the political situation, and it's here where things get interesting. He's added the additional 10 percent tariffs now, just a week after they were announced, and intends to raise them to 25 percent after the Christmas sales – and more importantly, after the mid-term elections. 

I see the strongman bullying as President Trump's branding for the elections: he has pulled this out of his sleeve to give his party a boost, to distract from the more and more obvious chaos at the White House, and to excite his electorate of precariously employed or unemployed white lower-class Americans who feel powerful when their country "beats the Chinese". He has avoided the strong impact of 25 percent tariffs for now, as they will hurt this electorate, as they depend on low-price Chinese commodities for their quality of life. The elections in the United States are the key to both understanding this trade war, and also to ending it, as I will explain.

In short, we have a strong stance from China, and a strongman and bully president in the United States who needs a show of force in the trade war for the coming elections. But what does the United States really hope to achieve? The American president may be scheming, or just playing a hustle; either way, it's clear that President Trump cares first and foremost about one thing: himself. I doubt he cares about the United States trade balance or working class people, let alone about what China does. Rather, his government fears a globally powerful rival. China doesn't rely on the United States military for protection, unlike neighboring economic powerhouse Japan. Nor does it fear attack by the United States, as it has its own nuclear deterrent. This means that economic pressure is the only option for the United States to try to contain China. 

But this economic pressure comes at a high price for them. Its economy has various branches with opposing interests: For example, steel producers in the United States love tariffs on steel, while steel consumers like the car or industrial machine industries are hurt by them. The same is true for solar panel producers versus solar panel installation services. So the trade war, for China, is a simple question of defending its right to develop. But it is a far from undisputed policy in the United States, which leads to the third and most important question: How long will this trade war last?

I do not agree with Jack Ma that this dispute might drag on for ten years or more. As I mentioned above, the key might be the next presidential elections in 2020. President Trump may not be able to change his character away from that of a bully, but the United States can change the character of their president by replacing him. 

Many Americans have different interests in China. Most manufacturers have factories in China, the insurance and banking industry has a strong interest in participating in the next round of China's opening up, and traders and consumers are interested in low-price goods. Once the trade war starts causing serious pain, then I doubt President Trump stands a chance at reelection. China has been clever with its retributory tariffs, targeting areas where it will hurt Trump voters first. But if need be, China can go much harder. The ultimate economic weapon would be to sell off its holdings of U.S. Treasuries and push the value of the U.S. dollar down. It would fix President Trump's goods trade balance, because Americans simply couldn't afford as many imported goods. It would also dramatically reduce the American people's quality of life. It would hurt China, too, as it would lose its largest export market. If it was just for a short time ahead of the next presidential elections, China would surely survive this slump in exports – but Trump's presidency wouldn't. So I expect an end to this trade war within two years with President Trump, or within three years without him.

(Harald Buchmann is a Swiss economic analyst and business advisor based in Beijing)