An overt trade war has commenced. President Trump has fired the starting gun, setting in motion an election promise, part of his Make America Great Again undertaking. It is a blow squarely aimed against China, costing China some trade perhaps, but basically a loser’s last roll of the dice.
The back story appears to be far deeper than some relatively minor tariffs on steel and aluminium would suggest. It comes after a prolonged period of shadow-boxing between America in the blue corner and Russia and China in the red. To pursue the boxing analogy, China and Russia have been soaking up America’s punches on the basis America would simply tire herself out. It has been a replay of Muhammed Ali’s dope-on-a-rope strategy in the rumble-in-the-jungle, with America cast as George Foreman.
However, in the last few days, China and Russia seem to have lost patience with America. Instead of patiently letting America gently decline through her own errors, the Asian superpowers are accelerating their own agendas regardless. Russia is ignoring the West’s humanitarian pleas by stepping up her plans to end the Syrian mission. She announced a new hypersonic ballistic missile, a naked threat to further American military interference. And, it appears, she is still bumping off old spies in Britain, not giving a hoot for the diplomatic consequences.
The diplomatic dance round North Korea also seems to be coming to an end. The solution there is becoming obvious: North Korea will give up her aggressive stance against America, after some face-saving negotiations perhaps, in return for China’s protection. It can hardly end any other way.
We do not know the real reason China and Russia appear to have changed their generally patient approach to American aggression. Perhaps it was inevitable that at some stage the internal politics in President Trump’s administration would lead to this conclusion. Perhaps it’s a twist in the financial war, with China’s oil and commodity suppliers pushing for of greater yuan liquidity in financial markets. China has finally agreed to this by setting a date for the new yuan-denominated oil futures contract to start trading. Anyway, the inevitable has happened: President Trump has finally decided to impose trade restrictions on China, and the Asian powers are accelerating their imperial plans.
We know that Trump believes that trade deficits arise from foreign competition, transferring American jobs abroad. More experienced politicians know otherwise through experience. Importantly, the US Treasury can usually be counted on to make sure the political class is aware that protectionism and tariffs are not a good idea.
This safeguard has failed. Not only is President Trump woefully ignorant on trade matters, but so is his team. Commerce Secretary Wilbur Ross is, by all accounts, a protectionist hawk. Also, in the inner circle is Robert Lighthizer, Trade Secretary, and Peter Navarro, Director of Trade and Industrial Policy, both strongly in favour of protectionism.[i] As further evidence of the protectionism in the White House, Gary Cohn, Chief Economic Advisor and a markets man, has finally thrown in the towel.
Doubtless Cohn will be replaced by someone who supports protectionism and tariffs. According to Professor Hanke of the John Hopkins University, David Malpass, Undersecretary of the Treasury for International Affairs, recently stated the Trump administration is going to lower the boom on China, and its so-called unfair trade practices. The inclusion of Jim Mattis (Defense Secretary) in the economic policy debate appears to confirm the anti-China objective.