By Zachary Cameron
The potential for a US-China Trade War has been a hot topic around the world ever since Donald Trump was inaugurated as the 45th President of the United States in 2016. In line with his zero-sum philosophical outlook, Trump has routinely emphasized the need for the United States to pull out of unfair trade partnerships and to rectify trade deficits in order to “Make America Great Again.” Central to this desire, Trump has specifically cited the need to decrease the trade deficit with China, which has resulted in the president levying tariffs against China in an effort to accomplish this task.
While this “America First” goal has helped Trump gain domestic popularity, given that most people intuitively believe that a trade deficit is bad for the economy, economists tend to disagree with this simplistic conclusion. Running a trade deficit can instead be a positive indicator for numerous reasons, most notably because a deficit demonstrates that the United States is an attractive place for foreign investment. [1] Furthermore, as Joseph Gagnon, a senior fellow at the Peterson Institute for International Economics, points out, “If you look across countries, there’s no evidence that high tariffs reduce your trade deficit.” [2] This discrepancy between Trump’s economic policies and the general wisdom of economic experts has caused many political / economic pundits and media commentators to assert that Trump is ignorant with regards to the fundamentals of macroeconomics. [3] While this may certainly be the case, it is important to be hesitant in assuming Trump’s ignorance and to acknowledge that improving the trade deficit is not the sole, or perhaps even primary, purpose of the president’s trade war. Instead, the president’s zero-sum comments with regards to international trade may have ulterior motives that are being concealed by populist politics.
As has been asserted by a number of media publications, the true motivating factors behind the trade war may instead be the desire of the Trump administration to maintain the dollar’s status as the world’s reserve currency and to maintain the dominant position of the United States in the digital and high-tech industries. [4] President Trump is, in all likelihood, very much aware that these issues are paramount to the perpetuation of United States political/economic supremacy. While neither of these issues can be directly addressed by reducing the trade deficit with China, the imposition of tariffs may work to coerce China into making policy concessions that allow the United States to achieve these goals. These concessions would most likely involve ensuring that China denominates their trade contracts in dollars, as well as ensuring that China opens its borders to entry and fair competition from American technology companies. [5]
Because of these possibilities, it is worth considering that President Trump may be utilizing the notion of the trade deficit as a marketing tool to make a trade war with China more palatable to the American public. Asserting that tariffs are necessary as a coercive force to allow the U.S to maintain reserve currency status and a near monopoly in the digital and high tech fields is not as “sellable” to the American public as is the assertion that China’s unfair trade policies cause a trade deficit that results in the loss of America jobs. If this is the case, although many experts schooled in economics may roll their eyes at the purported goal of Trump’s trade tariffs, these pundits may be guilty of judging the president too quickly and underestimating the president’s acumen as a populist leader.
While there is no way of truly knowing the primary motivations behind President Trump’s implementation of trade tariffs on China, it is important to note that two of the president’s top economic advisers have directly expressed their affinity for trade deficits. Larry Kudlow, Director of the National Economic Council, said in March last year, “The trade gap is not a reflection of a bad economy. In fact, just the reverse”, while White House chief economist Kevin Hassett has also said this year that, “There are lots of good reasons why you’d want to run a trade deficit.” [6][7] As such, it seems clear that if President Trump is electing to impose tariffs with the goal of closing the trade deficit, this decision would be in opposition to the wishes of his closest advisers.
Although opinions differ regarding the extent to which President Trump listens to the counsel of his advisers, evidence exists that the president is not overly stubborn on relying on his own opinions to make significant policy decisions. For example, in 2017 President Trump delegated the decision of the troop levels in Afghanistan to former Secretary of Defense Jim Mattis.[8] While this relationship has soured of late, this example should give pause to critics who claim that President Trump makes policy decisions independently and off the cuff. It is thus hard to imagine that the president is relying solely on his own economic theories to initiate tariffs against China. Because Kudlow and Hassett are two of President Trump’s most trusted economic advisers, and because these advisers have stated their affinity for a trade deficit, it then reasonably follows that neutralizing the trade imbalance with China is not the primary goal of the tariffs.
While this analysis relies upon numerous assumptions, the fact that these assumptions are all within reason demonstrates the need for critics to at least hesitate in their claims that President Trump is economically unintelligent or naïve. This does not mean that the trade war is not a negative phenomenon, or that the president is not instituting tariffs on his own accord; rather this analysis demonstrates the importance of reserving negative judgments given the possibility of alternate and guised motivations in the institution of the trade war. In fact, President Trump is uniquely suited for the role of “economic dummy”, as most members of the media and academia assume that the president is naive with regards to almost every aspect of public policy. While these critics may be correct, these negative judgments may actually allow President Trump the possibility to market and implement policies in a way that a “traditional” administration, like the Obama administration, could not. Interestingly, this could result in the Trump administration obtaining certain policy concessions from China that the Obama administration had tried and failed to.
Zachary Cameron is a senior at Loyola Marymount University where he is majoring in International Relations.
[1] Mark Perry, “Worried About Trade Deficits? Don’t, They’re ‘Job-Generating Foreign Investment Surpluses For a Better America’”, http://www.aei.org/publication/worried-about-trade-deficits-dont-they-are-job-generating-foreign-investment-surpluses-for-a-better-america/, (December 3, 2016).
[2] Jim Tankersley, “Trump Hates the Trade Deficit. Most Economists Don’t”, https://www.nytimes.com/2018/03/05/us/politics/trade-deficit-tariffs-economists-trump.html , (March 5, 2018).
[3] Veronique de Rugy, “Trump’s Economic Ignorance on Tariffs”, https://www.realclearpolicy.com/2018/06/18/trump039s_economic_ignorance_on_tariffs_38724.html , (June 18, 2018)
[4] Ajay Srivastav, “The Real Reason Behind Trump’s Trade War”, https://www.thehindubusinessline.com/opinion/columns/ajay-srivastav/the-real-reason-behind-trumps-trade-war/article24856757.ece , (September 3, 2018).
[5] Ajay Srivastav, “The Real Reason Behind Trump’s Trade War”, (September 3, 2018).
[6] “Trump’s Top Economic Adviser Was Against Tariffs For Year. Then He Joined The Trump White House”, https://www.thehindubusinessline.com/opinion/columns/ajay-srivastav/the-real-reason-behind-trumps-trade-war/article24856757.ece , (June 8, 2018).
[7] Peter McColough, “U.S Economic Policy With Kevin Hassett”, https://www.cfr.org/event/us-economic-policy-kevin-hassett , (October 9, 2018).
[8] Robert Burns, “Mattis: Trump Has Delegated Decisions On Afghan Troop Levels”, https://www.pbs.org/newshour/nation/mattis-trump-delegated-decisions-afghan-troop-levels , (June 14, 2017).
Image Source: http://worldabcnews.com/china-u-s-declare-90-day-halt-to-new-tariffs-white-house/
