Almost exactly one year has passed since Donald Trump declared, “I am a Tariff Man.” Uncharacteristically, he was telling the truth.
At this point I’ve lost count of how many times markets have rallied in the belief that Trump was winding down his trade war, only to face announcements that a much-anticipated deal wasn’t happening or that tariffs were being slapped on a new set of products or countries. Over the past week it happened again: Markets bet on an outbreak of trade peace between the U.S. and China, only to get body slammed by Trump’s declaration that there might be no deal before the election and by his new tariffs on Brazil and Argentina.
So Trump really is a Tariff Man. But why? After all, the results of his trade war have been consistently bad, both economically and politically.
I’ll offer an answer shortly. First, however, let’s talk about what the Trump trade war has actually accomplished.
A peculiar aspect of the Trump economy is that while overall growth has been solid, the areas of weakness have come precisely in those things Trump tried to stimulate.
Remember, Trump’s only major legislative accomplishment was a huge tax cut for corporations that was supposed to lead to a surge in investment. Instead, corporations pocketed the money, and business investment has been falling.
At the same time, his trade war was supposed to shrink the trade deficit and revive U.S. manufacturing. But the trade deficit has widened, and manufacturing output is shrinking.
The truth is that even economists who opposed Trump’s tax cuts and tariffs are surprised by how badly they’re working out. The most commonly given explanation for these bad results is that Trumpian tariff policy is creating a lot of uncertainty, which is giving businesses a strong incentive to postpone any plans they might have for building new factories and adding jobs.
It’s important to realize that Trumpian protectionism wasn’t a response to a groundswell of public opinion. As best as I can tell from the endless series of interviews with white guys in diners — who are, we all know, the only Americans who matter — these voters are driven more by animosity toward immigrants and the sense that snooty liberals look down on them than by trade policy.
And public opinion seems to have become far less protectionist even as Trump has raised tariffs, with the percentage of Americans saying that free trade agreements are a good thing as high as it’s ever been.
So Trump’s trade war is losing, not gaining, support. And one recent analysis finds that it was a factor hurting Republicans in the 2018 midterm elections, accounting for a significant number of lost congressional seats.
Nevertheless, Trump persists. Why?
One answer is that Trump has long had a fixation on the idea that tariffs are the answer to America’s problems, and he’s not the kind of man who reconsiders his prejudices in the light of evidence. But there’s also something else: U.S. trade law offers Trump more freedom of action — more ability to do whatever he wants — than any other policy area.
The basic story is that long ago — in fact, in the aftermath of the disastrous Smoot-Hawley tariff of 1930 — Congress deliberately limited its own role in trade policy. Instead, it gave the president the power to negotiate trade deals with other countries, which would then face up-or-down votes without amendments.
It was always clear, however, that this system needed some flexibility to respond to events. So the executive branch was given the power to impose temporary tariffs under certain conditions: import surges, threats to national security, unfair practices by foreign governments. The idea was that nonpartisan experts would determine whether and when these conditions existed, and the president would then decide whether to act.
This system worked well for many years. It turned out, however, to be extremely vulnerable to someone like Trump, for whom everything is partisan and expertise is a four-letter word. Trump’s tariff justifications have often been self-evidently absurd — seriously, who imagines that imports of Canadian steel threaten U.S. national security? But there’s no obvious way to stop him from imposing tariffs whenever he feels like it.
And there’s also no obvious way to stop his officials from granting individual businesses tariff exemptions, supposedly based on economic criteria but in fact as a reward for political support. Tariff policy isn’t the only arena in which Trump can practice crony capitalism — federal contracting is looking increasingly scandalous — but tariffs are especially ripe for exploitation.
So that’s why Trump is a Tariff Man: Tariffs let him exercise unconstrained power, rewarding his friends and punishing his enemies. Anyone imagining that he’s going to change his ways and start behaving responsibly is living in a fantasy world.
The latest whipsawing escalations in the United States’ trade war with China prompted a wide array of business organizations to warn over the weekend that American consumers and workers would soon be caught in the crossfire.
It is now looking increasingly likely that few large American companies will be able to sidestep the toll exacted by the new tit-for-tat tariffs that China and President Trump rolled out on Friday.
Many business leaders have kept a low profile as the trade war intensified, for fear of attracting President Trump’s ire, and in the hope that the threats of tariffs could be negotiating tactics that will lead to some sort of trade agreement.
But with several tariffs already in place, and President Trump staking out an even more aggressive stance on Friday, many industries are reckoning with just how serious the situation has become.
Joshua Bolten, the president and chief executive of the Business Roundtable, an organization representing the leaders of the largest American companies, said on Sunday that many C.E.O.s were already “poised right on top of the brake.”
“The risk is that everybody’s going to slam on the brake, and that would be a disaster,” Mr. Bolten said on “Face the Nation” on CBS.
President Trump’s latest moves, Mr. Bolten said, could “disrupt trade and commerce in a way that would cause huge damage — not just to the Chinese economy, but to the global economy and the U.S. economy.”
The American manufacturing sector shrank in August for the first time since 2009.CreditRoss Mantle for The New York Times
The American economy has so far been relatively resilient as the two sides battle. But several recent signs suggest that the tit-for-tat is beginning to broadly hit American businesses.
The American manufacturing sector, for instance, shrank in August for the first time since 2009, according to data released last week from the research group IHS Markit.
“America’s manufacturing workers will bear the brunt of these retaliatory tariffs, which will make it even harder to sell the products they make to customers in China,” the president and chief executive of the National Association of Manufacturers, Jay Timmons, wrote on Twitter on Friday.
While corporate earnings have held strong, several companies said last week that they were trimming their profit expectations as a result of the trade war.
On Friday, after China announced new tariffs and Mr. Trump ordered American companies out of China, the Standard & Poor’s 500 index slid 2.6 percent and the tech-heavy Nasdaq composite fell 3 percent. After the markets closed, the president announced more tariff increases.
China said on Friday morning that it would impose new tariffs on $75 billion of American imports. A few hours later, President Trump announced on Twitter that he would be raising tariffs further on $550 billion of goods coming from China.
The biggest shock was from Mr. Trump’s statement that he was ordering American companies to “immediately start looking for an alternative to China.”
The president said he had the power to do so as a result of a 1977 law that has traditionally been used to deal with security and military threats.
President Trump on Sunday at the G7 summit in Biarritz, France.CreditErin Schaff/The New York Times
Over the weekend, some of Mr. Trump’s advisers tried to somewhat soften the blow of the president’s words.
Treasury Secretary Steven Mnuchin, speaking on “Fox News Sunday,” said that Mr. Trump had the authority to make such a demand if he declared a national emergency but that he had not yet done so.
“I think what he was saying is he’s ordering companies to start looking because he wants to make sure — to the extent we are in an extended trade war — that companies don’t have these issues and move out of China,” Mr. Mnuchin said. “And we want them to be in places where they are trading partners that respect us and trade with us fairly.”
There is still significant uncertainty on how many of the steps that China and Mr. Trump have announced will come into effect. The president has stepped back or delayed previous tariffs. And on Sunday the president said he was having “second thoughts” about the threats he made last week. But shortly thereafter, the White House press secretary, Stephanie Grisham, said that the president’s regret was that he had not raised tariffs even further.
American businesses have already begun taking steps to respond. The toymaker Hasbro said last month that it was planning to shift a significant portion of its manufacturing from China to other Asian countries by 2020.
The American toy industry is particularly reliant on Chinese factories, which account for 88 percent of its production, according to the National Retail Federation. But the figures are also large for other major portions of the retail industry.
David French, the senior vice president for government relations at the retail federation, said this weekend that companies were facing a difficult road because it could take years to make the kind of moves that the president has demanded.
“It’s impossible for businesses to plan for the future in this type of environment,” Mr. French said in a statement. “The administration’s approach clearly isn’t working, and the answer isn’t more taxes on American businesses and consumers. Where does this end?”
Hasbro toys at a Target store in Manhattan. The toy company said last month that it was planning to shift a significant portion of its manufacturing from China to other Asian countries by 2020.CreditJeenah Moon for The New York Times
President Trump has said that he expects China to pay the costs of the tariffs he has imposed. But the direct costs of the tariffs are generally paid by the companies importing goods from China, who can then pass them along to consumers.
The Consumer Technology Association, which represents the largest electronics companies, has said that the tariffs are already costing the American tech sector $1.3 billion a month, and could raise the price of cellphones by $70 and the price of
The latest whipsawing escalations in the United States’ trade war with China prompted a wide array of business organizations to warn over the weekend that American consumers and workers would soon be caught in the crossfire.
It is now looking increasingly likely that few large American companies will be able to sidestep the toll exacted by the new tit-for-tat tariffs that China and President Trump rolled out on Friday.
Many business leaders have kept a low profile as the trade war intensified, for fear of attracting President Trump’s ire, and in the hope that the threats of tariffs could be negotiating tactics that will lead to some sort of trade agreement.
But with several tariffs already in place, and President Trump staking out an even more aggressive stance on Friday, many industries are reckoning with just how serious the situation has become.
Joshua Bolten, the president and chief executive of the Business Roundtable, an organization representing the leaders of the largest American companies, said on Sunday that many C.E.O.s were already “poised right on top of the brake.”
“The risk is that everybody’s going to slam on the brake, and that would be a disaster,” Mr. Bolten said on “Face the Nation” on CBS.
President Trump’s latest moves, Mr. Bolten said, could “disrupt trade and commerce in a way that would cause huge damage — not just to the Chinese economy, but to the global economy and the U.S. economy.”
The American manufacturing sector shrank in August for the first time since 2009.CreditRoss Mantle for The New York Times
The American economy has so far been relatively resilient as the two sides battle. But several recent signs suggest that the tit-for-tat is beginning to broadly hit American businesses.
The American manufacturing sector, for instance, shrank in August for the first time since 2009, according to data released last week from the research group IHS Markit.
“America’s manufacturing workers will bear the brunt of these retaliatory tariffs, which will make it even harder to sell the products they make to customers in China,” the president and chief executive of the National Association of Manufacturers, Jay Timmons, wrote on Twitter on Friday.
While corporate earnings have held strong, several companies said last week that they were trimming their profit expectations as a result of the trade war.
On Friday, after China announced new tariffs and Mr. Trump ordered American companies out of China, the Standard & Poor’s 500 index slid 2.6 percent and the tech-heavy Nasdaq composite fell 3 percent. After the markets closed, the president announced more tariff increases.
China said on Friday morning that it would impose new tariffs on $75 billion of American imports. A few hours later, President Trump announced on Twitter that he would be raising tariffs further on $550 billion of goods coming from China.
The biggest shock was from Mr. Trump’s statement that he was ordering American companies to “immediately start looking for an alternative to China.”
The president said he had the power to do so as a result of a 1977 law that has traditionally been used to deal with security and military threats.
President Trump on Sunday at the G7 summit in Biarritz, France.CreditErin Schaff/The New York Times
Over the weekend, some of Mr. Trump’s advisers tried to somewhat soften the blow of the president’s words.
Treasury Secretary Steven Mnuchin, speaking on “Fox News Sunday,” said that Mr. Trump had the authority to make such a demand if he declared a national emergency but that he had not yet done so.
“I think what he was saying is he’s ordering companies to start looking because he wants to make sure — to the extent we are in an extended trade war — that companies don’t have these issues and move out of China,” Mr. Mnuchin said. “And we want them to be in places where they are trading partners that respect us and trade with us fairly.”
There is still significant uncertainty on how many of the steps that China and Mr. Trump have announced will come into effect. The president has stepped back or delayed previous tariffs. And on Sunday the president said he was having “second thoughts” about the threats he made last week. But shortly thereafter, the White House press secretary, Stephanie Grisham, said that the president’s regret was that he had not raised tariffs even further.
American businesses have already begun taking steps to respond. The toymaker Hasbro said last month that it was planning to shift a significant portion of its manufacturing from China to other Asian countries by 2020.
The American toy industry is particularly reliant on Chinese factories, which account for 88 percent of its production, according to the National Retail Federation. But the figures are also large for other major portions of the retail industry.
David French, the senior vice president for government relations at the retail federation, said this weekend that companies were facing a difficult road because it could take years to make the kind of moves that the president has demanded.
“It’s impossible for businesses to plan for the future in this type of environment,” Mr. French said in a statement. “The administration’s approach clearly isn’t working, and the answer isn’t more taxes on American businesses and consumers. Where does this end?”
Hasbro toys at a Target store in Manhattan. The toy company said last month that it was planning to shift a significant portion of its manufacturing from China to other Asian countries by 2020.CreditJeenah Moon for The New York Times
President Trump has said that he expects China to pay the costs of the tariffs he has imposed. But the direct costs of the tariffs are generally paid by the companies importing goods from China, who can then pass them along to consumers.
The Consumer Technology Association, which represents the largest electronics companies, has said that the tariffs are already costing the American tech sector $1.3 billion a month, and could raise the price of cellphones by $70 and the price of laptops by $120, on average.
JPMorgan Chase analysts recently predicted that the overall costs to American families of the tariffs were likely to be between $1,000 and $1,500 a year.
“Tariffs are taxes on Americans, putting us on the wrong economic path and compromising our global leadership,” the president and chief executive of the technology association, Gary Shapiro, said on Friday. “How much longer will our families, companies and economy be forced to bear the financial burden of this misguided trade policy?”
China appears to be aiming its tariffs at parts of America where support for President Trump is particularly strong, like farm country in the Midwest. China’s actions on Friday, for instance, add 5 percentage points to the 25 percent tariff already paid on American soybeans.
The president of the American Farm Bureau, Zippy Duvall, said after the latest announcements that “continued retaliation only adds to the difficulties farm and ranch families are facing and takes the situation in the exact wrong direction.”
China also added new tariffs to cars made in America. Tesla, as well as the Germany carmakers Daimler and BMW, are the most vulnerable to the additional levies. Six of the top 10 vehicle models exported from the United States to China, the world’s biggest car market, are from the two German brands, according to the forecaster LMC Automotive.
In private, auto executives say that, for now, the uncertainty is a greater concern than the potential material impact of the tariffs. One auto executive who spoke on the condition of anonymity said the industry was more worried that it cannot predict what might happen next or how bad it might get.
JPMorgan Chase analysts recently predicted that the overall costs to American families of the tariffs were likely to be between $1,000 and $1,500 a year.
“Tariffs are taxes on Americans, putting us on the wrong economic path and compromising our global leadership,” the president and chief executive of the technology association, Gary Shapiro, said on Friday. “How much longer will our families, companies and economy be forced to bear the financial burden of this misguided trade policy?”
President Trump came into office promising some fabulous yet unspecified health-care plan to replace the Affordable Care Act. No plan existed; every plan Republicans came up with managed to reduce the number of insured. Trump promised never to cut entitlements; his fiscal 2020 budget proposal would have done just that.
Trump said he’d bring back manufacturing. In fact, it slowed and now has slumped. (“Manufacturing has slowed amid global uncertainty,” NPR reported earlier this month. “That’s one of the reasons the Federal Reserve gave for cutting interest rates this week.”)
Trump said he’d
get tough on drug companies. He hasn’t. He said his
tax cut would be aimed at the middle class,
deliver $4,000 a year to the average American family and
permanently boost business investment, pushing growth above 3 percent. Nope, nope and nope.
The tax cut greatly favored the rich and corporations, no $4,000 raise materialized, business investment tapered off, growth is below 3 percent, and the deficit ballooned. Trump is incapable of being embarrassed, but you’d think all those conservative think tanks, saner White House advisers (e.g. former adviser Gary Cohn) and supply-side theorists who pushed all this would be just a little sheepish.
John Harwood of CNBC writes, “Benefits from what President Donald Trump called ‘the biggest reform of all time’ to the tax code have dwindled to a faint breeze just 20 months after its enactment. Half of corporate chief financial officers surveyed by Duke University expect the economy to shrink by the second quarter of 2020. Two-thirds expect a recession by the end of next year.” Harwood found:
After an uptick in the second quarter of 2018, growth declined in the next two quarters to end up at 2.9% for the year.
Goldman Sachs economist Jan Hatzius says that second-quarter surge – initially measured at 4.2% but later revised down to 3.5% – represented the tax law’s peak impact. He expects it to vanish altogether by late this year or early 2020, as the economy returns to the same 2% growth levels Trump inherited from President Barack Obama.
As for workers’ pay, real wages increased by 1.2 percent in 2018. (“Ordinary workers had very little growth in wage rates,” Harwood quotes from the Congressional Research Service.)
The biggest economic lie was Trump’s declaration that trade wars are quickly and easily won, American consumers and farmers wouldn’t be hurt and we somehow would get richer by making Americans pay more at stores. Actually, they are paying a lot.
The conservative American Action Forum’s recent study found, “Altogether, the president’s tariffs could increase nationwide consumer costs by nearly $100 billion annually.” Moreover, other countries have not taken the tariffs lying down. “In addition to raising costs for American consumers, tariffs have also resulted in significant retaliation by other countries against U.S. exports. … To date, eight nations have levied retaliatory tariffs of 5 percent to 50 percent on approximately $131 billion of U.S. exports.”
To cushion the blow to farmers who are losing markets, the Trump administration has now put them on welfare, otherwise known as farm subsidies. Another low point in “conservative” economics.
Why this is all not front and center in the Democratic candidates’ campaigns is a bit of a mystery. Certainly, events such as the Dayton, Ohio, and El Paso shootings shift attention. But so far the Democrats are mostly arguing about what new things they are going to do (green energy, improvements to or a do-over on the ACA). They need to remember that a president’s reelection effort is a referendum on his performance. The Democrats would do well to point out that Trump has not fulfilled the promise of his economic populist message — hence the need to distract everyone with outrageous conduct, racism and xenophobia.
The United States is increasingly wary of China’s emerging role in the global economy and the tactics it uses to get ahead, including state-sponsored hacking, acquisitions of high-tech companies in the United States and Europe, subsidies to crucial industries and discrimination against foreign companies.
The Trump administration has begun trying to limit China’s economic influence in the United States and abroad, warning about China’s ambitions in increasingly stark terms. Mike Pompeo, the secretary of state, compared China’s ambitions to Russia and Iran in a speech in London last Wednesday, saying Beijing poses “a new kind of challenge; an authoritarian regime that’s integrated economically into the West in ways that the Soviet Union never was.”
China, whose ambition is to dominate industries of the future, is pushing back. A column on Saturday in the Communist Party’s People’s Daily newspaper stated, “The United States is again waving the club of tariffs after misjudging China’s strength, capacity and will, further escalating trade friction between our two countries.”
The piece was written under the pen name Zhong Sheng — the “voice of China” — a name used when the paper publishes comments on foreign affairs that are authoritative.
Restraining China’s ambitions and methods is a tricky task — and there is concern that the Trump administration’s effort is creating a new red scare, fueling discrimination against China and its citizens that could ultimately hurt the United States. As many as 30 Chinese professors have had their visas to the United States canceled in the past year, or been put on administrative review, according to Chinese academics and their American counterparts.
“We’ve got decades of painful negotiating with China ahead,” said David Lampton, a China scholar at Stanford University. Mr. Lampton said a trade deal, if reached, would do little to resolve the bigger conflict. “It’s just a skirmish in an ongoing battle.”
.. While a trade deal could calm some tensions and establish more good will between the two nations, it is unlikely to achieve many of the ambitious goals that the administration has set for itself. Mr. Trump’s advisers, in particular the United States trade representative, Robert Lighthizer, have been focused on what the administration calls China’s practices of “economic aggression.”
But the administration has struggled to address the immensity of the problems in the text of a trade deal. People close to the talks say that the negotiators appear powerless to force any changes that aren’t in China’s interest.
Mr. Liu, who is leading China’s team in the trade negotiations, hinted at that uphill battle in a video statement released by the official Xinhua news agency.
Instead, a trade deal between the two countries seems more likely to bring change around the margins — tens of billions of dollars of soybean purchases, some tariffs lifted and changes to the text of Chinese laws or regulations that the country might ultimately disregard, particularly once another administration occupies the White House.
“This is a decades-long endeavor,” said Robert Daly, the director of the Wilson Center’s Kissinger Institute on China and the United States. “This can’t be waved away over cake at Mar-a-Lago.”
The notion that the United States has one last shot to change China’s behavior is held by an array of people on both sides of the political spectrum. But it is an aggressive notion of American power to upend a rival system that has delivered prosperity for its people and put China on course to be the world’s largest economy.
Many in China see the United States as a declining power bent on enforcing its will on a world that no longer cowers before its hegemonic might. The troubles in American democracy and the long economic slump after 2008 persuaded many in China that its instincts to chart its own course were correct. In the eyes of many Chinese, their country is simply reclaiming its historic status as a dominant regional power in Asia.
It has also projected power across Asia, Africa and elsewhere while the United States has, on many fronts, retreated from its post-World War II commitment to the global order. But it has done so with little application of military force, in sharp contrast to what many in China see as American militarism.
Many in China have sought to avoid a trade conflict, which could have a larger impact on their economy than the United States’. But they have long thought the United States would have a difficult time accepting a true peer in economic, technology and military power, so consider the management of conflict with the United States to be an inevitable result of their own rise.
While the Trump administration accused China of breaking a trade deal, China’s resistance to the emerging terms stemmed from its belief that the United States was asking too much and offering too little in return. Many of the changes the United States seeks would limit what Chinese officials regard as a tried-and-true approach of using tens of billions of dollars from state-owned banks and government investment funds to turn previously small industries like car production or solar panel manufacturing into the largest industries of their kind in the world.
And the Chinese view some of the Trump administration’s demands as infringing on their sovereignty and giving America too much power over their economy — including requiring the country to codify changes through legislation in the National People’s Congress. To the increasingly nationalistic public in China, the American requests are reminiscent of 19th century history of unequal treaties forced on the country by foreign powers.
Mr. Trump on Saturday suggested China was simply delaying a deal in the hopes that a Democrat would win election in 2020 and continued his pugilistic approach, saying “the deal will become far worse for them if it has to be negotiated in my second term. Would be wise for them to act now, but love collecting BIG TARIFFS!”
In the United States, China’s unwillingness to bow to America’s demands is uniting lawmakers like the Democratic Senate leader, Chuck Schumer of New York, and Senator Marco Rubio, Republican of Florida.
That is a significant shift from the prevailing view in the United States since the death of Mao Zedong in 1976 that close economic engagement with China would produce an increasingly democratic country that would be closely tied to an international economic order founded mainly on Western liberal ideals.
That has not happened.
China has indeed grown in prosperity, leaping into the ranks of what the World Bank defines as upper-middle income countries. Its economy is now bigger than any other country except the United States. Its manufacturing sector is now bigger than those of the United States, Germany and South Korea combined.
But in the last five years, China has veered toward increasingly repressive authoritarianism at home and a rapid military buildup. The State Department estimates that Beijing has put 800,000 to two million Muslims in hastily built internment camps ringed with barbed wire in northwestern China. The Chinese government has built an archipelago of air bases on artificial islands in the South China Sea in between Vietnam, Malaysia, Indonesia and the Philippines. And China now has the world’s largest navy and has conducted
China has indeed grown in prosperity, leaping into the ranks of what the World Bank defines as upper-middle income countries. Its economy is now bigger than any other country except the United States. Its manufacturing sector is now bigger than those of the United States, Germany and South Korea combined.
But in the last five years, China has veered toward increasingly repressive authoritarianism at home and a rapid military buildup. The State Department estimates that Beijing has put 800,000 to two million Muslims in hastily built internment camps ringed with barbed wire in northwestern China. The Chinese government has built an archipelago of air bases on artificial islands in the South China Sea in between Vietnam, Malaysia, Indonesia and the Philippines. And China now has the world’s largest navy and has conducted military exercises as far away as East Africa and the Baltic Sea.
On the economic front, the competition is even fiercer. Trump administration officials warn that China is trying to dominate the global 5G infrastructure that will be the basis for future mobile communications and is competing to set other technological standards that will determine which global companies win.
China is extending low-cost loans and building infrastructure around the globe through its One Belt, One Road program, which critics warn is making poorer countries beholden to China. It is out-investing the United States in some high-tech industries, and is gaining dominance in certain segments, like mobile payment, new energy vehicles and areas of artificial intelligence.
While American companies have long hankered for access to China’s growing market, their position has begun to shift as they see China’s practices and treatment of foreign companies. A survey released by the American Chamber of Commerce in China in February showed that the majority of its members favored retaining tariffs on Chinese goods while trade negotiations continued.
China’s own experts say that the Beijing leadership has been caught off guard by the pace of change in American perceptions of Sino-American relations.
“Even if there is some kind of agreement between Xi and Trump, in the long run the strategic bilateral relationship is already in trouble,” said Zhang Jian, a professor in the School of Government at Peking University. “There is no coming back, even if there is a deal.”
