Published daily by the Lowy Institute

Is Trump ready to bear the cost of a trade war?

The test of US policy is not how much it can hurt others but how much pain it will withstand.

Is Trump ready to bear the cost of a trade war?
Published 16 Apr 2018 

Agree or disagree with his conclusions, we owe Hugh White thanks for forcing us to grapple with “the China challenge”. White’s writings have stripped away much of the easy, high-sounding rhetoric about dealing with Beijing and honed in on the central feature of US–China relations in the twenty-first century: resolve.

There are 28 mentions of the word in White’s latest Quarterly Essay, Without America: Australia in the New Asia. Resolve was the pivot in White’s debate with Ely Ratner on The Interpreter last year (here, here, and here), although the focus of that discussion was China’s muscular policies in the South China Sea.

White argued, rightly I fear, that the Chinese leadership found few, if any, contested issues over which Washington would risk confrontation or not back down if challenged. That calculus was hardening during the Obama years, and those conclusions have not changed since Donald Trump occupied the White House.

The White–Ratner debate concluded with agreement that their positions weren’t that far apart, and that the issue was the degree to which Washington could devise and implement a strategy that imposed sufficient costs on China to influence its behaviour. In that context, the unfolding trade war between the US and China assumes considerable weight. The omens are not good.

Start with the Chinese mindset. China’s basic position in relations with the US is “mutual respect for each country’s core interests”. Discussion on this topic usually focuses on the definition of “core interests”, but the key point is that Chinese strategists believe they have certain national interests that a priori demand “respect” – or, more precisely, “deference” – from the US and all other countries.

By definition, these concerns are so important to the PRC that they cannot be challenged. If the US does not even have the right to question Chinese equities in these matters, then Chinese logic by extension would also suggest that the US should not have the will to do so either. In other words, the mere articulation of “core interests” assumes diminished US commitment – resolve – on certain key issues.

Doubts about US commitment have grown since Trump moved into the White House. Candidate Trump campaigned on a platform that insisted the US was exploited by allies, and that its mutual security treaties provided an excuse to free-ride and shift defence burdens to the senior partner. US policy has not embraced that position, but the President still speaks of alliances as liabilities rather than assets.

Trump’s jaundiced view of one of the pillars of post-war US foreign policy is complemented by his belief that the US has overextended its forces and wasted blood and treasure on foreign entanglements. This is evident most recently in news that Trump has overruled his military leadership with his determination to get out of Syria.

Then there is the President’s seeming belief that all foreign policy is transactional. China has first-hand experience with this, having staved off trade sanctions (until recently) by arguing it could help the US to deal with North Korea. Few ideas are as important to Trump as the notion that US trade partners are exploiting the US through unfair trade, yet the President said he would defer retaliation because he wanted to see what Beijing could deliver on Pyongyang’s nuclear program.

That President Xi Jinping could “explain” the reality of China–North Korea relations during their April 2017 Mar-a-Lago summit and “correct” Trump’s misunderstandings has no doubt encouraged Chinese strategists to believe that similar “corrections” could help shape the US President’s thinking about other issues in Asia. And the special relationship forged between Xi and Trump – the product, among other things, of a “state-plus dinner” – is another tool to help chip away at US resolve.

After all, Trump does not blame the Chinese leadership for troubles in the bilateral relationship; that is the fault of his predecessors.

Finally, there is Trump’s negotiating style. Recall that White and Ratner agreed on the importance of a strategy to demonstrate resolve and impose costs on China, but differed on Washington’s ability to do so. Today, observers struggle to find in US policy a strategic approach to any issue.

Moreover, Trump favours improvisation and his own gut instincts, and considers unpredictability a virtue. He favours a maximalist opening position, meaning that he is always ready to settle.

All these characteristics undercut America’s ability to demonstrate resolve, and encourage countries engaging with the US to wait out a government that has difficulty signalling its intentions and is generally looking to settle.

Troubling though these tendencies are, they assume still greater significance once conflict begins. To be clear: a trade war between the world’s two largest economies, each of which consumes vast lengths of the global supply chain, would be a blunder of global proportions.

But having launched a conflict and taken several steps in pursuit of its interests, for the US to back down now, even if manipulated in ways that avoid an obvious loss of face, would confirm the Chinese belief that the US has become a paper tiger. It would embolden Beijing, undermine confidence in US policy broadly and confirm the haphazard and foolhardy nature of US decision-making.

As he launched his confrontation with the world over steel and aluminum trade, Trump tweeted that “trade wars are good, and easy to win”. Since then, he has lowered the bar, noting that “when you’re already $500 billion DOWN, you can’t lose”. Were it so easy.

The test of US policy in this and all other important challenges is not the degree to which Washington can hurt others, as the President seems to believe. Rather, resolve is a measure of the pain a country will withstand without deviating from its intended purpose; in other words, the key is the cost each government can bear.

China understands this; it is not clear that the Trump administration does.

Photo by Flickr user Frans Berkelaar.

You may also be interested in