An Endless Trade War

San Francisco / August 1, 2019
 
Donald Trump just imposed another round of tariffs on China:

Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to…

— Donald J. Trump (@realDonaldTrump) August 1, 2019

The latest round of tariffs suggests that the positions of the two sides are diverging, not converging. President Trump also reiterated that the United States and China were close to signing a deal a few months ago -- a point that is widely understood among followers of the trade dispute.
 
President Trump seems prepared to continue the trade war through the 2020 election. He's made public statements to that effect. If he wins re-election, this trade dispute could go on for years.
 
It's also becoming increasingly fashionable in American political circles to raise alarm about the rise of China in the same terms that were used to characterize the Soviet Union during the Red Scare (link). In the United States, there has been a significant spike in discrimination against students, scientists, and entrepreneurs with ties to China. The President of the Massachusetts Institute of Technology recently warned that anti-China sentiment is creating a "toxic atmosphere of unfounded suspicion and fear" (link). In Silicon Valley, entrepreneurs are increasingly avoiding partnering with Chinese investors and businesses.
 
The Trump Administration should remember that trade is positive sum. Too much of the commentary in the United States focuses on how the gains from trade are distributed. At the core, trade creates new opportunities for both sides in the deal. The economies of the US and China will unnecessarily suffer as long as the hostilities continue. In the US, consumers and normal households will suffer the most. We will see how the trade war affects Mr. Trump in the 2020 election.