Updated Nov. 15, 2016 12:59 a.m. ET
SHANGHAI—Nobody wins in a trade war. If Donald Trump sparks one with China, among the losers will be some of his most ardent supporters: blue-collar workers who helped sweep him to election victory.
In fact, they’ll stand to lose twice. They’ve already endured stagnant incomes for decades amid withering trade competition from China. Mr. Trump’s threatened tariffs of 45% on all Chinese imports would hit their pocketbooks again by raising the price of pretty much everything on sale in Wal-Mart, from sneakers to microwave ovens.
Nor is there convincing evidence that punitive tariffs would bring back jobs lost to China. The march of technology has altered the employment landscape. American factory workers are threatened more by automation than Chinese sweatshops. Derek Scissors, a trade specialist at the American Enterprise Institute, says that sanctions intended to compensate for manufacturing losses “will cause Americans pain and bring little gain.”
Still, Mr. Trump is under pressure to take action against China—even if it means imposing an effective tax on his political base—after making its unfair trading practices a cornerstone of his campaign. He called it “the greatest theft in world history.”
More than that, Mr. Trump’s hard-line advisers see trade as a weapon in a broader geopolitical contest. Wall Street investors who blithely discount a trade war should read “Crouching Tiger: What China’s Militarism Means for the World,” a book by a prominent member of this group, Peter Navarro, an economist at the University of California, Irvine. In buying made-in-China products, he writes, “We as consumers are helping to finance a Chinese military buildup,” warning that “we will have only ourselves to blame when the bullets and missiles begin to fly.”
The same advisers are urging Mr. Trump to label China a currency manipulator for suppressing the value of the yuan to boost exports, even though Beijing is burning through its foreign-exchange reserves to do the opposite—prop up the yuan as it battles capital flight in a slowing economy.
If the U.S. turns inward, China will seize an opportunity. Immediately after Mr. Trump’s election, which doomed a U.S.-led free-trade pact, China announced it would seek support for its own regional trade deal at gathering of Asia-Pacific leaders in Peru this week.
Whether, or how, Mr. Trump follows through on his trade threats will offer early clues to an unsettled question: Is he an isolationist or a foreign-policy hawk?
His “America First” campaign rhetoric, and vows to make allies pay more for their defense, suggested a U.S. pullback from East Asia. But his advisers are now pushing an alternative concept called “peace through strength,” which is a souped-up version of President Barack Obama’s “pivot” to Asia that involves a major buildup of the U.S. Navy.
These radically conflicting visions have disoriented East Asia, where the one certainty since World War II has been the steadying hand of America.
On Monday, Mr. Trump spoke by phone with President Xi Jinping. His office said the two men had established a “clear sense of mutual respect.” Chinese state media cited Mr. Xi as saying that cooperation is the “sole correct choice.” Chinese leaders hope Mr. Trump will act like a businessman—pragmatic, transactional, open to what they call “win-win” solutions (U.S. executives in China quip that this generally means ‘China wins twice.’)
East Asian countries demand a U.S. president who will stand up to China.
Yet none want a trade war. It would shatter economies like South Korea and Taiwan that feed China’s manufacturing supply chains.
A smarter U.S. approach, argues Mr. Scissors, would be targeted measures such as banning Chinese companies that benefit from stolen intellectual property. These wouldn’t damage the U.S., he says, but might change Chinese behavior.
Assessing which side would lose most in a trade confrontation is tricky. China can ill afford a massive loss of foreign-exchange earnings. Corporate America is vulnerable to retaliation. The nationalist-leaning Global Times, in an opinion piece, suggested how this might play out: “A batch of Boeing orders will be replaced by Airbus. U.S. auto and iPhone sales in China will suffer a setback, and U.S. soybean and maize imports will be halted.”
But that scenario cuts both ways. A report by the Rhodium Group, a New York market-research firm, estimates that U.S. firms have invested at least $228 billion in Chinese companies since 1990—about three times higher than previous estimates and well above investments from Chinese companies in the U.S., which Rhodium puts at $64 billion, about 1.5 to four times the currently accepted figure.
Daniel Rosen, who heads Rhodium’s China practice, says that “many basic assumptions about who wins and who loses in a U.S.-China dust-up are not grounded in facts.” He adds: “The costs on both sides are likely much higher than previously thought.”
Count on sweeping sanctions—assuming Republicans in Congress go along with them, by no means a given—creating panic in global financial markets, supply-chain mayhem across the Pacific Rim and even deeper pain among the poor that Mr. Trump has pledged to rescue.
Write to Andrew Browne at firstname.lastname@example.org
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