Dem
47
GOP
53
Donald Trump keeps changing the tariff rules. The latest blip is that smartphones and some electronics will not be subject to tariffs. We wonder how much Apple had to pay Trump to get this ruling. Probably > $0. Trump will likely keep tweaking the rules as companies try to buy their way out of the tariffs, but does he have an end game? Maybe it is simply collecting money, as one company after another buys him off in one way or another.
We will deal with the long-term issues below, but for the moment, Trump is causing chaos. With the rules changing daily, if not hourly, companies are unwilling to make any investment decisions—certainly none that commit them to spending billions of dollars to build factories that may become instantly obsolete the next time Trump changes his mind on something. Too many of them are aware of Foxconn's planned $10 billion electronics factory in Wisconsin, announced during Trump v1.0 but which later fizzled out and was never built when the company realized that it made Trump happy but made no economic sense. Companies are also aware of the chaos in the tightly integrated San Diego/Tijuana area, where parts often go back and forth over the border multiple times before being shipped off somewhere else for assembly into a car or other product. Doing anything right now is simply too risky.
Right now, U.S. tariffs on imports from China (excepting some electronic products) are 145% and Chinese tariffs on imports from the U.S. are 125%. That will stop most trade. Then what? Each country is dependent on the other one in many ways. Having all trade halt for even a few months would be a disaster for both. In China, factories would be churning out products that can't be sold, with the factories not getting paid. Walmart stores would have no products to sell and many U.S. companies would not be getting parts they need and would have to shut down. Remember what happened when supply chains got wrecked by the pandemic? Well, think that, but worse.
Chinese President Xi Jinping would negotiate with Trump if he had to, but that is not his preferred style. He prefers lower-level diplomats engaging in grueling, detail-oriented discussions for weeks or months and then presenting him with a final deal to approve or reject. Trump thinks he and Xi can work everything out over a piece of chocolate cake. However, after the humiliation that Trump and J.D. Vance inflicted on Volodymyr Zelenskyy in the Oval Office a few weeks ago, it is very unlikely that Xi will show up and risk the same treatment.
A new idea just popped into Trump's head, but it is dead on arrival. He wants to get allies to work together to isolate China. But the "allies" no longer trust him and may see China as a better partner. China tends to drive a hard bargain, but once the deal is signed, the Chinese uphold their end of it. With the U.S., that is no longer true. After Trump's attempts to nationalize Canada and seize Greenland, any expectations that Canada and the E.U. will bail him out are probably a pipe dream. As a historical note, Barack Obama thought of the same thing. He called it the Trans-Pacific Partnership and got 11 Pacific Rim countries to sign up. Then when he became president, Trump killed it. Now he wants it back. Too late.
So what is Trump's end game here? A trade war would be disastrous for the U.S., leading to a combination of unavailability for many products, outrageously high prices for other products, and many companies shutting down and laying off workers for lack of parts. Also, farmers would be stuck with perishable crops they couldn't sell. There would be inflation and unemployment. So how does Trump get out of this?
His hope is that Xi gives in. But Xi doesn't have to worry about inflation or a recession costing him big time in elections next year. He, like other Chinese leaders, takes the long view: In a few years, he will be rid of Trump, as in "We can absorb the pain until that time comes." In the Chinese calendar, this is the year 4723. China has seen many opponents come and go. It can just wait. There is a (possibly apocryphal) story that Eleanor Roosevelt once asked Chairman Mao what he thought of the French Revolution. Mao is said to have replied: "It is too early to tell." Even if that did not literally happen, the story has legs because it captures the Chinese thought process very well.
If Xi won't budge, Trump will come under great pressure if the trade war causes inflation, unemployment, and shortages. He will probably blink first and make a deal with China agreeing to buy a few more soybeans. He will herald it as a great victory. Maybe his supporters will eat it up (the deal, not the soybeans), but the Democrats will pillory him for lying to his supporters when he said he would rejuvenate American manufacturing. We think Trump has dug himself into a hole he won't be able to get out of except by giving up all his goals and accepting the status quo ante, possibly with a few minor concessions thrown in. He simply does not have the backbone to win a real trade war by making it so painful that the other side waves the white flag. (V)