Not all trade wars are created equal. But as the saying goes, all’s fair in love and war. A trade war between the United States and the European Union would be more equal than a trade war between the US and China.
The reason is simple. Both the US and the EU are democracies. The political leaders on both sides fighting the trade war are answerable to the voters who put them in power. If the US imposes trade tariffs on EU cars, American car-makers would applaud but European auto workers who lose jobs would pressure the political leaders they elected to end the dispute.
Likewise, if the EU retaliated against higher tariffs for its cars by imposing tariffs hikes on tree nuts and soybean products, America’s two largest exports to the EU, affected US farmers would put pressure on the elected politicians in their constituencies. These politicians would in turn press national leaders to call off the trade war. Criticism would also come from media organizations hostile to the ruling party.
In fact, this is already happening in the US, where President Donald Trump has threatened multi-billion dollar tariff hikes on Chinese imports to fight what he described as China’s unfair trade policies. America’s liberal media, including the New York Times and Washington Post, have slammed Trump’s tariffs as blunt instruments that don’t work. US farmers have warned of job losses. Their congressmen and senators have urged Trump to end the tit-for-tat tariffs.
But a trade war between the US and China would be a very different ballgame. One is a democracy where leaders govern by a mandate from the people. The other is a one-party communist state where leaders are chosen through closed-door power struggles. The spiraling of tariffs we are now seeing between democratic America and communist China has given the world a front seat view of how such a war is being fought.
This particular trade fight between the world’s two largest economies has the added characteristic that both countries are led by super-nationalists who don’t want to lose face at any cost. Trump is determined to preserve America’s status as the top economic and military superpower. President Xi Jinping is intent on making China the dominant global power.
If Xi is seen as weak against Trump’s threats, his political enemies would intensify the closed-door power struggles against him. That’s why the tone in his Boao Forum speech on Tuesday took the form of a gentle giant who talked tough in a benevolent way. He mixed his warning against a cold war mentality with branding himself as a globalist keen on further market-opening.
If Trump gives ground, the voters who made him president for his campaign promise to make America great again and to get tough on China would lose faith in him. Indeed, Trump’s ousted chief strategist Steve Bannon warned that if Trump yielded on the trade war his election victory would be meaningless.
But America’s democracy puts Trump at a disadvantage against Xi’s one-party state, which recently amended the constitution to make him leader for life should he so choose. Trump’s disadvantage became abundantly clear in the items each country selected for hikes in their tit-for-tat tariffs.
The Trump Administration took great care to choose Chinese imports for tariff hikes that would inflict the least pain on Americans, knowing full well his trade war would backfire if it caused too much damage to his countrymen. It didn’t deliberately target imports that would inflict pain on ordinary Chinese, but mostly items to retaliate against unfair trade policies and what he called China’s theft of US intellectual property.
But China’s retaliatory tariffs included soybeans, beef, corn, and other agricultural products, items deliberately chosen to hurt Trump’s voter base. Beijing’s list was so specifically targeted at constituencies that provided the strongest support for Trump in the 2016 election that he angrily warned China it would backfire.
China drew up its list to inflict maximum pain on the US without taking into account how much it could also hurt its own people. It is also urging American trade groups to pressure Trump into backing off from a trade war. And unlike the critical US media, China’s state-controlled media is compliantly behind Xi, publishing daily attacks on the US.
The Trump Administration cannot target Xi’s voter base because he doesn’t have one in a country where people can’t choose their leaders. It cannot lobby Chinese businesses because these businesses know they must toe the Beijing line and that they are powerless to put pressure on Xi anyway. And Trump cannot expect the state media to be critical of Xi in the same way the US media is critical of him.
Whether the tariffs war spirals or subsides depends very much on whether Xi’s Boao Forum promise of further market opening was empty talk or genuine. China has long promised to open its auto and finance sectors but has yet to do so. In that context, Xi’s speech broke no new ground.
Trump’s immediate response was a tweet thanking Xi for his “kind words” on lowering auto import tariffs. But the US president is both mercurial and impatient. If he doesn’t see quick progress he will fire back again. His press secretary Sarah Huckabee Sanders made clear the White House wants to see real action.
Republican Senator Marco Rubio, a sharp critic of China, mocked Xi’s speech as a total farce. Even Democratic Party members of Congress have applauded Trump’s tough trade stance against China.
I don’t think a full-blown trade war will materialize but if it does, it will be an epic battle between the world’s two biggest giants – one a democracy and the other a communist state. Which side blinks first will give us a good insight on whether the US remains the dominant power or if China will replace it.
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