Does Trump have a China trade strategy?
Summary
If he wants Beijing to change, he needs the allies he’s tariffing.
It’s all going according to plan, says the White House, and you almost have to smile at this spin in trying to sell President Trump’s partial tariff reversal this week as a triumph. The reality is that Mr. Trump is making it up as he goes, and it would help if he had an actual strategy to deal with China in particular.
Stocks staged a relief rally on Wednesday, but a day later fell again. What investors know is that the trade war is far from over and damage persists. Even with the 90-day pause, the tariffs that continue are the largest tax increase since 1982. They’re bigger than Bill Clinton’s 1993 tax increase and George H.W. Bush’s in 1990. Taxes are anti-growth.
Then there’s the trade-war escalation with China, the world’s second largest economy. The White House said Thursday that the U.S. tariff on all Chinese exports to the U.S. will now be 145%. In 2024 the U.S. imported $439 billion in goods from China, so apply 145% to that and you get a sense of the hit to U.S. consumers and businesses.
Treasury Secretary Scott Bessent says the U.S. trade goal all along has been to isolate China as a main offender. There’s good reason to treat China differently given its often predatory trade practices. These include cyber attacks on U.S. companies and government; intellectual property theft; unequal treatment of U.S. firms in China; and Covid lies.
But it isn’t clear what Messrs. Trump and Bessent want from China, and what their strategy is to achieve it. Do they want a complete decoupling of the two economies? That’s what tariff levels of 145% suggest. But that also means large economic disruption in the near and medium term, as some $600 billion in two-way trade goes away or finds new sources and destinations. Strategic decoupling on key goods makes more sense.
Yet that’s not what Mr. Trump says he wants, and on Wednesday he said he still hopes for a trade deal with China. The tariffs in that case are merely his lever for getting President Xi Jinping to the table. The problem is that tariffs are a blunderbuss weapon that hurts Americans as much as it does Chinese exporters. Markets are saying the U.S. economy will suffer too.
There’s also the contradiction of how Mr. Trump handles other China issues. The President is doing Mr. Xi a favor by refusing to enforce a law passed by Congress to force the sale of TikTok from Chinese-controlled ByteDance. Last week he extended the deadline for a TikTok sale by another 75 days after China walked away from a looming transaction. Mr. Trump also refuses to impose sanctions on Chinese firms that buy oil from Russia and thus help Moscow’s war machine. These decisions send Mr. Xi the message that Mr. Trump isn’t serious about challenging Chinese abuses.
If Mr. Trump is serious, the best strategy would be to rally allies to the cause of fighting Chinese mercantilism. But he shows no interest in that either. He squandered his best chance to isolate China on trade in his first term by walking away from the Trans-Pacific Partnership that didn’t include Beijing. China then cut its own deal with many of the countries that the U.S. left in the cold.
This term Mr. Trump is outright punishing the allies he needs for a coherent China strategy. He’s imposed tariffs on Canada and Mexico and insulted Canadian national pride. He’s hit Japan with 24% tariffs, South Korea with 25%, and Europe with 20%. He’s hit Vietnam with 46%, though the boom in that country’s exports to the U.S. since his first-term tariffs has come at China’s expense.
Those tariffs are now paused for 90 days, but all of these countries know Mr. Trump could hit them again at any time. He’s also insulted Japan by refusing to let Nippon Steel buy U.S. Steel despite its pledge to invest billions of dollars in U.S. manufacturing. Why should these allies trust Mr. Trump now, if he says he needs them to unite to slow China’s advance of artificial intelligence? They may need China’s market if they can’t access the U.S.
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Mr. Trump’s intellectual problem, or at least one of them, is that he’s fixated on the U.S. trade deficit with friend and foe. The deficit is a non-problem in economic terms. And if there are trade issues with allies, they can be addressed with bilateral or multilateral trade deals.
By far the biggest problem in the global trading system is the abuse of free-trade rules by the authoritarian regime in China. Mr. Trump’s ad hoc, scattershot tariff policy won’t solve that problem. So far he’s hurting his own cause and country more than he’s hurting the Chinese Communist Party.
