No, Mr. President, trade wars are not “good, and easy to win,” as you once tweeted. They’re damaging, hard to win and even easy to lose, as evidenced by the retaliatory spiral in recent days. That’s especially true when the opponent is China, which can control its currency and purchases of U.S. agricultural products — two critical concerns for the U.S. and global economies.
On Monday, China’s central bank allowed the yuan to go below seven per dollar — a symbolic move signaling that it’s willing to use its currency as a weapon in the increasingly intractable trade war. And in a move that could have considerable consequences for Minnesota’s beleaguered agricultural sector, China also announced it would stop making new purchases of U.S. agricultural goods.
China’s central bank was blunt in a statement, saying the currency move was due to “unilateralism and trade protectionism measures and the imposition of increased tariffs on China.” Those tariffs, set by the Trump administration, will rise 10% on an additional $300 billion worth of goods on Sept. 1.
The moves spooked global equity markets, prompting a nearly 3% drop on Wall Street on Monday. On Tuesday, after it appeared that Beijing had backed off or at least paused the weaponization of its currency — perhaps in response to the Trump administration labeling China a currency manipulator — markets rallied. But they were volatile again Wednesday as investors remained wary that there is no resolution at hand, and that indeed the impact could increase international headwinds for an already weakening global economy.
While the majority of Americans are not directly invested in the stock market, the equity meltdown will impact everyone, particularly if it erodes economic confidence and blunts the impact of the Federal Reserve’s recent interest-rate cut as well as the Republican-led tax cuts.
On Tuesday, White House economic adviser Larry Kudlow told CNBC that “the economic burden of tariffs is falling almost 100% on China.” As numerous academic studies show, that’s a demonstrable lie. In fact, the tariffs “are essentially being paid by Americans and not by China, so what the president has said about that is completely false,” Robert Kudrle, professor of international trade and investment policy at the University of Minnesota’s Humphrey School, told an editorial writer.
The threat is to every consumer, to be sure, but also to producers, especially those in the agricultural sector, a fact that should concentrate the minds of U.S. Agriculture Secretary Sonny Perdue and other politicians who gathered this week at Farmfest near Redwood Falls, Minn. A complete cutoff from China would intensify the crisis many farmers already face and would reverberate through Minnesota’s economy.
Minnesota has “high-class agriculture, terrific tradable services, great high-tech manufacturing. We were very well-placed in the global economy, but not a global economy of chaos, and that’s the one you’re looking at now,” Kudrle said.
Trump should end the chaos by ending the go-it-alone approach and instead work with allies and international institutions to resolve the trade war.
Addressing China’s unfair trade practices is necessary. But blindly stumbling into a global slowdown is not the way to do it.