Commentary: No good time for a US-China trade war, but now as good a moment as any

Commentary: No good time for a US-China trade war, but now as good a moment as any

US President Donald Trump is talking tough on tariffs and it is paying off with his base, says the Financial Times' Rana Foroohar.

NEW YORK: Critics of Donald Trump (me included) need to spend more time watching the US president and perhaps relatively less parsing the details of his policies.

I did this last week while he was sounding off for 20 minutes in an impromptu press conference with reporters that covered everything from North Korea (“there is no longer a nuclear threat”) to his legal issues (“there was no obstruction, there was no collusion”) to tariffs on China. And when you do, you see him as much of middle America does — strong, concise and cogent.

Let me head off those readers who are already starting to draft their complaint letters; I didn’t say Mr Trump was truthful or correct in regards to any of these issues. And yes, I get upset as any thinking person does watching him salute a North Korean general as he insults America’s historic allies, while his border patrols remove children from immigrant parents.

But sadly, public opinion is usually formed more on the basis of feelings than facts.

On television, Mr Trump comes across as clear and authentic, at least to himself. And that, as any psychologist will tell you, is what really matters when projecting the characteristic to others.

U.S. President Donald Trump takes questions from reporters before departing the White House in Wash
U.S. President Donald Trump takes questions from to reporters before departing the White House to speak at CPAC in Washington, U.S., February 23, 2018. (Photo: REUTERS/Jim Bourg)

He remains cool and secure in his own views. Reporters trying desperately to clarify facts as they press him on the issues come across as harried and desperate. This is Television 101: Soundbites work better than complex data points.

It is tough to overestimate how much optics matter — half of Americans still glean the majority of their news from television, according to the Pew Research Centre. Most of the rest rely on social media.


Timing matters, too. That is another area where the US president has succeeded.

While there is no good time for a trade war, this is about as good a moment as any. The US economy grew 2.3 per cent in the first quarter of 2018, and some analysts are predicting 3 per cent, or even higher, for the second quarter, which ends this month.

The majority of the gains in wealth from the growth have flowed to the top 10 per cent of the US population. That is because they own 80 per cent of stock and US companies are mainly channelling the money they have saved from lower corporate taxes into share buybacks (or in the case of Google and some other tech companies, prime real estate in coastal markets).

But in the short term, that wealth effect, which according to Goldman Sachs may be responsible for as much as a third of US growth today, will help offset the negative effects of trade battles.

On that score, there have been panicked headlines about the US$50 billion in US tariffs against Chinese goods that the president imposed last week, as well as retaliatory measures from Beijing.

But many economists say that the near-term effects are likely to be minor, perhaps as little as one-tenth of a percentage point drag on growth per year for each country over a five-year period.

Of course, those projections depend on models that cannot tabulate all the potential knock-on effects of tariffs.

As we have already seen with Chinese telecoms equipment maker ZTE, the supply chain connections between China and the US are deep and complex. The company was nearly driven out of business after the US banned it from buying crucial American components. Mr Trump rescinded the action after Chinese President Xi Jinping personally asked the US to reconsider.

A woman stands outside a building of ZTE Beijing research and development center in Beijing
A file photo of a woman stands outside a building of ZTE Beijing research and development center in Beijing, China June 13, 2018. (Photo: REUTERS/Jason Lee)

Over the long term, China and the US are headed towards regional supply chains for high-growth technologies of the future. But in the short term, the interdependencies will be difficult to untangle.

Several executives who supply Fortune 500 companies have told me it would take months if not years for the biggest US companies to break completely free of Chinese components.

READ: US at odds with itself over goals of trade talks with China, a commentary.

READ: A commentary on how tariffs are putting China's growth strategy in peril.

READ: A commentary on why tariffs are the wrong instruments to deal with US-China trade issues.


Meanwhile, it is impossible to say how tariffs against the EU, Canada, Mexico and Japan will play into all this. It is not a great idea to fight both allies and adversaries at once.

President Trump could have found ways to combine looking tough for his political base with smart trade and foreign policy.

Rather than carry out his campaign promise to renegotiate the North American Free Trade Agreement, he could have worked with the EU to challenge China’s trade policies at the World Trade Organisation. He also could have worked privately with US allies, while still posturing publicly about getting tough on China.

All this would have made much more sense to the global elite. But the American president really does not give a hoot about what the Davos crowd thinks.

Mr Trump has done exactly what he said he would do while running for president. He has got tough on China. He has got tough on immigrants. Multinational companies, coastal Democrats and free-trade Republicans will complain.

But labour groups like the American Federation of Labour and Congress of Industrial Organisations, many small and mid-sized manufacturers, voters in farm states and his core voters will not.

The economic and political devil may be in the detail, but public opinion is not shaped by details, it is shaped by optics. Mr Trump remains a master of those.

© 2018 The Financial Times Ltd. All rights reserved. Please do not copy and paste FT articles and redistribute by email or post to the web.

Source: Financial Times/nr(sl)