On a beautiful midsummer day, roughly six months ago, two distinguished men, of distinguished stature, crossed paths under precarious circumstances. They are very much alike, these two distinguished men.
Both are men of enormous ego. Both are filled with ambitious delusions for the future. Both are masters of persuasion. Both offer a cause and conviction people can rally behind.
Both deliver frequent promises of greatness. Both hold up historical allusions of eminence, and do so with confidence and flair. Both claim destiny is on their side.
Does one read The Wall Street Journal? Does one not? We don’t know.
But we do know there’s one great big significant difference between these two men. A difference far beyond either of their control.
One has an eye to the past, and a futile desire to return to greatness. The other has an eye to the future, and a burning ambition to own it. The difference, in other words, is that between descent and ascent. And the intersection of this difference is a natural point of conflict.
As one star falls and one star rises, their two paths inevitably cross. There’s no way around it. Once the rendezvous has been made, there’s no turning back.
The First Day of the War
On July 6, 2018, if you recall, the first of President Trump’s trade tariffs with China took effect. These included a 25 percent tariff on $34 billion of Chinese goods entering the United States. Chinese President Xi Jinping quickly countered with retaliatory tariffs on U.S. soybeans and automobiles.
Billionaire investor Ray Dalio commemorated the exchange by tweeting: “Today is the first day of the war with China.”
Was Dalio exercising hyperbole? Was he being starkly somber? Perhaps he was merely recognizing that a trade war can lead to a fighting war…should Trump and Jinping push hard enough.
Roughly a year ago, President Trump commented that, “trade wars are good, and easy to win.” So far the trade war has been more bark than bite. Several additional rounds of tariffs were imposed or threatened, following the first day of the war. Then, over dinner at the G20 Buenos Aires summit, Trump and Jinping agreed to delay planned tariff increases for 90 days, from December 1, 2018.
Presently, the 90 day negotiation period is halfway over. Yet, as far as we can tell, little progress has been made in reaching a new trade agreement. Moreover, should no resolution be reached by March 1, 2019, tariffs of 25 percent will be imposed on $200 billion of Chinese goods.
But what then? Will more tariffs bring about a glorious triumph for Trump?
Here at the Economic Prism we have some reservations. Namely, that the desired result – some sort of economic victory – is unattainable. That after damaging business and trade there will be no clear conclusion.
At the moment, however, Trump appears to have some leverage over Jinping. Though this is more by dumb luck than by skilled aptitude…
Kicking Xi Jinping While He’s Down
Reports out of China this week are of an economy that’s slowing. In fact, China’s December exports fell 4.4 percent year-on-year. At the same time, China’s December imports fell 7.6 percent over this same period.
Are Trump’s trade policies responsible for China’s slowing economy? Or is it merely a coincident? Maybe China’s economy’s slowing because two decades of debt financed growth have erected an economy that’s highly unstable. Here Bloomberg offers some thoughts:
“A trade pact, if it happens, may soothe investors, and perhaps even juice economic growth—at least temporarily. But it won’t bring an end to China’s woes. While tariffs are a nuisance, the real problems run deeper, embedded in China’s financial structure.
“What goes widely unnoticed is that China is already in crisis. No, it’s not the sort of hold-on-for-dear-life collapse the U.S. had in 2008 or the surprising, ferocious meltdowns the Asian Tiger economies experienced in 1997. Nonetheless, it’s a crisis, complete with gutted banks, bankrupt companies, and state bailouts. Since the Chinese distinguish their model of state capitalism as ‘socialism with Chinese characteristics,’ let’s call this a ‘financial crisis with Chinese attributes.’
“This crisis is not merely about the current slowdown in growth. It’s been going on for a while, and by the looks of it, isn’t going away anytime soon. How it’s resolved—or isn’t—will have repercussions much bigger than a few quarters of poor growth performance. This crisis is about China’s economic future and whether or not it can manage the structural transformation necessary to propel the economy into the ranks of the world’s most advanced. And it also will determine if China will be a pillar of global growth—or a threat to the world’s financial stability.”
As President, Trump has a successful track record of always kicking a man while he’s down. Without question, as part of the trade negotiations, he’ll give Jinping several extra kicks while he can. In doing so, and as the U.S. economy also slows, he’ll push the trade war ever closer to a real war.
for Economic Prism