Trump and Xi see who can take the most trade pain. Everyone loses.
The trouble with trade wars, like shooting wars, is that once they start you never know how they’re going to end. The enemy gets a vote, and sometimes events escalate in ugly fashion (see cartoon above). Take Friday, which saw China retaliate for Donald Trump ’s recent tariffs, Mr. Trump blow a gasket, markets tank, and Mr. Trump impose even more tariffs.
Stocks took that news in stride. They then rose modestly after Federal Reserve Chairman Jerome Powell said in his annual Jackson Hole remarks that the central bank would “act as appropriate to sustain the expansion.” But then Mr. Trump began tweeting like a bull in a china shop. “My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?” he tweeted, as if Mr. Powell isn’t a patriot. “We don’t need China and, frankly, would be far better off without them. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME.”
Order? Somebody should tell Chairman Trump this isn’t the People’s Republic of America. U.S. businesses have been trying to shift production out of China to avoid tariffs, but supply chains that have been developed over decades can’t be uprooted overnight. And no other country has China’s huge relatively skilled workforce, infrastructure and network of suppliers.
U.S. motor vehicle jobs have declined by 16,000 this year amid a slowdown in domestic sales. Tesla, BMW and Daimler plants in the U.S. that export luxury cars to China will get whacked with tariffs come December. Farmers who have been bearing the tariff brunt will receive another dose of pain in September.
What was that again about trade wars being easy to win?