The Strangest Twist Yet on Trade with China

– May 15, 2018 Reading Time: 4 minutes

The daily flirtation by the Trump administration with trade war has multinational companies all over the world rattled. And it’s not just companies that manufacture in multiple countries. Nearly every American business and consumer relies on some trade relation across the border.

Talk of new taxes, bans, and sanctions coming and going gives new meaning to the phrase “regime uncertainty.” You never know what headline disturbances are coming next, or whether and to what extent they will actually come to be. This certainly makes it hard to plan for the long term.

Just when you think you have a handle on what’s going on, Trump throws another curve ball, as he did with this tweet.

President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost. Commerce Department has been instructed to get it done! ~ Donald J. Trump (@realDonaldTrump) May 13, 2018

Jobs in China

What’s going on here? The company ZTE (Zhongxing Telecommunications Equipment) in Shanghai had employed as many 75,000, and does business in 160 nations, while relying heavily on importing American component parts and manufacturing cellphones and other digital equipment. The US Commerce Department came down hard on the company for dealings with North Korea and Iran. It fined the company $1.2 billion and banned American exports to the company for fully seven years. It was all part of the “get tough” policy that Trump has been promoting his entire career.

The problem: these penalties imposed massive devastation for Chinese workers and higher prices on cellphone imports (ZTE is the fourth largest producer of cellphones for the American consumer market). In other words, bad things happen to all sides when government intervenes in trade, a fact we’ve known for, oh, hundreds of years, which is precisely why free trade remains the liberal ideal and why protectionism of the Trump variety is such a threat to world prosperity.

For Trump, it’s always been about getting tough, but it is also perhaps true that it never occurred to him that real people suffer from these kinds of policies. When the president of China let it be known that this huge and important factory was shutting down, Trump was alarmed. The human cost here is very high. Another factor is that this conflict predates the Trump administration, so he doesn’t feel a particularly intense personal responsibility for it.

To be sure, it’s a strange twist in the rhetoric and approach of this administration as regards trade. Since when has Trump been concerned about jobs in China? Why should this matter to him at all? Let’s unpack this a bit.

The North Korea Complication

Trump needs to reach a deal with China due to a new wrinkle in the politics of trade, namely relations with North Korea. A summit between the US and North Korea is coming up. To date, this appears to be Trump’s greatest diplomatic triumph. Recall that he threw out all conventional wisdom on dealing with North Korea, or any other country, by levelling a series of outrageous threats on Twitter, even personally insulting Kim Jong-un.

I wasn’t alone in being shaken by what was taking place. For a few days there, it really did seem possible that the US and North Korea could take the appalling step of using nuclear weapons. The entire diplomatic corp was stunned. Commentators were in meltdown. On the one hand, Trump’s tweets were hilarious (“rocket man”) and, on the other hand, incredibly dangerous.

What happened then is something no one expected. Kim opened up for discussions with South Korea. Two leaders met and the two nations cooperated for the Winter Olympics in Seoul. This was just the first step. The next was unprecedented: Kim agreed to meet with Trump. Now, suddenly, it seems that peace could be at hand. No matter how you look at it, this is a major and even historic victory for Trump-style rule. He did something outrageously risky and…it seemed to work.

Dark Humor

Why did it work? The best explanation draws in human psychology. Kim wants to be taken seriously. Trump does too. Meeting together is good for both sides. Why did Trump’s personal insults not doom such a meeting? Maybe Kim holds the Oscar Wilde view that the only thing worse than being talked about is not to be talked about. It’s also possible that Kim – who enjoys Western pop music and culture – was secretly delighted by the dark humor of Trump’s tweets.

Regardless, this has to be a huge source of pride for Trump. He wants to protect this victory. China has a stake in deepening trade relations with North Korea, and so it is in a position to influence US relations with that country in a positive way. In other words, Trump suddenly finds himself in need of good relations with China – and hence the need to walk back the trade war talk.

Overall, this has to be good news for world trade. And world peace too. Now if we could just lock this in place, move forward beyond all this trade-war talk, institutionalize free trade as a policy without exception, and get on with building a sustainable prosperity for all.