As the conflict rages on, it’s becoming clear that it’s not about the money.
The trade war is a mess. Markets rise and fall on Donald Trump’s tweets, while stockbrokers pray that President Xi Jinping, an inscrutable Communist Party zealot, will switch things up with a bit of free market capitalism. Bloomberg has been insisting for over a year that we are just days away from a comprehensive deal – flashbacks to the infamous “Friedman Unit” here – while Trump administration officials grandstand on Fox News.
In this environment, everybody has a prediction; everybody wants to be the Nostradamus who called the outcome by performing a comprehensive content analysis of CCP media releases to determine that Xi actually will kowtow to Trump’s demand to stop pumping subsidies into state-owned enterprises.
The fundamental misunderstanding that has shaped this sort of commentary on the trade war is that it’s about economics. Of course, that’s a logical assumption to make – you would hope that a trade war is about economics.
But as the conflict rages on, with a viable resolution increasingly unlikely, it’s become clear that economics isn’t the real game.
The word TARIFF is a beautiful word indeed
To understand the trade war, you have to understand how it’s being fought.
The cornerstone tactic of the Trump administration has been tariffs. Here’s the thing about tariffs: people know what they are. They’re taxes on foreign goods. It’s not some moderately complex economic policy that would be easier to understand if you’d had the benefit of an undergraduate level education. Kentucky coal miners know what tariffs are, as do the conservative high school students who form a larger part of Trump’s base than most analysts care to admit.
“When you are the ‘Piggy Bank’ Nation that foreign countries have been robbing and deceiving for years, the word TARIFF is a beautiful word indeed! Others must treat the United States fairly and with respect – We are no longer the ‘fools’ of the past!” President Trump tweeted on 2 June 2019.
And that’s just it. People want something that’s easy to understand, something that sounds like it’s working – tariffs.
The trade war was always about PR.
The economic positives have been few, the negatives many. Global consumer confidence has been shaken to its core, and American farmers aren’t even getting much out of it. The only real beneficiary of the trade war has been Trump, whose appearance as a strongman willing to use brute force to get his way has played well with his base. Trump can point to tariffs – which make a hell of a splash when they’re announced – and say he’s doing something. And that’s all he needs to do.
Predictions about the outcome fall flat because they use a logical, fact-based approach. That’s a mistake. The trade war is being fought by a television host and real estate developer who knows how to work a crowd, and that’s exactly what he’s doing.
Turn your attention to more recent developments. Trump has opened several new fronts in what’s becoming a global trade war by imposing tariffs on Brazil and Argentina over baseless accusations they had intentionally devalued their currency. The move caught markets completely off guard, but Trump’s fans went wild. With Trump now threatening to impose tariffs on France – with little justification – it’s becoming more and more clear that the trade war is about hearts and minds, not soybeans and pork.
As the world ramps up its response to the coronavirus outbreak, an investment manager has projected a GDP contraction of around 15 per cent ...
Systemic risk has hit an all-time high, a financial services giant has reported, with the coronavirus pandemic continuing to take hold of t...
One of the world’s largest investment banks says it’s impossible to tell when the global economy will reopen for business as draconian c...