Even though the media has largely ignored it; trade has become a major issue in the US presidential election. Much of Donald Trump’s success is based upon an appeal to a crude economic nationalism, and hostility to China.
Trump has proposed a radical trade agenda; that includes a 45% tariff on Chinese-made goods. If it were implemented, such an agenda would be a declaration of trade war to which the People’s Republic would inevitably retaliate. The most likely outcome of such a conflict would be depression in both countries because of the collapse of economic activity that would result.
What is more disturbing is that Trump himself seems to relish the idea of such a trade war. The candidate has even bragged about starting such a conflict according to comments recorded in The Washington Post.
Trump Wants Trade War
“And these dummies say, ‘Oh well, that’s a trade war.’ Trade war,” Trump said in a speech in Lawrence Township, New Jersey, on May 20, 2016. “We’re losing $500 billion in trade with China. Who the hell cares if there’s a trade war?”
“Five-hundred billion, and you’re talking about a trade war,” Trump said. China is “behaving very, very badly” by devaluing its currency, he said, adding that once he is president, China will “behave and China will be our friend.”
It is hard to tell if Trump really believes such rhetoric. Although it is very popular at least one leftwing observer; writer Thomas Frank, believes Trump’s appeal is based largely on trade. Frank watched several hours of Trump speeches on video; and noted that trade was almost the only issue the candidate talked about.
“It seems to obsess him: the destructive free-trade deals our leaders have made, the many companies that have moved their production facilities to other lands, the phone calls he will make to those companies’ CEOs in order to threaten them with steep tariffs unless they move back to the US,” Frank wrote in The Guardian. Frank seems to sympathize with Trump on the issue, but he does not endorse the idea of a trade war.
Frighteningly some of Trump’s supporters; such as columnist Pat Buchanan, share the candidates desire for a trade war. Writing in The American Conservative, Buchanan suggested that the US threaten an embargo on all Chinese goods; if the People’s Republic does not end its military expansion in the South China Sea.
Trump’s Recipe for Great Depression 2.0
Such remarks frighten those with any understanding of economics and history. Most economists believe that the high tariffs imposed by the US Smoot-Hawley Tariff Act of 1930; turned the economic downturn that followed the stock market crash of 1929 into the Great Depression. Instead of creating jobs; the trade war launched by Smoot-Hawley led to a 24% unemployment rate in the United States.
Smoot-Hawley raised tariffs on 890 US imports; which led other countries to retaliate with restrictions of their own. A major result was that the level of world trade fell by 66% between 1929 and 1934.
The results of a modern day trade war would be catastrophic; because 12.7% of America’s gross domestic product is generated by exports. US exports to China were worth $116.2 billion in 2015, according to The New York Times. Many of those exports are high value goods such as semiconductors, vehicles, heavy machinery, machine tools and aircraft.
“Losing China’s market could mean sacrificing better jobs for less desirable ones,” The Times noted. Many of those products are made by highly-paid unionized workers. Most of the Chinese imports in the US are low-value labor intensive products such as toys or clothes.
A Trade War is not inevitable
The popularity of Trump; and the sympathetic reception to his tariff proposals, will have many wondering if a trade war between the US and China is inevitable. Fortunately such a scenario is highly unlikely even if Trump were to be elected president.
As president Trump would have no authority to rescind, revise or renegotiate any of America’s free-trade deals; which are based on treaties. Under the U.S. Constitution, treaties must be approved by the U.S. Senate. The majority of U.S. Senators of both parties are staunchly free-trade. It would take the election of a new Senate majority to change US trade policy.
The Congress would vote down a Trump trade policy; because most of its members are beholden to business interests that profit from the current economic status quo. Executives from one company; that is highly dependent on Chinese manufacturing -Apple, donated around $50,000 to one US Senator Ron Portman (R-Ohio), The Hill reported. Amazon = another company that depends on cheap Chinese goods – donated around $50,000 to one Congressman; Jason Chaffetz (R-Utah).
Such donations indicate that Republican support for Trump might be more of a means to shake down potential donors, than a serious policy. If that is the case Trump might simply be a patsy; being used the Republicans, rather than a serious candidate.
Trump could attempt to order an embargo, or some action, but Congress could simply override him at any time; and there would be little he could do. Trump could also try to negotiate new treaties with China; or renegotiate the General Agreement on Trade and Tariffs (GATT).
To be successful, he would have to get other nations to go along with his plans, and then get them approved by the Senate. Since it seems unlikely that either the Senate or other governments would go along with them, Trump’s trade policies would never be enacted.
Is Trump Lying about Trade
This raises the strong possibility that Trump is simply lying about trade. He understands fully that his policies are unrealistic and will never get anywhere; and has another agenda.
For all his bluster, the Donald is an educated man who understands how the US system of government of works. Since Trump is a charlatan; who has a long history of playing on the ignorance of the American people, the possibility that the trade war rhetoric is simply a ploy becomes probable.
The most likely scenario is that President Trump would propose his radical tariffs; see them shot down by the Senate, then unveil his real agenda on trade. That agenda is a mystery, but it is likely to bear little resemblance to the promises candidate Trump has made.
Therefore, instead of a trade war; the most likely outcome of a Trump presidency is a slight revision to the GATT or some other treaties. A trade war between the US and China would be highly unlikely even if Trump were to the win the election. Since most observers expect Trump’s opponent; Hillary Clinton who is a staunch advocate of free trade to win, trade war between the US in China is probably impossible.