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Trump’s trade war will fail

Ed Zhang Share:
The new US president seems keen to start a trade war with China and other countries. Some are calling for a more intelligent approach. Reuters

Many like to borrow military expressions in describing business competition, a hot one now being “trade war.”
Some say Donald Trump, the new United States president, may think of himself as a contemporary version of the World War II General George Patton – a warrior in a trade war. And a trade war, as they anticipate, would be Mr. Trump’s main theater.
In response, some Chinese commentators have recommended that their readers to go back to “The Art of War,” written by Sun Tzu 2,000 years ago, to find defense methods.
The fact is – and it is an important fact – that seeing trade in terms of war has never been a smart thing to do. Business is not a war.
The biggest difference between business competition and a war is the simple fact that all wars end. No matter how bad a war is, there is a day when one side prevails and peace returns.
But in business, competition goes on. Its logic does not recognize an “end” (unless a company breaks up by itself), and, in the long run, there is no specific enemy.
The more successful a company is, the more it will find competition a market-wide challenge, joined by rivals large and small.
Nor can it be possible for any triumph, however celebrated, to result in a monopoly.
This is why the victory of Apple’s iPhone over Nokia was not a victory over the whole market. Apple still faces competition from many other players in the market and any small mistake may affect its market share in the world.
As for a trade war, there is only one way in which it can make sense. That is when it is used to serve not a business purpose, but for political purposes.
Even when trade is being used for a political purpose, the aggressor will have to take a few precautions to control the possible damage to its own economic benefit.
For example, to make sure that the target is a weaker and less productive economy, that the policy has support and that the goods affected by the policy will be high in strategic importance, but limited in number.
This being the case, the grand trade war that Mr. Trump and his lieutenants may be planning is a rather unconventional one. It will be used to serve not a specific political purpose, but an economic agenda which, paradoxically, is touted as “making America great again.”
If the incoming administration does what it declares, it will wage a trade war on all imported goods from China, if not from the rest of the world. That would certainly be unprecedented in history.
But will it work?
It won’t. Apart from its enormous size and complex, often multilateral details, there are two things on a macroeconomic level to challenge the very logic of a trade war.
First, the global market will continue to develop even if the US no longer wants to play a leading part in it. The size of world trade is nowadays more than eight times that in 1980, before former President Ronald Reagan took office.
In Mr. Reagan’s time, the biggest trade challenge to the US was presented by Japan. Now, not just China, but actually many developing countries, with a general wage level much lower than Japan and lower than China and Mexico, can produce things almost as good as the products of American workers.
There are millions of such workers across Southeast Asia and India. Their manufacturing capability is attested by the fact that trade among developing countries has now been larger than the trade between developed and developing countries in value and is close to the size among developed countries.
In recent years, China’s trade with members of Asean has been increasing more rapidly than its trade with the US.
Developing countries can continue to trade with one another and are likely to yield more shared opportunities, despite the one-sided trade war waged by the US.
Second, even if it is assumed that Trumponomics will work, and the promised 25 million new jobs will be created in a couple of years in a protected environment, the US will still have to rely on the international market to sell its products, which cannot all be consumed at home.
Unless Mr. Trump is determined to permanently shut the US down to the world market to follow a path of Stalinist self-sufficiency, his administration will still have to seek mutually beneficial trade policies with foreign countries, especially with Asia, where the world’s largest group of new middle-class consumers is.
Chinese President Xi Jinping told his audience at the World Economic Forum in Davos, Switzerland, last Tuesday that in the coming five years China’s development is expected to generate a demand for $8 trillion of imports, $600 billion of inbound investment and $750 billion of outbound investment.
Anyone waging a trade war with China cannot call these just small opportunities.
Ed Zhang is an editor-at-large of China Daily.

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