The US is losing the trade war, and that’s good

If the US were fighting a trade war over human rights, I’d have doubts about whether it was the right way to address the issue. Nonetheless, I’d certainly root for us to succeed. But this trade war is being fought over economic issues, and thus I hope we lose.

Most of the commentary about the mini-agreement has been along these lines:

“I’m skeptical that there is anything that could be objectively called a deal,” said Scott Kennedy, an expert on the U.S.-China economic relationship at the Center for Strategic and International Studies in Washington. “It appears that the U.S. was looking to find a way to avoid raising tariffs in the next couple months and reassure financial markets, and so it was willing to accept only an oral agreement on a narrow range of issues to take this step. Xi Jinping has to be quite satisfied with this outcome.”

It will be some time before we know the details of the agreement, but China has made vague commitments in the past that haven’t ended up meaning very much.  Why should they?  The US doesn’t adhere to our trade agreements either.

Of course Trump’s got lots of other problems to deal with.  The Dems are trying to impeach him (and perhaps send another of his lawyers to jail), and the GOP is angry that he stabbed the Kurds in the back.  The last thing Trump wants right now is an escalating trade war driving the US into recession.  (Yes, a recession would technically be the Fed’s fault, but Trump would be blamed.)

So this nearly meaningless deal is actually good news, as it puts off even more damaging steps and gets us closer to the election.  Next year, Trump probably would hold off from further escalation and declare “victory”.

Some argue that a President Warren would be even tougher on China.  That’s hard to say, as the party out of power always claims to be tougher on China and then never is (until Trump.)  But even if she is, she’d likely put a bit more weight on human rights and a bit less weight on making Mark Zuckerburg even richer than he already is.



23 Responses to “The US is losing the trade war, and that’s good”

  1. Gravatar of JVM JVM
    13. October 2019 at 11:31

    A couple points here, one is that these markets are not insanely liquid, and I’ve noticed the conditional likelihood of winning given a nomination for most candidates bounces around quite a bit between 45% and 55%.

    Second, if we _do_ look at the conditionals, Biden’s electability doesn’t look any better than Warren’s. At this moment the markets seem to be predicting that the really electable candidates are Bernie and Andrew Yang. I don’t really think we need to take these super seriously because they are difficult to arbitrage away profitably.

  2. Gravatar of JVM JVM
    13. October 2019 at 11:34

    Ugh, I meant to comment on the other post, feel free to delete this one.

  3. Gravatar of xu xu
    13. October 2019 at 13:30

    “I hope we lose”. “US never follows through with its trade deals”

    1) That is the response of a traitor. Your not a very good economist, which is why your out on the fringe, but you still have some responsibility to represent your countries interests. It is clear from this post that your research would be biased.

    2) Considering that your relatively poor, and have zero assets worth anything of considerable value, that is a very interesting position take. Because if we continue to lose trillions to China, your not only going to enjoy less money than you already have, but you will be subjected to stricter regulations.

    3) A country should always renege on trade deals that are bad. You are such a snowflake. The world is NOT a nice and wonderful place, and many countries would be happy to destroy you. Gosh, it is a very good for all of us that you are in a position of “0”, and I mean “0” power. Because you have some incredibly awful logic.

  4. Gravatar of Benjamin Cole Benjamin Cole
    13. October 2019 at 15:45

    The “trade war” concerns tariffs on a few hundred billion dollars of goods imported or exported between the United States and China. Both economies are around $20 trillion dollars annually.

    Consumers in both countries have access to global suppliers. Other than possibly soybeans in China, there are no reported shortages of anything.

    How such a “trade war” could tip the US and Sino economies into recession, let alone the global economy, is a mystery to me. Yet this silly storyline is perpetrated endlessly in the popular and financial media.

    I get it: the multinationals, the Apples, the GM’s the BlackRocks, the Walmarts want to continue to do business with China as it is profitable for them. The multinationals can pour unlimited funds into media, academia, lobbying groups, trade groups, foundations, think tanks, and even directly into political campaigns (interesting side topic: why is foreign influence in US elections so reviled unless that foreign influence is funneled through a multinational?).

    Foreign influence? Try being an NBA official who voices support for demonstrators in Hong Kong. Is it hyperbole to say that the US Chamber of Commerce has become a mouthpiece for the Communist Party of China?

  5. Gravatar of Mike Sandifer Mike Sandifer
    13. October 2019 at 15:48

    I agree 100%. No country wins a trade war, so best that countries that start them suffer. It’s good for the US and the world that the trade war ends in a painful failure.

  6. Gravatar of ssumner ssumner
    13. October 2019 at 16:14

    JVM, When was the last time someone was elected president promising new programs that would require massive tax increases on the middle class, and also take away people’s private health insurance?

    Hillary was also quite “poised”, but that didn’t help her in Michigan and Pennsylvania. Biden is the safest choice, but there are plenty of other plausible candidates.

  7. Gravatar of sd0000 sd0000
    13. October 2019 at 17:25

    The biggest reason the U.S. (and the West in general) is in trouble is that our intellectual class “hopes we will lose” whereas China’s intellectual class is fiercely patriotic.

    A country where the population is trained to be ashamed and hate their own country vs. a country where the population is trained to be proud and love their own country. You do the math.

  8. Gravatar of Mike Sandifer Mike Sandifer
    13. October 2019 at 18:24


    No country wins a trade war. It’s like both sides simultaneously stabbing themselves and the other side. Milton Friedman correctly likened it to self-imposing military blockade. Why do to yourself what it typically makes sense to do to the enemy in war?

    Would you hope the US won a nuclear war with China, if Trump started it?

    This is nonsense.

  9. Gravatar of Benjamin Cole Benjamin Cole
    13. October 2019 at 19:36

    sd0000 does raise an interesting point. The most successful nations, such as Japan or S Korea, the Scandinavian nations, have high degrees of socialization. We can ponder the differences between socialization, patriotism, and nationalism.

    Presently, nationalism seems to get a bad rap. Neighborhoodism, as exemplified through tight property zoning, seems to get a pass. Of, calling oneself a patriot is always a good idea.

    “Me first and every man for himself” might not be a successful formula for an entire nation.

  10. Gravatar of E. Harding E. Harding
    13. October 2019 at 20:33

    Sanders is actually the safest choice because he stays on message most. Biden is not a safe choice because he is senile.

  11. Gravatar of sd0000 sd0000
    13. October 2019 at 20:48

    Note – in my above post I’m not necessarily arguing that nationalism / patriotism is rational or even “good” in the moral sense – just that it’s a huge competitive advantage. See the recent developments around businesses kowtowing to Chinese interests. Western “high society” would probably cheer if their country was insulted in such a manner as the Chinese believe their country is being insulted.

  12. Gravatar of Randomize Randomize
    13. October 2019 at 21:28

    For commenters who don’t know, there’s a difference between loving one’s country and loving political leaders and their petty agendas.

  13. Gravatar of Benjamin Cole Benjamin Cole
    13. October 2019 at 22:26


    I realize there are anti- and pro-Trumpers, and a more divisive figure has rarely been seen.

    Yet, I have to give Trump credit in at least one regard. On at least three recent occasions, he has referred to Dwight Eisenhower’s peerless 1961 Farewell Speech (watch it on youtube is you never have seen it), and mentioned the military-industrial complex by name, and the pressure to ever engage in wars.

    Not since Eisenhower has a President so clearly mentioned the pressures by a military-industrial complex to engage in wars, and seize influence.

    Trump is an interesting character. He has been right on monetary policy, and he may be right on trade policy (the free traders are both glib and messianic on free trade theologies). Trump’s instincts on getting out of the Mideast are right.

    I do not like Trump’s unnecessary and divisive commentary, or his buddying up to Riyadh. It was the GOP Congress that passed the corporate tax cut, but if you want to revile or credit Trump for that, go ahead.

    Other than Trump’s dubious persona, I really can’t think of too much he has done wrong. Trump has avoided major wars, which is more than LBJ, Nixon, Bush and Bush Jr managed.

    Ask yourself why Trump’s declaration of a warmongering military-industrial complex gets zero re-play or resonance in US media.

  14. Gravatar of Joe Joe
    14. October 2019 at 04:07

    Kind of a pointless article. Trade wars have winners and losers. As things stand now, American workers are the losers, because they are the ones paying the price for trade deficits with lost jobs. It’s the people who have a financial interest in maintaining trade deficits who say “everyone” will lose from a trade war.

  15. Gravatar of John Arthur John Arthur
    14. October 2019 at 06:22

    Why shouldn’t the US use its leverage to get a trade deal that is better on its terms? Shouldn’t the US discourage Chinese cyberhacking and theft of IP? If China is stealing newly produced tech, doesn’t that reduce the incentive to continue to innovate on part of the US? That is absolutely bad for our country. You often say that trade with China has allowed us to specialize in industries relying on innovation, then you say that China’s targeting of those industries for theft of IP isn’t a big deal(Why should we allow Huawei to steal Apple’s IP). Now, you are saying that it is good for us to lose this trade war lol.
    I know that you are a utilitarian, and that is it is better for the world for the far more numerous Chinese to shortcharge the US, but you’re an idiot if you think that other Americans see it the same way

  16. Gravatar of Michael Rulle Michael Rulle
    14. October 2019 at 09:23

    “A trade war over human rights” would be a disaster. Ask the NBA. We may be on a long term path, however, toward “free markets versus human rights” as it relates to China—because we are the two big guys. Nothing would be better for the world than China and the US to have an ability to ultimately compete without conflict. There will always be problems–that seem almost locked in—wait till Big China wants to swallow little China (Taiwan). But we should avoid as much as possible as long as possible.

    I know Trump has a 2 IQ, but like all good politicians he recognizes where the dangers are. So does Xi. So they make certain small agreements and at least call a truce for now regarding further skirmishes. And declare “victory”. I don’t think Xi is indifferent to US election—-I assume he would not want Warren.

  17. Gravatar of derek derek
    14. October 2019 at 09:49

    Not apropos of trade issues, but thought you (Scott and fellow readers) would enjoy this example of a hot potato effect cited in today’s Money Stuff:

    Here is a fun story about the stimulative effect of negative interest rates:

    In the Swiss canton of Zug, officials are going to extremes to avoid getting penalized by the world’s lowest interest rate.

    To minimize the amount of cash on hand that would get hit with a charge, Zug’s treasury postponed recouping nearly a billion francs in capital gains tax revenue from the federal government. The canton, or state government, also has plans to pay bills and staff Christmas bonuses early.

    Literally paying Christmas bonuses early! The staff aren’t going to want to hang onto that money either, with bank rates below zero, so they are going to do their Christmas shopping in October, and then retailers are going to pay their bonuses early, etc. etc. etc., the system is working exactly the way it is supposed to.

  18. Gravatar of Christian List Christian List
    14. October 2019 at 12:24

    Interesting graphic:

    Since about 1999 the median democrat is more left-wing than the median conservative is right-wing. And since 2017 they are more left-wing than ever.

    No wonder they’re voting for Pocahontas. Great choice.

  19. Gravatar of ssumner ssumner
    14. October 2019 at 14:06

    sd0000, You said:

    “The biggest reason the U.S. (and the West in general) is in trouble is that our intellectual class “hopes we will lose” whereas China’s intellectual class is fiercely patriotic.”

    Actually, our greater freedom here is why Americans are 4 times richer than Chinese, even in PPP terms (7 times richer in nominal terms). If you are not self-critical, then you will end up with policy disasters.

    The Chinese were blindly supportive of Mao, who killed 30 million of them. How’d that “patriotism” work out?

    Ben, You said:

    “such as Japan or S Korea, the Scandinavian nations”

    Just stop. These cultures have big differences. And America is far more successful than Korea or Japan.

    Randomize, Yes, and it’s sad that you even have to point that out. But in fairness I should have said Trump is losing the trade war, not the US. If Trump loses, then the US wins.

    John, You think this trade war is helping the US? It wasn’t launched to protect our IP (that was added later), it was launched to reduce the trade deficit. There are better ways to address IP issues.

    Thanks Derek.

  20. Gravatar of Benjamin Cole Benjamin Cole
    14. October 2019 at 15:53

    Given globalized capital markets, the above editorial regarding global stagnation is worth a read.

  21. Gravatar of Benjamin Cole Benjamin Cole
    14. October 2019 at 17:43

    OT but in the ballpark—-

    Hong Kong releases up to HK$300 billion in city’s version of quantitative easing to bolster economy against downturn

    That about $38 billion US


    I can’t say this a bad idea by the Hong Kong Monetary Authority.

    Yet, what do banks do in Hong Kong? They lend on real estate. But the supply of developed real estate is tightly controlled by Hong Kong authorities in conjunction with the property owners and property-lenders. Hong Kong already has the world’s highest housing costs.

    This paradox is showing up in developed nations more and more. What we call “commercial banks” is something of a misnomer. They would better be called “commercial and property banks.”

    In the case of Hong Kong, tax cuts on consumers would probably be much more effective.

  22. Gravatar of Mike Sandifer Mike Sandifer
    14. October 2019 at 18:04

    These IP issues tend to solve themselves. As China gets wealthier, with more IP of their own to protect, I predict they will join us and the rest of the developed world in better respecting IP.

  23. Gravatar of The trade deal merry-go-round | The trade deal merry-go-round |
    5. January 2021 at 08:36

    […] Related, from The Money Illusion, by Scott Sumner The US is losing the trade war, and that’s good. […]

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