Trump's Trade War Has Officially Started, by Bloomberg Editorial Writers

Trump’s Trade War Has Officially Started

Hostilities need to cease immediately.

by The Editors, Bloomberg Magazine

July 6, 2018, 1:14 PM GMT+9

Bad news for workers

After months of feint, bluster and desultory attempts at compromise, the phony trade war between the U.S. and China has given way to the real thing. For the sake of both countries, these self-defeating hostilities need to cease — and the principal responsibility for this rests with the U.S., which has fired the first shot.

Today’s new tariffs — a 25 percent levy applied to an initial $34 billion in goods, with another $16 billion targeted — will harm consumers and companies in both countries. The U.S. tariffs will raise prices at home and punish U.S. companies that import intermediate goods such as semiconductors and plastics. In the same way, the retaliatory tariffs China has promised will hurt Chinese buyers as well as slam U.S. farmers and workers.

That’s just for now. The much greater concern is long-term damage to the rules and institutions of global trade. President Trump has threatened to withdraw the U.S. from the World Trade Organization; in any case, his tariffs violate the spirit and probably the letter of commitments the U.S. has made as a member. This destroys the stability that has allowed multinationals to build efficient global supply chains.

It will also drive U.S. trade partners to develop new agreements without the U.S. That’s already happening. Japan revived the Trans-Pacific Partnership after Trump rejected it. China and the European Union are discussing how to modernize global trade rules. Talks about the Regional Comprehensive Economic Partnership — a trade pact encompassing 16 Asian nations — have gained new momentum. It cannot serve U.S. interests to stand aside as the global trading system evolves.

China is being equally shortsighted. Its ambition to foster high-tech industries is admirable — but its methods are unwise and in some cases illegal. Heavy subsidies at best skirt WTO rules; they’re wasteful as well. Protecting key sectors will undermine China’s competitiveness and spur retaliation in the U.S. and Europe, hobbling the efforts of Chinese firms to gain expertise and access to advanced technology.

China’s government, as much as America’s, needs to stop and think. Its harassment of foreign companies and broken promises about reform and liberalization have eroded the support the country once commanded in the Western business community. Untroubled by the need to win elections, Chinese leaders may believe they can bear more pain than Trump can. They might be right about that, but the erosion of the global economic order will hurt China’s economy as much as any other, and probably more. And Chinese “concessions” on market access and protection of intellectual property would actually serve the country’s long-term interests.

Trump started this fight, though, and the duty to end it rests largely with him. Much of the thinking that underlies his complaints against China (especially the notion that bilateral trade imbalances are proof of malfeasance) is nonsense. The right course is to pursue legitimate trade complaints through channels such as the WTO that the U.S. designed for the purpose — a system that can work, given the chance and a fresh commitment of U.S. leadership. Short of that, in the current dispute, he should seek minor concessions he can call victory, then back off as soon as possible.

The U.S. and China are on a path that leads to serious economic damage, and maybe worse. Enough is enough.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net .