“There won’t be a trade war,” Donald Trump said on Tuesday. No one told Wilbur Ross, the secretary of commerce. The US has been engaged in a trade war “for quite some time”, he said in Davos yesterday morning. “The difference is the US troops are now coming to the ramparts.” They should hold their fire. New tariffs announced on Monday, aimed at China, should not presage a trade war between economic superpowers. That would hurt the global economy, along with most of the people who elected Mr Trump.
Last year the unexpected star of the world economic forum was President Xi of China, who cast Beijing as the unlikely champion of globalisation and free trade. “Pursuing protectionism is like locking oneself in a dark room,” he said. “Wind and rain may be kept outside, but so is light and air.” Three days later, Mr Trump would deliver an inaugural address which promised that “protection will lead to great prosperity and strength”.
It will not, and to some extent the president seems to appreciate that. The most ominous of his campaign threats have not come to pass, with no sign of a 45 per cent tariff on Chinese steel. On Tuesday, however, he did announce that imports of solar panels and washing machines would be subject to hefty new tariffs. The winners will be American manufacturers of washing machines and solar panels that do not rely on Chinese suppliers. Everyone else will likely lose. That includes Chinese industry, Mr Trump’s intended target.
It also includes many Americans. Not only could energy consumers end up paying higher prices, but workers at companies that depend on international trade links will be at risk. The US solar energy industry estimates that total job losses will amount to 23,000, and matters could get worse if Beijing retaliates with tariffs on US exports. The president would do well to remember that, just like the domestic taxes he is seeking to slash at home, tariffs are brakes on economic growth that raise prices and slow the economy down.
The impact of Monday’s decision alone will be far from seismic. In the coming months, though, he is to make bigger calls. He will respond to a review of China’s intellectual property practices and decide what to do about its metal exports. In many ways he is right that China does not play fair. It hacks foreign firms to steal intellectual property, sells into foreign markets below market price to hoover up market share and subsidises its exports.
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A trade war would hurt the Chinese economy most, Mr Trump reasons, since China exports more to America than America exports to China. He therefore expects Beijing to clean up its act. If this comes off, it would not be the first time that Mr Trump’s unorthodox thinking has undermined the caution of the political establishment.
He himself needs to proceed with caution, however. The US-China relationship is important to global growth and, in the context of an increasingly erratic North Korea, to global security. A trade war might damage China, but it would damage America and the rest of the world too. If Mr Trump sees China as a threat and a competitor, he should also bear in mind the importance of his country’s economic leadership role in retaining the upper hand. While China is energetically projecting its soft power across the world with new investment, the president is ripping up trade agreements and erecting new tariff barriers. That is not the way to put America first.