The Trump administration has imposed extra tariffs on a wide range of Chinese goods since July 6, igniting a trade war by which it claimed to reduce the “unfair” trade deficit with China.

However, the same trick was played by the White House in the 1980s with Japan to accept a “voluntary” export limit by taking advantage of its position of strength.

But the United States’ trade deficit with Japan never went down, and has spiraled since 2000 from $20 billion to $60 billion.

The major reason for the ballooning trade deficit, generally recognized by the international community, is that America’s saving gap relies on foreign loans as it is a country in which general investment is larger than its savings. And trade restrictions on one or two countries cannot help change the imbalance between its investment and savings, which have already taken shape in the US and hasn’t helped with its trade deficit.

Another argument is that the US wants to bring its manufacturing industries home, so that they can enjoy the convenience and advantages of having the full industrial chain from raw material to financial and support services. 

This argument is ill-founded. On the one hand, the advantages of having the whole industrial chain from start to finish remains unproven; on the other, even if the advantages are proven true, it will be crippled by the vast loss of opportunity from the Chinese market and China’s countermeasures against US tariffs due to the trade war.

The last argument is a widespread speculation that the US aims to crack down on China’s strategic emerging industries in the name of a trade war, which is also groundless and unpersuasive. 

In recent years, China has attached great importance to the development of strategic emerging industries such as information technology, biotechnology, and high-end manufacturing. Although progress has been made, the industries still rely on international cooperation to a certain extent. 

(Photo: VCG)

The trade war launched by Trump is not improvised. For Donald Trump, “making America great again” and winning the general election in 2020 ranks high on his list. The merits from the steel and aluminum industries targeted by the trade war will benefit the Rust Belt, which happens to be Trump’s voter bunker. Additionally, a rise in employment and economic prosperity will help boost support for Trump.

On the basis of classic comparative advantage theory, the US sits in the most profitable link in the global industry chain under the current trade rules and coordination mechanisms, which is established under the dominance of the United States. America’s manufacturing base coming back may boost short-term employment and wealth creation; however, it will come at a higher cost to the country’s economy, and loss of efficiency, and will drag its natural growth rate.

The trade war will redistribute income patterns in the US, for example, steel and aluminum industries will benefit, while soybean farmers will be hit. Basically, the trade war will facilitate some industries at the cost of others. And the retaliation from China cannot be underestimated. It seems that the trade war, in the short run, may create job opportunities, boost US economic growth and increase Trump’s support rate. But underneath the prosperous veneer, a higher cost has to be paid. The US should consider its loss as the trade war ripples through its economy.

 (The authors are Ph.Ds in Economics from Renmin University of China)