A new article in Foreign Affairs critiques President Trump’s trade war on China, and in doing so, reveals that its economic experts don’t even understand basic neo-Keynesian (Samuelsonian) economic theory or the fundamental purpose of freeing the USA from its current dependence upon foreign manufacturers.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with,” U.S. President Donald Trump famously tweeted in 2018, “trade wars are good, and easy to win.” This week, when the Trump administration imposed tariffs of more than 100 percent on U.S. imports from China, setting off a new and even more dangerous trade war, U.S. Treasury Secretary Scott Bessent offered a similar justification: “I think it was a big mistake, this Chinese escalation, because they’re playing with a pair of twos. What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them.”
In short, the Trump administration believes it has what game theorists call escalation dominance over China and any other economy with which it has a bilateral trade deficit. Escalation dominance, in the words of a report by the RAND Corporation, means that “a combatant has the ability to escalate a conflict in ways that will be disadvantageous or costly to the adversary while the adversary cannot do the same in return.” If the administration’s logic is correct, then China, Canada, and any other country that retaliates against U.S. tariffs is indeed playing a losing hand.
But this logic is wrong: it is China that has escalation dominance in this trade war. The United States gets vital goods from China that cannot be replaced any time soon or made at home at anything less than prohibitive cost. Reducing such dependence on China may be a reason for action, but fighting the current war before doing so is a recipe for almost certain defeat, at enormous cost. Or to put it in Bessent’s terms: Washington, not Beijing, is betting all in on a losing hand.
What the author, the President of the Peterson Institute for International Economics Adam S. Posen, is omitting is that China has far more to lose than the USA does, namely, $300 billion every single year.
Moreover, Person’s critique treats the primary objective of Trump’s anti-China tariffs as a weakness. It’s true that the USA “gets vital goods from China that cannot be replaced any time soon or made at home at anything less than prohibitive cost.” But restoring the USA’s ability to make those vital goods is an absolute necessity, since the USA will no longer be able to obtain those vital goods from China at any cost once the inevitable conflict between China and the USA, the one for which China has been explicitly preparing for more than 25 years, begins.
The neo-liberal world order of the post-WWII period has ended, but its public relations organizations have not yet accepted this nor have they abandoned their now-outdated assumptions about how the world works. This article in Foreign Affairs underlines how fundamentally misleading it is likely to be for anyone who takes the mainstream media narrative at face value going forward.
"The neo-liberal world order of the post-WWII period has ended, but its public relations organizations have not yet accepted this nor have they abandoned their now-outdated assumptions about how the world works. This article in Foreign Affairs underlines how fundamentally misleading it is likely to be for anyone who takes the mainstream media narrative at face value going forward."
And putting tariffs on all countries, all at once, on a basis that makes it clear that it is according to trade deficits, makes it clear to the businesses that it is useless to try to 'friendshore.' Apple is attempting to do so in order to survive the short term costs of business, as it seems several others are. Yet if your goal is to bring businesses home, one must make it clear that you will place tariffs on all countries that acquire trade deficits with the US, matching the amount of the deficits! That way you can point to the retardary of the businesses and simply say, "We told you to come home, now do it."
Mine things here, build things here, or decide that we really don't need the things that badly after all. Watch me breath a sigh of relief if our society decides that we actually DON'T need to be connected to email 24/7.
It's incredible how many people in the media either cannot see or refuse to acknowledge how important what Trump is doing is for US national security.
Every country with abundant resources and knowhow should be learning from President Trump and following suit by cutting ties with China and other countries which weaken their ability to make what they need, through subversive trade.