The US-China Trade War

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The US-China Trade War

A simple plan: action, confusion, and retreat

The US-China Trade War
Credit: Official White House Photo by Shealah Craighead

Prior to his invasion of Russia, Napoleon reportedly said: “[M]y campaign plan is a battle, and all my politics is success.” However, following a Pyrrhic victory in Borodino, Napoleon found himself without a plan or success. Not anticipating Tsar Alexander I’s refusal to surrender and General Mikhail Kutuzov’s strategic withdraw from Moscow into the vast Eurasian steppe, the Grande Armée was left exposed and exhausted. With the weight of a Russian winter coming, Napoleon submitted to a confused retreat, ultimately leading to the Little Emperor’s defeat. According to historian John Lewis Gaddis, Napoleon had transgressed Carl von Clausewitz’s maxim on strategy, whereby war must be subordinate to policy. When leaders fall in love with war, making it an end unto itself, the “culminating points of their offensives are self-defeat.”

When examining the state of U.S. President Donald Trump’s self-described “trade war” against China, one cannot help but wonder whether the White House has a coherent strategy or whether the plan has been to engage in battle in order to reach a policy. Given this confusion, it is perhaps both unsurprising and appropriate that the Trump administration has momentarily lost its taste for confrontation with China. After another round of high-level negotiations in Washington, D.C., on May 19, 2019, U.S. Secretary of Treasury Steve Mnuchin, Trump’s apparent lead negotiator, meekly announced that U.S. and China were “putting the trade war on hold.

Following months of action – barbs and complaints, investigations and enforcement actions, tariffs and threat of tariffs – this ceasefire should be interpreted as a U.S. retreat. How else to describe an outcome where the party on the offensive, the Trump administration, agrees to a truce without having achieved any measurable gains? Nevertheless, a break in the action may be the best option for a U.S. trade policy in disarray.

Putting Zte Back to Work

The surprising moratorium began ahead of the second round of high-level discussions between China and the United States in Washington. Early in the morning of May 13, 2018, Trump tweeted that he and Chinese President Xi Jinping were working together to give ZTE Corporation, China’s telecommunications giant, “a way to get back into business, fast” as there were”[t]oo many jobs in China lost.” Trump announced that he had instructed U.S. Commerce Secretary Wilbur Ross to “get it done.” The following day, however, Ross contradicted the president by saying that ZTE would not be subject to trade negotiations: “Our position has been that that’s an enforcement action separate from trade.”

A year before in March 2017, as part of a settlement with the U.S. Commerce Department, ZTE had agreed to a combined civil and criminal penalty and forfeiture of $1.19 billion after shipping telecommunications equipment, with U.S. components, to Iran and North Korea in violation of U.S. export laws. ZTE also agreed a seven-year “suspended denial” of export privileges – a probationary period – which could be triggered if ZTE failed to meet any aspect of the agreement or committed additional violations of U.S. export laws.

Just as the White House was ramping up its tariff offensive against China, on April 15, 2018, the U.S. Commerce Department issued a “denial order” lifting the suspension and blocking ZTE’s access to U.S. exports due to alleged violations of the settlement agreement – namely that ZTE had made false statements regarding disciplinary action taken against the employees who engaged in the illegal conduct. For ZTE this was a fatal blow: the company sources nearly 30 percent of its components from U.S. companies, like Intel and Qualcomm, industry leaders in producing micro-processing chips, the brains of computers. Soon thereafter, trading of ZTE stock was suspended on Chinese markets, in Hong Kong and Shenzhen, and less than a month later, on May 9, 2018, ZTE announced the closure of its main business operations. No wonder ZTE’s 75,000 employees cheered upon learning of Trump’s tweet. According to Soumaya Keynes of The Economist and Trade Talks, that is similar to the number of employees at Google.

What is remarkable about the ZTE exchange is not that Trump undercut his Cabinet, and vice versa; we have seen this drama before. Nor is it that the president might recognize that harming ZTE could also hurt U.S. workers since global supply chains and capital, particularly in the technology sector, stretch across national boundaries. Just ask Qualcomm. Instead, what is notable is that Trump’s concession on ZTE preceded another round of trade negotiations, led by Chinese Vice-Premier Liu He and U.S. Treasury Secretary Mnuchin, the result of which was the lack of any tangible U.S. gain, any material change in the status quo in favor of the United States. This speaks to a confused strategy in Washington. 

Foxes Chasing a Hedgehog

Isaiah Berlin, the 20th century philosopher, referenced the ancient Greek poet Archilochus when dividing thinkers: “The fox knows many things, but the hedgehog knows one big thing.” For Berlin, hedgehogs act based on a “single, universal, organizing principle,” whereas foxes “pursue many ends, often unrelated and even contradictory.” The former is “centripetal” in nature while the latter is “centrifugal.” Gaddis, the historian, adds that the strategist, whether a hedgehog or a fox, must not confuse means and ends, aligning aspirations with capabilities. In the case of the U.S. trade delegation and Trump, we have foxes chasing a hedgehog, who may not be aware of the dangers of “overstretching” ends beyond available means.

Can there be a doubt that Trump is a hedgehog whose single, universal, organizing principle is expanding his prestige and power? Like a magnet, the president draws ideas and information towards his core, such that, for example, “America first” blends into “Me first.” In this transactional context, sealing a deal is more important than its details. Hence, Trump’s fixation on lowering the $375 billion trade deficit with China, a rather arbitrary and misleading measure of success. In contrast, Trump’s administration is like a den of foxes, who are juggling multiple objectives, often contradicting one another. Hardliners such as U.S. Trade Representative Robert Lighthizer and U.S. Commerce Secretary Ross have used obscure legal and regulatory remedies to address complex economic and national security issues. More conciliatory advisors like U.S. Treasury Secretary Mnuchin and Trump’s economic advisor Larry Kudlow are seeking to balance the varied concerns of Wall Street and other U.S. industries with global footprints.

This awkward tension was on display with Trump’s $150 billion tariff threat on Chinese exports. The proposed tariffs were based on the USTR’s so-called “Section 301” investigation concerning unfair Chinese trade practices that resulted in the forced transfer of innovative U.S. technology and intellectual property. As I described here, the Trump administration followed a deliberate approach, involving a lengthy investigation, inter-agency cooperation and public comment, all supposedly leading to tariffs ostensibly designed to compel structural reforms in Chinese industrial policy, including more protection for strategically-important U.S. intellectual property. Tariffs on $50 billion of Chinese imports were to come into effect as soon as May 22, 2018. However, days prior to this deadline, and concurrent with Mr. Mnuchin’s announcement of a pause in the trade war, Chinese Vice-Premier Liu confirmed that the parties had “reached a consensus, they will not fight a trade war, and will stop increasing tariffs on each other.” Mr. Lighthizer soon fired off a competing statement clarifying that tariffs were not off the table.

In turn, Kudlow, Trump’s chief economic advisor, countered that China had offered to increase its purchase of U.S. products by “at least $200 billion.” But if the threatened U.S. tariffs were based on substantive concerns related to national security concerns and coercive industrial policies, then increasing U.S. exports to China misses the mark. Moreover, economists maintain that the $200 billion Chinese promise is illusory because the United States does not have the capacity to meet this new demand. In any event, China denied giving the concession.

Are there other drivers that explain the U.S. retreat on tariffs? Could China’s role in the June 12 summit with North Korea, which Trump cancelled (and then appeared to uncancel), be the hidden hand? Speculation abounds, but it would be consistent with a reading of Trump as a hedgehog utterly determined to reach a deal. North Korean leader Kim Jong-un appeared to believe that the prospect of a meeting alone, with a Nobel Prize on the horizon, provided sufficient leverage for tweaking Trump. In a speech before a Washington think tank, U.S. Secretary of State Mike Pompeo practically confirmed this sentiment by directly anchoring Trump’s new Iran policy to a supposedly successful (but unfinished) North Korean model. Sealing deals is what matters. Even in cancelling the meeting with Kim, the president left the door open and stressed: “You know what I want to do? I want to get it finished.” Or as Trump put it a week prior: “Look, you have to want to do it. With deals — that’s what I do, is deals.” 

Friction and Overstretch  

A pattern has emerged over the course of the still-young Trump presidency. The White House disrupts the status quo and challenges prior conventions, then looks to take advantage of the confusion and dictate a favorable outcome. In the case of U.S.-China economic relations, a re-evaluation of underlying assumptions and positions was in order; however, in international affairs, creating conflict in order to compel a negotiation without first forming a coherent strategy is a recipe for disaster due to what Clausewitz called the “friction of war.” In short, the realities of conflict expose flaws in theoretical assumptions, especially in strategies supposing an easy win.

In the trade war with China, the White House appears to have fallen in love with conflict itself, mistaking a means for an end, while failing to align aspirations with capabilities. In Gaddis’ telling, such “overstretch” allows enemies to apply leverage through small maneuvers that carry significant consequences, like a jujitsu move turning the opponent’s own force against them. Here, Chinese President Xi Jinping immediately called Trump’s $50 billion tariff bluff by countering with a reciprocal tariff threat. When Trump quickly upped the ante by another $100 billion, President Xi allowed the force of this impulsive gesture to throw the Trump administration forward over its own tariff deadline. Markets tanked, American farmers cried foul, and lobbyists raced to Capitol Hill. When the parties sat down to negotiate China reportedly refused to offer any meaningful concessions on its mercantilist Made in China 2025 program, or even to lower the U.S. trade deficit. This unanticipated “friction” of combat has left the White House empty handed and looking for a helping hand to salvage its North Korean summit diplomacy. At the same time, the U.S. threat with the most immediate impact on China, the forced closure of its national champion ZTE, was unilaterally withdrawn.

China may also recognize that the factors of time, scale, and space work against Trump’s trade demands. Extending the conflict into the future – stalling – only builds pressure on a hedgehog-led White House in search of a victory. With Trump facing mid-term Congressional elections – and the potential for impeachment – and up for re-election in 2020 – and the prospect of defeat, time is on the side of Beijing. The White House also appears to lack the scaled capacity or the willpower to force Beijing to throw out its state-backed economic model or surrender its drive to become the world leader in advanced technology. Limited means do not match unlimited ends. Finally, China has flashed its high card in the sky, its immense market power, like an enticing plain stretching from the Pacific into Eurasia. China is pulling the global economy, including U.S. companies and investment, into its space, allowing the contradictions of modern capitalism to work their power.

Simple Confusion

Retreats can be strategic, assuming that there is a greater plan behind the feint, like as found with Kutuzov’s lure of Napoleon. In the present case, taking a pause in the U.S.-China trade war may offer a welcome and necessary opportunity for the White House to ensure coherence in U.S. trade policy, build international support for its clarified position, and measure Chinese resolve, particularly following the ZTE episode. Unfortunately, what we have seen so far at the White House is a policymaking process in chaos, where teams of rivals bid to be the last in line to whisper in the president’s ear. The result is screaming matches in Beijing and dueling press releases in Washington. Even though Trump may enjoy this disordered dynamic, as he has often alluded, this leadership approach presents risks and costs to U.S. interests, including mistaking means for ends.

In early March, Trump tweeted that “trade wars are good, and easy to win.” With the White House trade offensive sagging under the stifling, humid heat of an early Beltway summer, we may be better guided by Clausewitz’s other maxim: “Everything in war is very simple, but the simplest thing is difficult.” The logic of friction becomes paramount, the parties exchange blows, and the machinery of war breaks down. And when capabilities do not align with aspirations, and aspirations are not aligned within strategy, there is, quite simply, confusion and, most assuredly, self-defeat.

Roncevert Ganan Almond is a Partner and Vice-President at The Wicks Group, based in Washington, D.C. He has counseled government authorities in Asia, Europe, the Middle East, Africa, and Latin America on issues of international law. He served as an aide to Hillary Clinton’s 2008 presidential campaign, but is not currently affiliated with any campaign. The views expressed here are strictly his own.