With His Tariffs on China, President Trump Happily Blinked

The market obviously liked the three-month truce in the U.S-China trade war. But what they liked most about it is the fact it represents at least a temporary halt to U.S protectionist policies. The value of free trade has again been affirmed - and the folly of protectionism has again been exposed.

Clearly it was President Trump who blinked. Essentially, President Xi got exactly what he wanted, at least for now: A reprieve from Trump’s announced increase in tariffs come January on $200 billion worth of goods (slated to rise to 25 percent) and imposition of 10 percent tariffs on all remaining Chinese goods.

But what did Trump get in return? Not much. The Chinese agreed to hold off on its own retaliatory tariff increases - which China had threatened only to push back against U.S tariff threats. So far, China has accomplished exactly that, so it is not at all surprising that it is pulling back its own projected tariff increases. In other words, after months of huffing and puffing about more tariff increases, the U.S trade strategy viz a viz China has thus far produced nothing.

The mutual halt in tariff increases represents a clear setback for Trump’s trade strategy, which is very much based on the notion that the threat of barriers to the lucrative U.S market would be sufficient to bludgeon China, given its large trade surplus with the United States. Turns out that trade wars are not “easy”, even for countries with large trade deficits, and not “good” for anyone, least of all American farmers and other exporters facing retaliatory Chinese tariffs. If trade wars were either good or easy, why would Trump agree to a ceasefire?

It is true that President Xi made vague promises to increase imports from the United States, especially in agricultural goods, and to discuss protection of intellectual property, technology transfer, and China’s state-driven industrial and investment policies. But China made no specific promises about dollar amounts re import increases. And China has for a long time talked about talking about intellectual property and technology transfer. Moreover, China has once again made it clear that it will continue to pursue state-run industrial and investment policies.

Unquestionably, the truce is good news - better a cold trade war than a hot one. But is it just a fake peace, and will the shooting start again in three months, with both sides implementing increased trade tariffs? Or will the result be another truce, and then another, ultimately leading to a virtual disintegration of Trump’s protectionist trade strategy?

What the temporary halt to the U.S-China trade war demonstrates more than anything else is a recognition in Washington that trying to bully China with threats of higher tariffs is at best a steep climb. It proves once again that threats of tariff increases are not the potent weapon the White House seemed to think it was.

It should now be clearer than ever that the only way to win a trade war is not to start one. And the only way to please the Street - and pursue economic growth - is through more open markets, not closed ones.