During his 2016 campaign, President Trump repeatedly said that he wasn’t against trade deals, just that he was against bad trade deals.
He now has an opportunity to prove his point, and to claim victory on improving America’s economy and its standing in world trade all at once.
Trump and Chinese President Xi Jinping have both backed away from the brink of a trade war. Trump’s earlier-announced steel tariffs have been put on hold. And now, Xi has just moved to lower China’s tariff on imported cars by 40 percent.
This places a fantastic opportunity in Trump’s lap. If he takes it, he will be able to say he got a better trade deal from China and preside over the beneficial consequences when his re-election comes around.
In exchange for China lowering taxes on American and other foreign cars, Trump should put down his guns as well by dropping all steel tariffs and import quotas, current or planned (or threatened). That’s because the so-called concessions that both sides would make to open up their markets will work together to create an environment where new and sustainable manufacturing jobs will be created in the U.S., and Chinese consumers will have access to more choices and better quality products.
Consider that despite China’s current high tariff, more than a quarter-million U.S.-made vehicles (most of them European models manufactured in the American South) were sold in China last year. That’s a small number: roughly two weeks’ auto sales in the U.S., and only 1 percent of the enormous and rapidly growing Chinese market. But it’s more than nothing. And just imagine the possibilities for growth in sales to China if American manufacturers suddenly enjoyed a 10 percent tax discount and avoided the threatened high steel costs all at once.
Combine the opportunities in China with Trump’s decision to adopt a more realistic emissions standard for domestic vehicle sales, and the manufacturing boomlet that Trump talked about during his campaign doesn’t seem quite so crazy anymore.
We have repeatedly made the case in this space that a trade war would be self-destructive for all nations involved and for Trump’s political future. But what may be less common knowledge is that economic theory demonstrates that the U.S. and China, whatever their differences, both benefit from trading with one another. Not only is this true in cases where each country has its own specialization (for example, America trading well-built cars for inexpensive steel) but it would remain true even if China were a more competitive producer of both goods in absolute terms.
In 1817, British economist David Ricardo demonstrated this with his theory of comparative advantage. Both China and the U.S. will be better-suited to make something and export it to the other once the opportunity costs of production are taken into account. In the end, only a free market can sort out what is best produced where.
The only way to win a trade war is to avoid it. Trump has now been given a golden opportunity to declare victory and retreat. He should take it, sell it, and explain why it is a win to the voters who admire him.
