- President Donald Trump on Wednesday spelled it out loud and clear for anyone still confused about the trade war: Hurting China’s economy is more important to him than helping the US’s economy.
- Trump has explicitly said numerous times that he wants to punish China more than he wants to avoid a recession.
- It’s time to take the not-so-subtle hint: The US is confronting China in a way that will cause economic suffering. Trump’s administration says it’s worth it.
- A look at China’s domestic and foreign activities – especially the threat it poses to the US – explains why Trump would risk tanking the economy, and potentially losing in 2020, to take on Beijing.
- Visit Business Insider’s homepage for more stories.
President Donald Trump on Wednesday spelled it out loud and clear for anyone still confused about the trade war: Hurting China’s economy is more important to him than helping the US’s economy.
“Let me tell you, if I wanted to do nothing with China, my stock market, our stock market, would be 10,000 points higher than it is right now,” Trump told reporters at the White House. “But somebody had to do this. To me, this is much more important than the economy … It was out of control. They were out of control.”
Trump’s statement followed an “order” for US companies to leave China, a declaration of himself as the “chosen one” to take on China in a trade war, and a dismissal of a possible recession as “irrelevant” in the bigger picture of Washington confronting Beijing.
While Trump has sometimes indicated that the trade war would be “easy to win,” he has recently acknowledged the pain that ordinary Americans would feel from the tariffs he’s levied on China.
On days with bad news about the trade talks between the US and China, stocks fall. When Trump says that something positive has developed toward a deal with China, stocks pop. Trump can game the stock market with his remarks even when they’re not founded on any verifiable facts and disputed immediately after by China.
But it’s time to take the not-so-subtle hint: Trump wants to contain China and stop it from taking over as the world’s major superpower. And even a quick look at China’s domestic and foreign policies explains why Trump would take that risk.
Why Trump is out for blood on China
The US’s “previous strategy of engagement with China relied on a set of assumptions about direction China was in, generally something US could live with,” Martin Chorzempa, research fellow with the Peterson Institute for International Economics told Business Insider.
But, “over the last 5 years all of those assumptions have come into question,” he said.
Basically, US policy under former President Barack Obama took an optimistic look at China’s future and sought to engage with its business sector by pouring in investments and allowing China to do the same in the US. Obama’s foreign policy and trade aides insisted that trading with China would lead to positive outcomes, like China somewhat liberalizing and being a constructive member of international institutions, Chorzempa said.
But none of that happened. Today, China’s ruling communists are brutally crushing pro-Democracy movements in Hong Kong, detaining and oppressing its ethnic minorities in Xinjiang by the millions, and making “waste paper” of international court rulings meant to curb their militarization of the South China Sea.
In three consecutive white papers on national security, defense, and even nuclear policy, the Trump administration has identified China not as a partner to be engaged with, but as an emerging and powerful adversary. In terms of the trade, Trump has likened China’s business practices to the rape of the US economy.
Basically, while Trump may tell the markets he wants peace with China to soothe fears, his words and deeds indicate a clear preference for economic war to contain China’s rise.
China, for its part, understands Trump’s point of view, as its goal is to unseat the US as the world’s major power.
This is going to hurt, and pain is the point
The US and China today represent the world’s two greatest economies. Trump, unequivocally, has called for them to disentangle, or decouple. This will cause economic pain and suffering in both countries that could be orders of magnitude greater than a normal recession or slowdown, but pain is the point.
If China knows the US isn’t willing to endure even a few quarters of economic slowdown to reorder the economic relationship that experts say costs the US $600 billion in pilfered intellectual property a year, then China won’t back down from US challenges, Chorzempa said.
Trump can demand US companies leave China, but he has no authority to enforce it. Chorzempa said it’s “very unlikely” US companies like Apple, which do a large percentage of their business in China, will bring their manufacturing and supply chains back to the US. Instead, Chorzempa, like many other top minds on the subject, say countries like India and Vietnam stand to benefit as the US search for cheap labor turns its eye from tariff-laden China.
But it’s not just as easy as packing up from China and entering business in Vietnam. Chorzempa said it would take years for companies today doing business in China’s Shenzhen free-trade zone to find similar value and capacity in Vietnam or India, which have a fraction of the infrastructure bandwidth seen in China.
Companies operating in China with tight profit margins may just find themselves going out of business, dragging down the US economy and stock market with them, said Chorzempa.
In short, Trump’s trade war will tank the US economy, and that’s by design. Trump believes deeply in the trade war and his role in commanding it. According to Chorzempa and other experts, now that the cat’s out of the bag, it will be very hard to limit the reach of the economic damage.