For years, Donald Trump has been critical of the US relations with the traditional US allies in Europe. He has also been critical of China and the threat it poses. In the 80s and early 90s, the president wrote full-page ads expressing his worries about the increasing trade deficits.
When running for president, he continually talked against the large trade deficits, manufacturers leaving the country, and the bad trade deals the country had done in the past.
In his first year as president, he worked to address this issue by first lowering taxes to companies. His hope was that companies would be enticed by the low rates and reduced regulations to come back to the country. In the following year, he continued this with the announcement of tariffs on imported goods. With tariffs, his goal was to reduce the large trade deficit the US has with countries like China.
The trade war had a ceasefire in December last year when the president met with his Chinese counterpart. The two leaders agreed to start negotiations on reducing the deficits. March 30 was the deadline for these negotiations. This deadline was extended because talks appeared to be going on well.
This changed two weeks ago, when the US president sent two tweets saying that the US would go ahead with the tariffs. A few days later, the US imposed tariffs on goods worth more than $200 billion and China retaliated with tariffs on goods worth more than $60 billion.
The next bold move from the US was to target Chinese companies. Huawei was the first to be targeted. Suppliers were banned from supplying goods to the company. This means that American chip manufacturers like Qualcomm and Intel were forced to cut of Huawei as a customer. The same was true with operating system suppliers like Google and Microsoft.
The question among traders is how this ban will affect business. The truth is that the US will be difficult to win a company-targeted war. This is because most of the biggest Chinese companies don’t do any business in the US. Huawei phones are not sold by US companies while its telecommunication and cloud equipment is not bought by US customers. On the other hand, major US companies are counting on the Chinese to grow. These includes companies like Tesla, General Motors, Boeing, and P&G. Therefore, while China will not announce a ban of these companies, it will create barriers that will make these companies find difficulty to compete.
Another reason why the US will not win a trade war with China is that the key issue at hand is not the right one. Trump measures a victory on the trade deficits, which is not a good measure. This is because a trade deficit is not entiry a bad thing for a country. In fact, it could be a measure of how good the economy is.
Finally, Trump is fighting for a deal with a two or four-year lens. This is because in the next few years, he will be out of office. Xi Jinping on the other hand will likely be president for the next decade. Therefore, when you have different goals, the long-term view tends to win.