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Twitter Diplomacy or Twitter Electioneering?

At some point in time between when the US Department of Commerce issued a press release giving the latest US trade deficit figures on September 3 (which had narrowed less than expected), and the announcement of new US-China trade talks on September 5, President Trump issued another tweet on trade issues to let the world know he was going to remain tough. The full set of tweets is worth considering as a whole: 

‘The Chinese are very adept at not accepting anything. You’ve got to be very tough, and that’s what Trump (sic: he referred to himself, Julius Caesar-like, in the third person) is doing. It’s in China’s interest to correct, and I think we’ll end up with a solution that’s dramatically better than we have today. Frankly, I think the impact of what …. 

“…Trump is doing to China is not lost on the rest of the world. Europe has had among the most protectionist policies forever. They’re sitting there saying, gee, are we next? Maybe you are! We’ve got to change the rules. The US can’t defend the world and pay for it…” 

Of course, this set of tweets was preceded by others, promising to talk tough with China. However, this one also contained a threat to Europe. Perhaps that was why the tweets were deleted, presumably by someone on his staff with more caution than Mr. Trump. However, the President re-posted them verbatim. What are we to make of this? 

When President Trump first launched his trade war in early 2018, it took the form of blanket protectionism, with announced measures applying to all countries exporting to the US, and appeared to hurt them more than China. It began with solar panels and washing machines but soon escalated to more serious measures like the 25 percent tariffs on steel and 10 percent on aluminium. This affected many countries and some, such as Canada and South Korea, were granted limited exceptions. 

Since then, however, the focus has shifted chiefly to China. So, are we looking again at a more generalised trade war? Why? What will be its effect on Europe and its trading partners, like Russia? 

The answers to these questions need perspective: on the real underlying reasons behind Trump’s trade aggression, on the reason for the focus on China, on the larger word trade scene, and finally, on the real opportunities and threats contained in it. Let us address these in turn. 

While there is no doubt that the US economy is suffering from excessive trade exposure, Trump’s trade wars arise less out of his concerns for the US economy than with electioneering. As an outsider to the political establishment, indeed, as the candidate most reviled by it, Trump won his election with a lower share of the popular vote than his Democratic rival, Hillary Clinton, by carefully cultivating and targeting groups and constituencies who felt they had lost out during the decades of neoliberalism and globalisation. That was when the political establishment of both parties entered into trade deals that exposed US workers and businesses to what they considered unfair competition, both for domestic and world markets. With the Democratic Party’s shift to the right in response to the Reagan Revolution, and with the other outsider, Bernie Sanders, denied the Democratic nomination for the 2016 presidential election, these people had no real representative other than Trump. 

The trade wars are a necessary show that keeps them on side. They require Trump to appear tough, on China and, indeed, on the rest of the world. At the same time, trade wars come at a real cost to US companies, including big and powerful ones. They require Trump to negotiate. Hence the various rounds of talks with China. So, at one level, Trump’s tweets are less Twitter diplomacy than Twitter electioneering: after all, the primary season is already upon us. Hence, the stepped-up rhetoric and the widening of the rhetorical target, at least, to Europe. 

Having said this, China has special significance, and has had it for a long time. It is not just that US trade with China is more unbalanced than with any other US trading partner, while it’s more or less evenly balanced with Europe. There is a much larger issue at stake.

Since the 1990s at least, containing the economic threat of China has been a critical aim of US strategy, whether it has been pursued by ‘engaging’ China and hoping that entry into the WTO would tame it, or with Mr. Trump’s current aggression. The rise of China, with other emerging market economies also catching up (albeit from far behind), promises to put the final nail in the coffin of US hopes, nursed since the days of Theodore Roosevelt and refined into a strategy under his cousin, President Franklin Roosevelt, to dominate the world. These hopes were never realised, not least because the USSR, Europe and Japan limited the world available to US capital. Today even their pursuit can only be declared unrealistic. President Trump’s trade and technology wars against China and particularly Huawei, are the last gasps in this strategy. 

And they must remain gasps. US protectionism and trade wars may prevent Chinese goods and technology from reaching US shores, but they cannot prevent China from diverting them to other willing purchasers. Just how many of these there are is clear from the divides opening up between Europe and the US, whether on trading with China, accepting Huawei’s 5G technology or joining the institutions of China’s new financial architecture, such as the Asian Infrastructure Investment Bank. Nor can they prevent China from expanding its potentially gigantic domestic demand, something which will lift living standards at home, and thereby increase the legitimacy of the Communist Party of China. 

Indeed, there is much evidence that in China and elsewhere, domestic demand is becoming a greater stimulant to growth and value chains are in decline, leading to a wider slowdown in trade. Perhaps this is also because home markets are becoming more important due to the shift to services, which are mostly produced and consumed in situ, as Keynes predicted long ago. Certainly, it is because of result of heightened competition for markets. Whatever the particular mix of causes, it ensures that the working classes, their incomes and consumption are becoming more central to growth, making societies more prosperous and growth more sustainable.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.