Kudlow: We're not in a trade war with China ... yet

“We’re not running a trade war,” Larry Kudlow scolded the press earlier today. The media might be forgiven for having that impression the day after Donald Trump ordered US trade representative Robert Lighthizer to consider extending tariffs to $100 billion more in China’s exports over the next several weeks. Nothing has happened yet, Kudlow points out, so QED, no trade war exists.

A shouting war over trade? That one’s on, though:

Yet is the operative word:

President Trump ordered his chief trade negotiator to consider imposing tariffs on an additional $100 billion of Chinese products Thursday, in a dramatic escalation of his trade war with China.

In the latest barb, China’s commerce ministry said that “China has very detailed countermeasures” and will “fight at any cost” to defend its economic interests, drawing the world’s two largest economies into a deeper confrontation.

Trump’s announcement would impose tariffs on a significant share of imported Chinese goods that enter the United States — $505.6 billion last year.

For Trump, though, the operative word might be still. The president retweeted one of his own messages from Wednesday and extended his thoughts on the argument that we’ve been in a trade war with China for years, and have been losing it:



According to the Washington Post, Kudlow may have his own reasons for calming the waters. As expected, he and Peter Navarro have come to loggerheads over trade policy, with Trump’s protectionist adviser appearing to have the upper hand at the moment:

Financial markets have wobbled as investors are led by Trump to think that the trade tensions are escalating, and then they are assuaged by another White House official suggesting that things will be resolved peacefully.

One reason for the public confusion is a split between Trump’s economic advisers. White House adviser Peter Navarro has cheered Trump’s adversarial approach to China. Others, particularly National Economic Council Director Larry Kudlow, have suggested that these moves are all part of a grand negotiation that could result with no tariffs taking effect.

But every time aides attempt to soften the edge of Trump’s trade threats, the president takes direct aim at Beijing and declares that he won’t back down until the gap between U.S. imports from China and its exports to that country is dramatically narrowed.

Is that a yet or a still? It’s tough to tell these days. However, the New York Times notes that this fight isn’t actually about the current trade deficit; it’s about China’s attempt to use, or steal, Western technology to innovate for its future. Trump wants to ensure that US intellectual property gets protected and may be willing to endure considerable short-term economic pain to impede China’s long-term plans:

At the heart of the dispute is a fundamental question: Which of the countries is more willing to endure short-term pain on trade for the long-term gain of playing a leading role in industries like robotics, aerospace, pharmaceuticals, electric cars, artificial intelligence and more.

China has embarked on an ambitious and expensive plan to retool its economy for the future and to dominate these industries. Mr. Trump has said that China’s approach relies on unfair and predatory practices, and on stolen American technology. Even as Chinese leaders say they want to avoid a trade war, they are staunchly defending their plans for high-tech sectors, and showing little sign of backing down. …

China’s $300 billion plan for government assistance, Made in China 2025, calls for helping cutting-edge industries by providing low-interest loans from state-controlled banks, guaranteeing large market shares in China and offering extensive research subsidies. The goal is to help Chinese firm’s [sic] acquire Western competitors, develop advanced technology and construct immense factories with considerable economies of scale.

It is an agenda that China would probably go to great lengths to protect. “We will not start a war — however, if someone starts a war, we will definitely fight back,” Gao Feng, the commerce ministry spokesman, said at a news conference in Beijing on Friday. “No options will be ruled out.”

Gordan Chang writes at the Daily Beast that Trump’s doing something bigger than a trade war in blocking CM2025, and that there is no cost-free alternative to it:

The president has already stopped two Chinese acquisitions of American tech companies. First, he thwarted Canyon Bridge Capital Partners, a Chinese-controlled buyout fund, from taking over chipmaker Lattice Semiconductor. More important, Trump just stopped Singapore’s Broadcom from making a run at Qualcomm, the giant competing against China’s Huawei and ZTE in the race to dominate 5G wireless communications.

The news of Trump’s additional $100 billion in tariffs is now tanking markets. Investors don’t like “trade wars” or disruptions of any kind.

Yet the current relationship between China and the U.S. needs to be disrupted. Chinese theft of intellectual property is sapping American innovation and therefore America’s economy. The IP Commission, in a 2017 update (PDF) to its landmark 2013 report, estimates the U.S. each year loses somewhere between $225 billion to $600 billion in intellectual property through predatory means. It almost goes without saying that most of that loss is, directly or indirectly, to China. …

If Washington is not going to help create the technologies of the future, it at least has to protect what the private sector in the United States develops. No one likes trade friction, but after decades of failing to stop Chinese theft, there are no more no-cost solutions. And there is now no choice but to impose costs on China greater than the benefits it obtains from theft.

If that’s the case, then Kudlow had better resign himself to Navarro winning this argument, or more literally resign in terms of his position. The political question will shift from “are trade wars bad” to “how much pain can an administration sustain for how long before getting tossed out of office.” If it takes more than a threat of sanctions, it could take years to wear down Beijing in their pursuit of US intellectual property and toeholds in the US high-tech sector. If Trump can’t sell this as a patriotic effort to protect American property rights, Republicans are going to pay a stiff price at the ballot box, not just in the midterms but in 2020 as well.