Fighting 'Em On Home Turf

might be a bad idea

Trump’s Trade War

The past month of the Dow Jones looked like this (last week highlighted).

All of you reading this know why. But for posterity let me repeat: President Donald J. Trump announced tariffs on every nation on the planet, plummeting stock markets worlwide. Then—a week later—he lifted some of them, causing the stock market to recover some of its value. What remains is a baseline tariff of 10% on all goods, as well as an eye-popping 125% tariff on China specifically.

I may accuse the President of all sorts of shortcomings, but you will never find me calling him a bad marketer. After all: if those tariff rates listed above had been announced out of the blue, the market would have crashed ~4% that day, and people would be eagerly demanding the they be lifted. Instead, everyone’s expectations got anchored to the broad-tariff situation, and the current status quo looks like a reprieve in comparison.¹

But I do hope that you—the reader—can muster the mental energy to see through that and realise that we’re still in a high-tariff environment. And while nobody can really predict what the Don might do next, the fact that this is treated as a deescalation makes the current situation more likely to have permanency. So let’s think trough the implication of the rates as they stand.

The 10% global tariff looks to me as old fashioned protectionism. It’s a bad idea. But you don’t need me to explain that. There’s plenty of articles on reason.com and elsewhere for you to consult on that instead of me. Instead, I want to focus in on the prohibitively high tariffs on China, and what a bad idea they are, even ignoring the economics.

I think it’s quite clear what Trump is doing here. He has loved tariffs at least since the eighties. He has hated China for just as long. Or rather he has hated the Jungian archetype presently incarnated as “China”, which then was incarnated as “Japan”. Few things in this world would satisfy him more than to bring it to heel, using his favorite tool. He has started a trade war. And he believes he can win. By killing their export market Trump hopes that he can make China blink.

China’s Resolve

But China won’t blink, and the United States will. That is because China is not governed for the benefit of the well-being of its population. China is governed for the interest of the CCP and its revolutionary project. Sometimes that project involves creating lots of wealth to enhance China’s power. But when the interest of the Party and the interest of the people conflict, the party always wins.

Trump’s tariffs will hurt China. There is no doubt that Goldman Sachs has downgraded their economic growth projection. Instead of 4-4.5%, growth, they now predict 3.5-4%. Excuse me if I don’t think this is keeping Xi up at night. Remember that this is the party that didn’t squint at killing tens of millions of people in the “Great Leap Forward”, just so they could industrialize faster.

Before you ask: This wasn’t just Mao. Zero Covid should suffice to demonstrate this. That move cost China way more than this tariff move.² Only after months of protest—and after it had become abundantly clear that Zero Covid was a massive failure—did they finally relent. It took so long mostly because changing course hurt the reputation of the Party. Granted, they did eventually relent. But China will be much more stalwart even than that in this episode. Not only the reputation of the Party is at stake here. Losing here is a matter of national pride. And that is a cause that they can easily get the entire populous around, not just the party insiders. Trump thinks that he can use US market power to impose unequal treaties on China. But if he had bothered to Google the phrase “unequal treaty”, he would have discovered China’s colored history with that particular phenomenon. The entire life work of every CCP member is to overcome the Century of Humiliation those treaties accompanied. They would rather die than sign another.

Meanwhile, The United States.

Pictured above are the electoral consequences of 7% inflation for two consecutive years. The American voter is enormesly fickle. Trump got elected on a 49,8% plurality. Almost half the country actively wants him to fail. If China wants to sit back, do nothing, and win. They just can. Even if it takes the whole four years of Trump’s second term. 85% of their exports go to countries other than the US. Those will remain undisturbed. Just wait for the Presidential election to happen. Democrats are guaranteed to win it given the economic effects of the tariffs. Dems don’t care about the trade war and would be desperate to end it. Hell, you might even get an unequal treaty out of them! This would be the kind of propaganda win your regime can ride on for decades! A generation of Chinese children will be taught about this event as the paradigmatic example of the decadence and weakness of democracy.

It doesn’t have to last that long of course. If GOP congress members don’t want to get nuked in the Midterms, they’ll know to rob the baby of his toy before then. They may get primaried by MAGA challenges, but if you’re fucked either way you might actually make the good decision. In a pinch, you might vote for a bill between securing the primary and the general election. Good luck!

Trump decided to attack China where their strengths are, and America’s weakness lies.

Giving Up On Your Strength

So am I telling you that the US was doomed from the start in a confrontation with China? Is China right about America’s degeneracy? Anything but. America has the strongest alliance structure the world has ever seen. Compare this to the alliances of China. They got Russia at best. But those two are just as ready to eat each other’s carcasses. Besides, Russia already has plenty on its plate. This is not unrelated to America’s liberal democratic character. Because—call me naive!—democratic peace theory is unironically true. Despite the absence of a treaty like the USSR, US allies have stuck around because they know that alliances between liberal states are positive-sum arrangements.

At least so they were. The behavior of the United States has made this no longer so. First, the administration made it clear to Zelenskyy that their military support is contingent on the “cards” that you have. No loyalty. After that Vance’s disdain for Europe leaked to the public, alienating America’s most important ally. Finally, last week Trump revealed “retaliatory tariffs” on all the nations of the world. Without concern about whether they are allies or enemies. Now both Japan, Korea, and the EU are looking toward China to jointly respond against the United States. Instead of relying on its strength—its allies—the US squandered every tool it had to only to attack China in a way that seemed designed to guarantee a loss.

1. I wrote this section before I knew how much the Dow would drop today! Now I’m not so sure anymore.

2. The first paper I found suggests 3.9% GDP loss, eight Trump tariffs!