President Donald Trump claimed a big win this past Wednesday when he convinced some 75 countries to negotiate on trade and tariffs, leaving China out in the cold. In doing so, he also avoided a bond market disaster. But are not be out of the woods yet.
Thousands of American businesses, and potentially millions of employees, are still on the front lines of the trade war with China — a war that took many by surprise.
The risks of that confrontation threaten the entire U.S. economy.
That is not to minimize what the Trump administration achieved this week, after the president took on all comers in a global trade confrontation, like Bruce Lee in a kung fu movie.
In doing so, Trump goaded China into taking a hard line that cut it off, not just from U.S. markets but, potentially, from an entire American trading bloc. Whether Trump had gamed out every exact move, or simply found a path by applying constant pressure, it worked.
China has been a disruptive player in global markets ever since it was admitted to the World Trade Organization 25 years ago, without having reformed its internal politics since the horrors of Tiananmen Square.
But the U.S. and others believed that trade would make China’s political system more democratic, as it made China’s economy more free. And American companies wanted access to the vast Chinese market, and China’s labor force.
At first, trade between China and the rest of the world was mutually beneficial. Many U.S. firms set up production facilities in China, while Hollywood found a large new audience for its cultural products. American consumers benefited from lower prices, and China’s middle class began to flourish.
But then China started outcompeting its trading parters. Around the world, for example, textile factories began shutting down, unable to match low Chinese labor costs.
China also stole the intellectual property of western firms. It insisted that they share their knowledge as a condition of doing business in the country — then set up Chinese firms that outcompeted the foreign ones.
China also kept labor costs artificially low, in some industries, by using exploitative labor practices — or, in the case of the Uighur Muslims, slave labor. Some U.S. companies began pulling out of China; others saw no real alternative to operating there.
Meanwhile, China held a growing amount of American public debt, giving it leverage over the U.S. Instead of China becoming more like America, the U.S. became more like China.
Movie studios shaped their content to avoid offending Chinese audiences. Social media companies began helping the government censor its critics. And during the coronavirus pandemic — which began in China — U.S. authorities shut down the economy; some shut own basic rghts.
The Wall Street Journal’s William Galston, the paper’s only left-of-center columnist, observed that much of the anxiety over globalization was not a function of trade itself but of the unique challenge that China posed. Conventional economic rules did not seem to apply to a trading partner that had the power to distort markets on its own.
Admitted into a “free trade” system, China has tried to manipulate the rules to dominate trade for its own enrichment and power.
Trump is the first president to have perceived that China is both a partner and a rival, perhaps even an enemy. He launched, and won, a trade war with China in his first term, and began a process of “decoupling” from China, especially after the coronavirus.
That process might have continued, had Trump not lost to Joe Biden in 2020 — a president with corrupt business ties to China, through his son, Hunter — a story the media worked hard to suppress when it emerged.
Trump has returned — four years, and trillions of dollars in American public debt, later — and he has adopted a more aggressive strategy to counter China.
That includes controlling key points on global trade routes — Greenland, the Panama canal, Gaza (near the Suez Canal), the Cape of Good Hope — and launching the ongoing trade war, which has led China to retaliate, even as other U.S. trading partners sought opportunities for negotiation and compromise.
We will have to wait for the history books and the insider accounts to learn how much of the last week was clever calculation, and how much was blunder and luck. But it seems likely that Trump’s ultimate goal was, consciously, to divide the world into trading blocs and ask our trading partners to make a choice: either the authoritarian, communist regime of China; or the democratic, free market system of the United States, flawed and messy though it may be.
That strategy is well on its way. But it has also left thousands of American entrepreneurs, and potentially millions of workers, in the lurch.
Giant companies like Apple can move production from China to India. For anything smaller, the tariffs are absolutely devastating — whether little mom-and-pop stores selling imported goods, small manufacturers using Chinese components in American factories, or gutsy inventors looking to scale up production beyond their garages.
I spoke to an old friend from my Chicago days, Rick Woldenberg, this week. His toy company, Learning Resources, makes educational products that you may recognize from your childhood or your children’s schools.
When the China tariffs, and counter-tariffs, hit this week, he was forced to pause production and shipping throughout his entire U.S.-China operation. His tax bill went up 50 times — yes, five-zero — from $2.3 million to $100.2 million, overnight.
At a 20% tariff, Rick says, American companies like his got the message: move production out of China. At a 145% tariff, Rick says, the message is: “Die.”
Rick’s company is a family business that has been around for a century. It employs 500 people, many in the Midwest. It had, until now, been in solid financial shape.
Now, Rick told me, he faces going out of business. And he warned that if he faces that risk, then thousands of other companies doing business in China, who may have less flexibility than his, could be making similar choices. A “contagion effect” may be imminent: a cascade of layoffs and closures.
With more than a hint of bitterness, he says he was doing fine before President Trump decided toe “fix” things. He understands the larger economic and strategic issues at stake, but his first responsibility is to his customers, his 500 employees, and his family legacy — a legacy of manufacturing, most of it in America.
Rick has a suggestion: as long as we are pausing the implementation of tariffs on everyone else for 90 days, why not pause the tariffs for China as well? At least for long enough for his company to shift production, long enough to produce Christmas orders and put them on the water by July.
Christmas, he notes, might be very cold indeed if the goods on which retailers depend fail to arrive in American ports. And we won’t be able to make them domestically yet.
Perhaps this is all part of the plan — the anticipated cost of the trade war that may, in fact, have been inevitable, whether Trump decided to take a stand right now or leave the task to someone else. But if there is any way to mitigate that cost, it could provide Trump with the political cover he will need to fight this war to victory.
A “Christmas truce” — extending the 90-day pause to tariffs on China, to fill Christmas orders — could be a timely, essential respite.
Joel B. Pollak is Senior Editor-at-Large at Breitbart News and the host of Breitbart News Sunday on Sirius XM Patriot on Sunday evenings from 7 p.m. to 10 p.m. ET (4 p.m. to 7 p.m. PT). He is the author of The Agenda: What Trump Should Do in His First 100 Days, available for pre-order on Amazon. He is also the author of The Trumpian Virtues: The Lessons and Legacy of Donald Trump’s Presidency, now available on Audible. He is a winner of the 2018 Robert Novak Journalism Alumni Fellowship. Follow him on Twitter at @joelpollak.
