The Trade Wars are over and China has won

There is a reality that few Americans want to face. The great trade war between the United States and the Peoples of Republic of China is over, and the Chinese won. What’s even more bizarre is that one of the few people to grasp this reality is Donald J. Trump.

The numbers of just one basic material steel, indicate that China is the greatest manufacturing nation in human history. The People’s Republic has the capability to crush the United States in trade and manufacturing – if it wants to.

China Won the Steel War

Chinese mills accounted for 49.2% nearly half of the world’s crude steel production in 2017, Worldsteel calculated. The United States produced just 4.8% of the world’s crude steel less than India which smelted about 6% of the global steel production.

China’s steel production was nearly times larger than America’s, Wordsteel data indicates. China produced 831.7 million tons of steel in 2017 while the United States produced 81.6 tons of steel. That made America the world’s fourth largest steel producer behind China, Japan, and India.

Chinese steel production is now more than eight times that of its closest competitor: Japan. If there was a steel war, China won it and there is little that America can do besides protect its dying steel industry.

These numbers provide some justification for Trump’s recently imposed 25% steel tariffs. America needs at least some steel production to provide weapons for its militaries. Most of the tools of modern war; including firearms, artillery, missiles, planes, helicopters, artillery shells, drones, tanks, ships etc., are still made from steel. No steel and America has no military.

Note: it would probably be cheaper and more efficient for Uncle Sam to simply subsidize enough steel production for military needs which are modest. Another solution would be to simply stockpile large amounts of steel for military purposes. Both options would be cheaper and less disruptive than raising the prices of manufactured goods.

Does China Own America?

A few statistics will tell was why America has allowed China to dominate steel. These numbers are:

  • The number of Americans working in the steel industry in 2017 which was 58,600, Bloomberg estimated.

 

  • The number of Americans working in the retail and wholesale trades which was 20.314 million in 2017, according to the US Bureau of Labor Statistics.

  • The number of Americans working in the retail trade which was 16.720 million.

 

  • The biggest US retailer Walmart (NYSE: WMT) employees around 1.5 million Americans or nearly 20 times the number of people that work in steel. Walmart is the largest private employer in 19 states, Quartz pointed out.

 

The present American retail and wholesale trades depend upon imports from China. Any serious disruption in that supply chain and millions or tens of millions of people get thrown out of work.

Such disruption would mean that any chance of reelection President Trump (R-New York) had would go straight out the window. Angry voters would also punish the Republican Party; which is now closely identified with Trump, at the polls.

The tiny number of steel workers and the vast legion of retail workers explain why there will be no trade war with China. Any such war will threaten economic, social, and political stability in the United States and destroy a lot of politicians’ careers.

Trump’s Trade Appeasement and War on Europe

This puts Trump between a rock and a hard place, because he was elected on a “get-tough-on China platform” that would be politically impossible to implement.

Trump is trying to appease his xenophobic base with limited tariffs on Chinese items ($30 billion this year and $13.5 billion in 2017) and tough trade policies against weaker nations that cannot fight back. The hope is the combination of bluster and hysterical media coverage will fool Trump voters into thinking the president is “doing something about trade and China.”

The bluster masks Trump’s real policy which is trying to get the best deal out of China that he can. Trump understands that they will not be any big winners, but America might get a slightly better deal from the People’s Republic.

Instead of confronting China directly, Trump is trying to shore up America’s ailing manufacturing sector by forcing Europe, Canada, and Latin America to buy as many US goods a possible. The trade war against the European Union and the UK is designed to get the EU to drop all of its barriers to American goods.

This stop gap measure will create some new jobs in the US without disturbing the cornucopia of cheap goods at Walmart, Amazon, and Costco that average Americans love. If successful, Trump’s tough on Europe policy might increase the amount of merchandise at those stores by forcing Europe to ship more low cost stuff to America.

After Europe there are plenty of weaker trading partners Trump can pick on; including Saudi Arabia, Japan, India, Russia, Israel, Brazil, South Africa, and Latin America. All of those nations would be very vulnerable to Trump’s trade bullying.

Trump wants a US-Chinese Trade Alliance

Trump’s ultimate goal appears to developing a close US-relationship with China. Despite his rhetoric the Donald has made a number of moves that strengthen China’s hand around the world.

The most visible move is the agreement with North Korean tyrant Kim Jong Un which might lead to a withdrawal of US forces from South Korea. It gets US troops out of China’s front yard; which has been a goal of the People’s Republic since Mao’s day.

Denuclearizing North Korea makes China far safer and more secure by getting rid of the bombs and missiles Kim has pointed at Beijing. North Korea’s nukes are theoretical threat to the United States. North Korea is in position to nuke both Beijing and Shanghai right now.

Trump also scrapped Barack Obama’s (D-Illinois) policy of trying to build a new global trading alliance; the Trans-Pacific Partnership (TPP), to contain China. Obama was trying to reassert American global economic leadership by shutting China out of markets. Obama was attempting a 21st Century version of Britain’s Empire-Only trading scheme of the 1920s and 30s; which was designed to shut America, Germany, and Japan out of global markets.

To be fair to Trump, Britain’s empire-only trade failed miserably and helped trigger World War II. One reason why Japan went to war against China in the 1930s; and the United States in 1941, was to build its own anti-British trading bloc – the notorious “Greater East-Asia Co-Prosperity Sphere.” Hitler had has own plans for a Co-Prosperity Sphere that included Europe, the Middle East and the Soviet Union.

Some sort of US-China trade alliance that would form the basis of a new global trading system would be more viable and profitable than a world divided into several trading blocks. The problem is that Trump has not outlined his vision for that alliance, but a strong possibility is that he simply wants Beijing to take the lead. After all it is the leader who takes the risks in such a relationship.

Is Trump Pro-China?

All of this will fuel the suspicion that Trump is pro-China or sympathetic to the People’s Republic.

A good case can be that Trump’s brand of law and order conservatism is very compatible with Beijing’s brand of authoritarian capitalism. To add fuel to the fire Trump’s daughter Ivanka and her in-laws have made a lot of money doing business with China.

Another possibility is that Trump thinks America has enough leverage with China to force it to take over some of America’s military and other commitments. For example to place Chinese troops in Poland or the Ukraine to contain Vladimir Putin. Or to have the People’s Liberation Army police the Middle East.

The US has far more leverage with China than many people realize. America bought $506 billion worth of goods from the People’s Republic in 2017, Quartz estimated. That means the United States subsidized the Chinese economy with over half a trillion dollars. China dominates steel because America footed the bill for its expansion.

Trump expects to get something back for that money; besides low prices at Walmart which is a reasonable demand. The problem is Trump has not made that clear or publicly stated what he wants.

This puts Trump in a very vulnerable position because he will be branded a Chinese puppet. That demonization is beginning with op-eds condemning Trump for “appeasing North Korea” in so-called liberal media outlets like The Washington Post.

That might make it impossible for Trump to make any new moves on foreign policy because the trade wars are over and China has won. The real problem as President Trump is learning is that most Americans; including almost all “opinion leaders,” neither grasp nor accept that reality. Until they do it might be impossible for America to have an effective foreign or trade policy.