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Who will lose in the looming US-China trade war?
By FOX NEWS  
OP 01/19/2017

HONG KONG -- With Donald Trump set to take office on Jan. 20, all eyes are on whether the new U.S. president will "walk his talk" by triggering a trade war with China that could result in a no-win situation, according to trade experts.

During his election campaign, Trump pledged to label China as a currency manipulator on his first day in office and slap a punitive tariff of up to 45% on Chinese goods to unwind trade imbalances, although his team members had played down both commitments.

But the real threat to U.S.-China relation may not be in the first 100 days of Trump's presidency. "It's really a year or two from now as fiscal stimulus kicks in and the trade deficit begins to widen," said Marcus Noland, executive vice-president of the Peterson Institute for International Economics, a Washington-based think tank.

Trump's proposed tax cuts and rising spending on infrastructure and defense could generate a substantial fiscal stimulus, resulting in a short-term growth spurt, budget deficits, rising interest rates and a strong dollar.

Marcus Noland, executive vice-president at the Washington-based Peterson Institute for International Economics, speaks at a seminar in Hong Kong on Jan. 9. (Photo by Jennifer Lo)

"What could transpire is a very nasty version of the first [Ronald] Reagan administration" as rising trade deficits led the former president to step up trade protection, said Noland, speaking in a seminar in Hong Kong on Monday.

Peter Navarro, Trump's economic adviser, likens his boss's proposal to the tariffs Reagan imposed on Japanese automobiles and steel imports to protect the U.S. economy in the 1980s. Describing Trump as a "free trader" like Reagan, Navarro said the incoming president would "defend America against cheaters" and make China play by the rules.

Observers are skeptical about Trump's agenda, nonetheless. "He goes without saying that the U.S. is making those demands on Japan in the context of the Cold War," said Noland. Back then, Japan had to comply with the trade restrictions because the U.S. was its "ultimate political and military guarantor."

Different now

The situation between the U.S. and China now is very different. Beijing has made clear that it is ready to fight back if Trump imposes new tariffs on Chinese products. Boeing aircraft, iPhones, soybeans and even Chinese students studying in the U.S. have been identified as possible targets for retaliation, according to a commentary published in China's state-run Global Times.

A recent study by the Peterson Institute estimates that a U.S.-led trade war would cost more than 4 million American jobs in the private sector, sending the country into a downturn. Export-dependent industries that manufacture for sectors including information technology, aerospace and engineering will be heavily affected. It will also have a spillover effect on sectors not directly related to international trade, such as retail distribution and restaurants.

The Bank of Singapore, a private banking arm of Oversea-Chinese Banking Corp., has also warned of adverse consequences from Trumponomics. "The risk of recession has become realistic under Trump's boom-bust policy mix," said the bank's chief economist, Richard Jerram. While fiscal stimulus would add inflationary pressure to a U.S. economy that was near full capacity, higher tariffs could dampen global trade.

So who would lose a U.S.-China trade war?

"Both sides will be losers, because that's the whole point of trade," said Noland, adding that it would be a trade war with a regressive economic impact. The same study showed that the casualties would be disproportionately the most vulnerable people, with lower-skilled and lower-wage jobs -- who voted heavily for Trump in the November election.

Trump has also threatened to impose a 35% tariff on Mexican imports and build a wall on the southern border to curb immigration so as to allow unemployed Americans to "to fill good-paying jobs." But critics like Noland say that if Trump were to send his neighbor into a recession, it would do just the opposite -- the U.S. could end up with a bigger influx of undocumented immigrants.

Still, the first year of the Trump's administration looks like it could be chaotic. "His tweets will set a tone, but the actual policies will emerge from bureaucratic and personal infighting in the system Trump seems to be setting out," said Noland, with the president intervening periodically to micromanage the economy.

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