Irrational Move

Tariff war leads to lose-lose situation

The fact that we are not preparing for a formal signing ceremony for a new trade deal between China and the United States has come as a shock to me, to global businesses and most experts who have been tracking the by far year plus long process.

The thinking in capitals, in boardrooms and in financial markets was that only major and surprising development could derail the process. It is still hard to say exactly what happened, and when, but it seems there was a retreat on final terms from both sides.

The Donald Trump administration has responded with the one blunt instrument they have depended on from day one–more tariffs. I can only see here, again, as I have over and over. Tariffs help no one, no one economy, no one government and are simply a free trade and business killing tax on the people who can afford it the least, everyday workers and consumers.

The impact of the new tariffs is going to be twofold. Products, whether finished products or products made from tariffs raw materials and components, will be more expensive for U.S. consumers. In essence a new tax will be levied upon them that could hurt overall consumption and thus economic growth in the U.S.

The tariffs will also further damage the manufacturing industry in China. It has been a difficult year for Chinese producers and the pain now may worsen. Many U.S. companies have already moved or put plans in place to move pieces of or all production out of China due to the tariffs.

This will further disrupt the global economy as uncertainty will continue to be the word on everyone’s mind and markets and businesses detest uncertainty.

As wherever I have spoken on the subject, the trade imbalance is not the measure of the health of trade between the U.S. and China or anywhere else for that matter.

Fair trade, free trade and mutually beneficial symbiosis in trade is what counts. Each country offering the other what they need on a long term and natural basis is the answer. I am more concerned about China buying U.S. brands and retail products as a way to help the U.S. and Chinese economies grow. The U.S. needs to make more consumer products and China needs more consumer and service spending to grow the economy.

The trade war can end by both sides committing to fair, balanced, and free trade, and through compromise. No one has ever won a trade war and no one has ever moved forward with a partner of any kind without compromise. It’s the foundation of human progress.


The author is vice president of China/Asia Pacific strategy and global digital practices at consulting firm Tompkins International