“Pressure, threats and blackmail are not the right ways to deal with China”

They’re not exactly the right ways to deal with anyone

Image: Mr Lin Jian, spokesman for the Chinese Ministry of Foreign Affairs.¹

Condemnation of the Trump tariff spree seems to be fairly universal, not just by Lin Jian, spokesman for the Chinese Ministry of Foreign Affairs, who spoke the words in the title just recently. Not fully universal, but fairly universal. It invites criticism from economists, political commentators, leftist activists (of course), industrialists and some members of Trump’s own party. And it invites interesting comments from economic historians, who point to similar policies being introduced in the 1890s and the 1930s. Tariffs, it seems, are nothing new.

In the 19th century, various attempts were made in the US to introduce—of all things—income tax. A tax on income, first mooted as a response by the Lincoln administration to the costs of waging a civil war. It was resisted and repealed, only for Democrat parliamentarians to make efforts to reintroduce it later in the century, even, as the threat was worded, if it meant their funeral.

The then objection to tariffs, as against income tax, as a means to raise revenue was the fact that income tax is (generally) progressive (i.e., the more you earn, the more you pay) whereas tariffs, imposed as they are at a uniform rate, are, like sales tax or value-added tax, regressive (i.e., the less you earn, the more you pay relative to what you earn).

There is therefore method in Mr Trump’s madness, even in recognition of tariffs’ regressive nature, and calling it out as pure madness may be jumping the gun. His tariff policy may yet work. His problem right now (even though he doesn’t appear to regard it as a problem) is not what his policy entails, but what his policy looks like. It is directed at certain uninhabited territories, which has raised laughter in some quarters, even though it has to be admitted that, for whatever reason, these uninhabited territories did in fact export goods to the United States in the past, and I’ve heard no cogent reasons why that should have been. The tariffs are based on export data, not on population head counts.

Albeit based on export data, however, how the data has been crunched to produce the relevant tariff rate for a given territory has been widely questioned. Many seem to conclude that a somewhat simplistic approach has been taken to both the export/import data and the definition of what constitutes a deficit (excluding as it does trade in services) in order to come up with the relevant tariff percentage. Most economists seem to agree that, if tariffs are to be used as a tax-raising measure, then there are more appropriate methods for arriving at the correct figure. But what, then, is the correct figure?

If one abandons the notion that a tariff needs to be fair or just and hooks simply onto the fact that it needs to be protectionist, then the higher the rate is set, the greater the protection that will be afforded, and that protection is in theory afforded to those domestic industries that produce the same products as are subject to the import tariffs, thus rendering them competitively more attractive, on price if nothing else.

It’s that nothing else that is a little concerning at this stage. For instance, Taiwan exports semi-conductors to the US because it makes the ones that the US wants for its AI technology (the same technology that seems to have devised these tariff rates—perhaps the US needs to import a few more of the Taiwanese super-semi-conductors). Imposing tariffs on Taiwanese semi-conductors may spur the US semi-conductor industry to produce its own semi-conductors, but meanwhile it will need to cough up the extra costs of the Taiwanese products, and in fact may take years to achieve production rates to meet the industry’s need before it doesn’t require to import anything from Taiwan. Deborah Elms, Director of Policy at the Hinrich Foundation in Singapore, said in a recent interview on Al Jazeera that, if a student of hers had presented the tariff policy of today’s White House as an essay in an examination, she would have marked it as a fail. Well, Dr Elms doesn’t have that option right now, of failing the policy. The policy must itself fail, or succeed, and what the test will be of which of those it does is, despite the categorical nature of Dr Elms’s comment, not entirely clear.

In the same interview, Ian Goldin, Professor of Globalisation and Development at Oxford University, spoke of what a disaster the Trump tariff policy is, adding that there is a very low chance that this will pay off, that prices will go up, possibly considerably, but that growth will be recessionary in the US, and consumer confidence will be hit. Professor Goldin is an expert in globalisation, and ought to know these things. But in the end of the day, these are just words. Maybe oil prices will drop and stave off the worst of the inflation that comes from these measures. But who will be able to say what factor contributed what amount to inflation six months or a year from now? Professor Goldin? Dr Elms? Mr Trump?

Mr Trump, much of his cabinet, and many of his supporters are abrasive to a fault. Some think, a pretty grave fault. They have provoked indignation on the part of the Chinese government, by Vice President Vance talking of Chinese products being produced by Chinese peasants. There is in China still a peasant class, just as there is in every country, thanks to the inroads made into our lives in the past forty years by neoliberalism. It is so. But it is unkind, ungracious and supercilious to describe peasants as peasants. Still less if they are occupied in industry to produce what your own country decided many years ago it did not want to produce any longer. There is an argument that they will work, these tariffs, and a lot of arguments that they won’t. In short, Mr Trump is steering the entire world into uncharted territory—with or without inhabitants—and that is resulting in what is, in the end of the day, wild speculation—on all sides. The received wisdom is that fools rush in where angels fear to tread, or, by contrast, that fortune favours the bold. Which?

How would this all feel if Mr Trump had announced that he was terribly sorry to have to be doing this to his loyal trading partners around the world, but that he felt we would in fact all be better off under a tariff-based revenue system rather than income tax? That people should make what they themselves need and have a price to pay for selling it to other nations? What if Mr Vance had referred to Chinese industrial employees, rather than peasants? What if this announcement had come in the same forceful, but reasoned vein as formed the tone of Mr Nixon’s ending of the Bretton Woods agreement in 1971?

Mr Trump stated, on his aeroplane, to the press, that his tariffs are a medicine, which his economy needs to take in order to right itself from a malaise. The aggressive, taunting manner in which he has presented it to the world has not endeared him to much of that world. So why is he so aggressive? Can he not just introduce a policy without the aggression?

Mr Trump and I have something in common: we cannot deny our innate characters. I find it hard to lash out at Mr Trump for all his apparant unkindness, because I feel contrition for my own unkindnesses, and I try to avoid being unkind if I can. That is my innate character. And Mr Trump’s innate character is to lunge for the jugular when he espies a weakness. So that, even if he had the most magical policy for curing the ills of the United States of America and the world in one fell swoop, he would still present it with gloating and malice, because that, he knows, is not only his own innate character, but matches the innate character of many of his followers, thus earning their approval and, from his opponents, opprobrium.

It’s no way to behave in international diplomacy, says Mr Jian; but Mr Trump and Mr Vance and their cohorts have broken all the rules in every other aspect of government, so why would they not break the rules in terms of diplomacy? Ukraine is not alone in earning their disdain. But, just as diplomacy is no guarantee of respect behind the scenes, a lack of diplomacy as shown to one country is now no guarantee of a lack of it towards any other country. No matter how valid his policies may be, he sows mistrust among his friends and foes alike, and poses as a bully to show his strength, which simply makes him a target of invective. That is something he appears, oddly, to relish.

I suspect His Majesty King Charles may yet be more subtle in his diplomacy. I see a date being set for a State visit by Mr Trump, only for His Majesty to be overtaken by complications relative to … his prostate cancer situation, and for the visit regrettably to be cancelled at the last minute. That would be diplomacy that incurred no wrath, but which would send a distinct message nonetheless.

Somewhere down the line, Trump’s tariff policy will work. For someone, somewhere. And, the irony is, somewhere down the line his aggression will also work. Just as calm diplomacy worked in times gone by. The difference will be that, under calm diplomacy, one always uncomfortably wonders what the other side really thinks. With Mr Trump, one has the uncomfortable truth of knowing precisely what he thinks. With both, one has discomfort.

1. By 中国新闻社, CC BY 3.0, https://commons.wikimedia.org/w/index.php?curid=146548927.