PresidentTrump,intentonreversingthedecadeslongdeclineofAmericanindustrialcapabilities,hasfallenforthecheap-shotanalysisofhisNationalTradeCouncilchair,PeterNavarro.Navarrohasbeensome-thingofamarginalfigureinacademiccircles,atleastuntilTrumpadviserandson-in-lawJaredKushner,reportedlysearchingaroundonAmazon,cameacrossoneofNavarro鈥檚anti-ChinadiatribesDeathbyChinaandthoughtwellofit.NavarrowasthenbroughtintotheTrumpcampaignasaneconomicadviser.HewasrelativelyunknownbythoseU.S.ChinascholarswhocouldhaveprovidedthePresidentwithcompetentadviceonChina,andwasseenasaright-wingpoliticalwonkwithanaxtogrindbyseriouseconomists.
SowhydoestheU.S.President,whohasestablishedwhatappearstobearathercloserelationshipwiththeChinesePresident,takehisleadfromaChina-hawklikeNavarro?It鈥檚probablybecauseNavarro,inhisbook,hasalsoquitewelldocumentedthedamagedonetotheU.S.economyoverthelastfourdecades.WhatthePresidentdoesn鈥檛understandisthatthisdevelopmentwasNOTaresultoftradingwithChina,butratheraresultofthegradualabandonmentofanysortofindustrialpolicybytheU.S.governmentduringthislongperiodofmajorchangeintheworldeconomy.
ThisproblemofthedecliningU.S.economywasclearlyanalyzedalreadyinthe1970sand1980sbyeconomistslikeNobelPrizewinnerMauriceAllaisandeconomistLyndonLaRouche,whosuccessfullypredictedthe1987financialblow-out.Andtheproblemwasnotcausedbychangingflowsoftrade,butratherbytherapidretreatofgovernmentsupportforcrucialitemslikeinfrastructureandnewscienceandtechnologyplatformsandtherapidincreaseoffinancialflowsawayfromproductionintospeculation.ThelastmajorsciencedriverfortheAmericaneconomywasthemannedlunarlandingprogramannouncedbyJohnF.Kennedyin1961,wellover50yearsago.
ButPresidentTrumpisfundamentallyarealistratherthananideologue.HewouldlikebetterconditionsforU.S.industryandfortheU.S.worker.Butthepunitivetariffshehasimposedarealreadyhavingtheoppositeeffect.Americanfarmers,whohaveagreatdealoftheirproducetiedupintradewithChina,arealreadylookingathardtimes.Therewillbealossofproductionandeventuallyfarmforeclosuresresultingfromthetariffs.AllthemajorU.S.industries,whichforyearshavepurchasedChineseelectronicsaspartoftheirsupplychain,willhavetolookelsewhereorpayasubstantiallyhigherprice鈥揳ndsomewillhavetocloseupshopiftheyareunabletopaytheprice.AndAmericanconsumers,particularlythoseinthelow-incomebrackets,whohavebeenabletoaffordappliances,computers,flatscreenTVs,andsmartphonesatreasonableratesbecauseofChineseproduction,willseepricessoar.AndundertheseconditionsthesupportforthePresidentwilldwindletoatrickle,perhapsmakingitfeltintheupcomingcongressionalelectionsinNovember.
OnMay22,2018,thefourthChina-U.S.Governors鈥橣orumisheldinChengduofsouthwestChina鈥檚SichuanProvince,withafocusontrade,investment,greendevelopment,andinnovativeeconomy.Themeasureswillalsohaveadramaticeffectontheinternationalmarkets,forcingamajorreorientationoftradeflowsforallthecompanieswhohavebeendependentontheU.S.marketfortheirproducts.Moreseriously,thetradedisputecouldwellleadtoanewfinancialblowout.Talkofsuchoutcomeshasbeenrampantinfinancialcirclesforsometimegiventhebloatednatureoftheinternationalfinancialmarket.Acessationofpaymentsinonelimited,butcrucialsectionoftheworldfinancialsystemcouldsendtheentiresystemintofree-fall.
ItislikelythatoncePresidentTrumprealizesthathisgame-planwon鈥檛workandhasbecomeapoliticalliabilityratherthananasset,hewillchangecourse.Theonlyrealquestionis:howsoonwillthatoccur?ItistobehopedthatitwillhappenbeforeadecisionistakenonaplannedsecondtrancheofevenmoresweepingtariffsinAugust.ThetragicironyofthewholesituationisthatifPresidentTrumpreallywantstorevivetheU.S.economy,ChinawithitsuniqueabilityininfrastructuredevelopmentasreflectedintheBeltandRoadInitiative,couldwellbehismostimportantasset.
WILLIAMJONESistheWashingtonBureauChieffortheExecutiveIntelligenceReviewmagazine,andseniorfellowoftheChongyangInstituteforFinancialStudiesatRenminUniversityofChina.