To Deal Or Not To Deal?

An oft-repeated definition of insanity attributed to Albert Einstein is doing something over and over again and expecting a different result. If he were to be judged solely by his most immediate reaction China’s conciliatory trade initiative on September 11th, then it would be fair to say that President Donald Trump is not completely insane.

 trade concessions

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The Chinese had announced that it was not going to be taxing the import of American cancer drugs, lubricants, pesticides, and a handful of other products. Almost immediately, as a “gesture of good will,” Trump delayed for two weeks a planned tariff increase on $250 billion of Chinese imported goods that had been scheduled to begin on October 1st.

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With each side giving a little and taking a little, this could indeed be the start of something big. As someone who considers himself a master negotiator, Mr. Trump is likely already seeing some light at the end of the tunnel, perhaps just like our military leaders used to periodically announce the eventual end of the Vietnam War.

Trump has become increasingly aware that his best chance of being reelected is if we can avoid a recession until after the 2020 election. But it has finally begun to dawn on him that his trade war with China is not helping our economic prospects.

Although the Chinese are quite capable of waiting out the election, after which an acceptable truce might quickly materialize, their own economy is hurting more than our own. So they also have a strong incentive to seriously negotiate. On the other hand, of course, there is no love lost between Chinese president Xi Jinping – who Trump recently labeled an “enemy” of the United States – and Mr. Trump.

Still, with perhaps serious negotiations scheduled for next month with the Chinese, it certainly would not hurt to engage in a series of reciprocal trade concessions with the Chinese. But at what point would it be credible for Trump to declare victory and just call the whole thing off?

He will need one essential concession: That the Chinese once again begin buying large quantities of our agricultural goods.

Since this is obvious to the Chinese as well, they may hold out for a price that Trump will not or cannot pay. So, unless the Chinese are serious about ending the trade war, this initiative, like all the previous ones will not pan out.

In addition, Trump’s impetuousness, lack of patience, self-centeredness, and vast store of ignorance remain potential obstacles to any sustained effort to scale down the trade war. The only thing predictable about the man is his own unpredictability.




About the Author

Steve Slavin
Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy(Prometheus Books) which was published last August. Email - steveslavin@cs.com