The Ongoing United States-China Trade War Is Unhealthy

Trade wars are unhealthy for economies and other living things. While trade between the U.S. and China is a tiny part of global trade, JPMorgan Chase (NYSE:JPM) says the trade war is putting a “cap” on the global economy. CEO Jamie Dimon says escalating trade tensions could end the recovery. Half the globe’s growth comes from trade.

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If nothing else, the trade war forces people to choose sides.

TV analyst Jim Cramer has become a “trade hawk,” a stance that lets the administration call those who favor growth “trade doves.”

Alibaba Group Holding (NASDAQ:BABA) executive chairman Jack Ma is talking up a listing in Hong Kong, to make his company more independent of U.S. investment.

In an era of stupid policies, this is the biggest stupid of all.

Trade Reciprocity

The trade war is partly based on a lie. The lie is that the trade deficit is money “lost” to a trading partner.  In fact, it’s a cost of goods sold, recouped in the form of lower prices, not just for toys and diapers but for finished goods the U.S. can export.

The trade war is thus largely based on fear.

The fear is that China is taking the future, that China will dominate the world unless our trade deficit with it is reduced. Ultimately the argument is that trade is war by other means.

China’s “belt and road” initiative, an enormous infrastructure project of road and port improvements around the world, funded by Chinese loans, is called a “debt trap,” a way for China to gain control of remote economies.

Mainly, the U.S. relationship with China is seen as a win-lose proposition. If they rise, we fall, and vice versa.

This is the biggest lie of all.

What the U.S. Wants

The stated goal of U.S. policymakers is equal treatment for U.S. technology. American internet companies are kept out of China and every niche has a Chinese imitator, because China wants absolute control over what its people say and see. One in five U.S. companies claim China has stolen its intellectual property. Chinese products are accused of being used to spy, which is why the U.S. is cracking down on Huawei.

Unfortunately, that war has already been lost. China is integral to the global supply chain, especially the U.S. supply chain. Every major U.S. tech manufacturer has close ties to China. That’s because even educated Chinese labor is cheap and abundant.

Every escalation in war rhetoric hits companies like Apple (NASDAQ:AAPL) hard. Since things heated up in April, Apple is down 12%. Nvidia (NASDAQ:NVDA) is down nearly 30% from its April highs, a loss of around $20 billion.

The Bottom Line

This administration doesn’t care who it hurts in the pursuit of power, except Wall Street.

If the trade war starts costing Wall Street big money, and moneymen stop listening to trade hawks in the name of profit, Trump will turn around as he did early this year, after the fall’s tech wreck.

It’s all a game, a way of saying that America is still King of the World. Make America seem great again.

But America isn’t King of the World, nor should it be. A win-win deal can be made, and we should make it. We will, once the market tells this administration that it must, or we may see business go Democratic in 2020.

Dana Blankenhorn is a financial and technology journalist. He is the author of a new environmental story, Bridget O’Flynn and the Bear, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL, NVDA and JPM.

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