A trade war between the US and China is underway. It began when President Trump announced that he would impose tariffs of 25 percent on steel and 10 percent on aluminum. Those tariffs originally were worldwide and so not aimed directly at China, although as Trump exempted various countries it looked increasingly like China would be the main target. China retaliated with more modest tariffs on some American goods.

       Those tariffs were carefully aimed at industries in states with important Republican members of Congress. Trump then escalated by announcing tariffs on $50 billion of Chinese goods in the hopes that threat would convince China to stop demanding access to American advanced technologies in return for giving US firms access to Chinese markets. China then stated it would impose tariffs on an equal $50 billion of American goods. Trump then threatened tariffs on an additional $50 billion of Chinese exports.

       Perhaps Trump or the Chinese will back down. The US stock market has fallen after each announcement and Trump now is under pressure from big US capitalists to end the trade war before they lose more of the value of their stock holdings. On the other hand, trade deficits were a central issue in Trump’s presidential campaign and if he can’t win any concession he will look weak or like a hypocrite before his most fervent supporters. Of course, most Americans don’t pay close attention to the details of trade agreements and so Trump could present the results of direct negotiations with China or of cases sent to the World Trade Organization as victories and signs of his negotiating prowess and toughness. As long as Fox News presented the results that way, Trump voters probably would accept the outcomes as victories for America.

       There are pressures on China’s government too. US imports into China are mainly food items, and if tariffs raise the costs or restrict supply Chinese consumers will have a real grievance against their government. Other US imports are coveted consumer items, like IPhones, and higher prices or loss of supply also will anger consumers in China. In any case, China exports far more to the US than the US does to China so it has more to lose if restrictions are imposed on both sides.

       Trade wars, like real wars or trade negotiations, can be won only if smart, knowledgeable and disciplined leaders lead the effort. Here the US is at a huge disadvantage. Trump has never displayed intelligence for anything except public relations and media performance. He has never shown any sign of being willing to overcome his limitations through hard study. All that wouldn’t matter much if a team of high quality advisors to whom he was willing to defer surrounded him. George W. Bush wasn’t much smarter than Trump and he was almost as lazy, but he had the good sense to leave the hard work of administration to dedicated and intelligent, though ideologically extreme, aides most notably Dick Cheney. China, in contrast, has trade negotiators, and indeed an entire economic team, with many years of experience who were the academic stars of their generation, work hard, and plan far ahead.

       The imbalance in the abilities of the US and Chinese teams will matter. Trump’s tariffs were poorly planned and there is no indication he and his aides have plotted out the contingent steps they would need to take if China refuses to back down. Beyond the immediate back and forth of trade threats, there is a need to figure out how to shelter the overall economy from the effects of trade restrictions. On this count, China’s advantage is overwhelming. Trump’s economic advisors and his Treasury Secretary are the most ignorant and ideological of any set of people to occupy those posts at least since the Great Depression. Beyond the skill of the economic planners, we need to consider the government’s capacity to implement measures that can compensate for the losses firms will face as their access to markets are reduced. China has state banks and numerous state-owned firms that can extend loans, buy excess production, and offer favorable terms to countries that would take up the slack of the lost American market.

       In contrast, US firms are mainly on their own. There are no state-owned banks in America, and the Federal Reserve never has given loans to individual firms as opposed to their repeated bailouts for banks and financial firms. The only large-scale government buyer of privately produced goods is the Pentagon, and their purchases can’t be switched to the products that US firms no longer would be able to sell in China. Beyond that, US firms, like firms in many countries, make use of global value chains. If China is cut out of those chains, or if goods that pass though China are subjected to US tariffs, American firms will lose market share because their goods will become more expensive or they will surrender markets to firms that don’t use China and thereby sacrifice profits. It is no wonder that even the hint of a trade war has led to sharp declines in the prices of US stocks.

       Countries engage in real wars and trade wars even when their prospects of defeat or of costly stalemate are high. We shouldn’t expect Trump to pull back because he realizes his strategy is counterproductive or likely to fail. His ignorance and his self-image as a daring and aggressive president will blind him to a clear consideration of reality. The only restraint on Trump is political. If China can move quickly to demonstrate that US firms will pay a high price for a trade war, those firms will be able to pressure Trump, and just as importantly Congressional Republicans, to reverse course. Trump may feel he is free to do as he pleases, but he can’t do much without Congress, and members of Congress are always in need of contributions from the capitalists who would be harmed by a trade war. No doubt, the Chinese are aware of how American politics and economics work. My bet is that China will emerge victorious in this trade war. The only question is how quickly, and after how much damage, Trump will face reality.

       Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.