Trade War: Perceived Woes Do Not Need to Lead to Real Economic Issues

Economic views tend to be based on the perceived benefits to the individual.  It is why Americans from all income classes prefer tax policies that reduce their individual tax burden, even if those policies are fiscally unsustainable and far more beneficial to the wealthy.  It is also why the managers of trade-dependent businesses generally prefer liberal trade relationships and why workers often oppose policies that favor imports.  Unfortunately, people are inclined to be terribly shortsighted when it comes to their economic interests.  As such, most people typically focus on their own narrow, short-term perceived economic benefits and exclude their broad, long-term economic benefits.  It is why those who wish to avoid an impending US-China trade war, including the Chinese government, have launched political campaigns emphasizing the individual impact.  

​As Washington and Beijing exchange threats of sanctions, market volatility has increased and corporate American has grown increasingly jittery, but little of that matters to average Americans.  Because the benefits of an expanding economy have not been evenly distributed, fewer and fewer Americans have a vested interest in the performance of Corporate America, even if stock performance ties into their long-term retirement plans.  What matters to most people is the impact on their incomes and their jobs.  Consequently, news coverage has framed trade policies in terms of employment numbers, which continues to be strong, and consumer costs.  Just as higher interest rates raise borrowing costs, which can also inspire business leadership to reduce payroll costs, volatility from a dramatic shift in trade relations can encourage businesses to reduce their payroll and lead to higher consumer prices.
 
Unfortunately, it is precisely this perception of a faltering economy that could derail a reasonable healthy economy.  Because the economy is just as susceptible to perception as it is to real economic factors, the world must be careful not to overreact to the anticipation of a trade war and other seemingly anti-business policy shifts.  Should investors over anticipate bad news, they can easily send the stock markets into a downward spiral, which can disrupt the flow of capital to the broader economy and force businesses to scrap heir plans to expand as well as reduce their operations.  The loss of jobs and income can, in turn, inhibit the ability of working class consumers to spend and consume.  Even if a trade war materializes between the US and China, recognizing the resolution of a trade war will likely mean greater restrictions to trade, analysts, investors, and business leaders need to focus on the real world shifts in economic conditions, which will only be felt months after new policies have been implemented.
 
The Trump Administration and supporters of his trade policies hope changes to US trade policies will help raise revenue for the US government, make US businesses more competitive on the global stage in the long run, and help fuel job creation inside the US.  Those opposed to Trump’s policy changes fear a loss of opportunity.  Like all things economic in nature, it is a question of who benefits, how, and when.  Cheap goods are irrelevant without jobs and incomes.  Trump’s focus on rebalancing trade relations in order to rebalance the US economy, so it better serves the interests of the US population, is part of an effort to provide greater benefits to the majority of people who have not seen sufficient benefits from decades of increased economic and productivity growth.  There will, of course, be losers in the short-term, but a healthy economy is beneficial to all in the long-term.  If economic news can be received under this more constructive and positive viewpoint, the perceived woes of a US-China trade war will be avoided and the struggles of real economic issues can be addressed.
 
For the most part, Donald Trump’s approach to tariffs has been to balance existing tariffs and trade barriers against US goods.  For its part, Beijing has responded by targeting products that Chinese consumers like to buy in industries politically connected to the President.  Through initiatives like the $300 billion Made in China 2025, Beijing has also continued to promote Chinese industries above foreign competitors.  If a true trade war materializes between the US and China, America-based companies will lose access to potential opportunities in China, which come at the cost of their long-term competitive edge on a global scale.  In the broadest of terms, the US needs to balance its ballooning trade deficits.  China, of course, has an interest in maintaining a global economic that favors its expansion, thus Beijing is inclined to embrace escalation instead of conflict resolution.  Beijing has a compelling, self-serving economic reason to stoke fears of economic woes, but it also has a broader, long-term interest in a stable, balanced global economy.