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The US is losing the trade war, and that’s good

Summary:
If the US were fighting a trade war over human rights, I’d have doubts about whether it was the right way to address the issue. Nonetheless, I’d certainly root for us to succeed. But this trade war is being fought over economic issues, and thus I hope we lose. Most of the commentary about the mini-agreement has been along these lines: “I’m skeptical that there is anything that could be objectively called a deal,” said Scott Kennedy, an expert on the U.S.-China economic relationship at the Center for Strategic and International Studies in Washington. “It appears that the U.S. was looking to find a way to avoid raising tariffs in the next couple months and reassure financial markets, and so it was willing to accept only an oral agreement on a narrow range of issues to take this

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If the US were fighting a trade war over human rights, I’d have doubts about whether it was the right way to address the issue. Nonetheless, I’d certainly root for us to succeed. But this trade war is being fought over economic issues, and thus I hope we lose.

Most of the commentary about the mini-agreement has been along these lines:

“I’m skeptical that there is anything that could be objectively called a deal,” said Scott Kennedy, an expert on the U.S.-China economic relationship at the Center for Strategic and International Studies in Washington. “It appears that the U.S. was looking to find a way to avoid raising tariffs in the next couple months and reassure financial markets, and so it was willing to accept only an oral agreement on a narrow range of issues to take this step. Xi Jinping has to be quite satisfied with this outcome.”

It will be some time before we know the details of the agreement, but China has made vague commitments in the past that haven’t ended up meaning very much.  Why should they?  The US doesn’t adhere to our trade agreements either.

Of course Trump’s got lots of other problems to deal with.  The Dems are trying to impeach him (and perhaps send another of his lawyers to jail), and the GOP is angry that he stabbed the Kurds in the back.  The last thing Trump wants right now is an escalating trade war driving the US into recession.  (Yes, a recession would technically be the Fed’s fault, but Trump would be blamed.)

So this nearly meaningless deal is actually good news, as it puts off even more damaging steps and gets us closer to the election.  Next year, Trump probably would hold off from further escalation and declare “victory”.

Some argue that a President Warren would be even tougher on China.  That’s hard to say, as the party out of power always claims to be tougher on China and then never is (until Trump.)  But even if she is, she’d likely put a bit more weight on human rights and a bit less weight on making Mark Zuckerburg even richer than he already is.


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Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

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