Donald Trump’s China policy has a 1985 problem
Donald Trump once famously owned New York’s Plaza Hotel. Perhaps it’s no coincidence, then, that his economic worldview, and policies toward China, are stuck in a time when that pop-culture landmark found itself at the very centre of global markets.
The Plaza was the go-to setting for movies from Arthur to Crocodile Dundee to Home Alone 2, in which Trump even made a cameo appearance. But the most important scene that unfolded there was the 1985 Plaza Accord. The deal made there to weaken the dollar versus the yen still stands as one of Washington’s greatest economic coups—a reminder that huge things can happen when a strong capitalist is in charge.
In 1985, Ronald Reagan was doing the muscle flexing with an economy Americans feared would subordinate its own. That was back when members of Congress hyperventilated about the US becoming a “colony” of Japan. So did many a business magnates, Trump included. Today, China is cast in the role of colonizer. And Trump is fighting back with policies that might have worked in 1985, but hold negligible promise 32 years later.
Like Japan’s Abenomics, Trumponomics involves bold talk of deregulation, corporate tax cuts and supply-side magic. In reality, both plans are just splashy reinterpretations of the 1985 playbook. Trump’s White House is cooking up its own Plaza Accord 2.0 by weakening the dollar and threatening massive tariffs on Chinese goods. It’s a futile strategy, one that ignores how much the world has changed in recent decades.
Slapping 35% or 45% levies on Chinese goods—communicated via a tweet, no doubt—would be a satisfying slap at Beijing’s mercantilist ways. It also would be a handy way to pull attention off Russia investigations and punish Beijing for not doing more to rein in North Korea. But any victories would be of the Pyrrhic variety. Count the ways President Xi Jinping might retaliate: a sharp yuan devaluation; taxes that bankrupt Wal-Mart Stores Inc. and devastate Apple Inc. and General Motors Co.; or dumping $1.1 trillion of US Treasuries. Beijing could cancel all Boeing Co. orders, killing 180,000 American jobs overnight. It could halt soya bean imports, slamming the Mississippi and Missouri economies and target beef and pharmaceuticals after that.
As surging prices of imported goods lower US living standards, it’s vital to consider what this part of Trumponomics would not achieve. A trade war won’t increase US productivity, encourage corporate executives to fatten paychecks or reduce inequality. It won’t save America’s crumbling infrastructure, stabilize health care markets, address a mushrooming opioid-addiction crisis or prepare the workforce for automation and artificial intelligence advancements that will kill more jobs than trade with China does.
One of the most head-turning comments from any Trump staffer came from treasury secretary Steven Mnuchin. In March, the former—wait for it—film producer said he’s “not at all worried” that factory robots and other automation tools will displace workers. “In terms of artificial intelligence taking American jobs, I think we’re, like, so far away from that—not even on my radar screen,” Mnuchin, who produced a film titled Edge of Tomorrow, told Axios. “I think it’s 50 or 100 more years.” Ignorance on that scale will make China great again. Beijing is brainstorming on a problem that’s already here. The same goes for China’s headlong push into solar and other renewable-energy sectors as America rediscovers coal.
The US has some company in the past. In Japan, Shinzo Abe has sought to revive the economy largely through exchange-rate tweaks and antiquated industrial engineering. What is Abenomics, with its monetary easing, yen depreciation and corporate welfare other than a futile ploy to reanimate an economy that existed in 1985? None of these policies do anything to make labour markets more flexible, encourage entrepreneurship, curb the bureaucracy, shake up corporate Japan’s insular ways or empower women. Instead, Abe relied on a weaker yen to support exporters and kick off a virtuous cycle of rising wages, consumption and, eventually, inflation. It’s not happening the way it once did.
Even Trump’s successes—like a recent deal to create 13,000 jobs in Wisconsin—betrays a stuck-in-time worldview. How does one find triumph in offering Taiwan’s Foxconn Technology Group $3 billion of perks to build a factory? Wisconsinites are paying $15,000 per job, per year, to support a company that makes the lion’s share of its money providing jobs for mainland factory workers. If that’s not antiquated thinking of the kind that prevailed 30 years ago, what is?
Say what you want about Xi, he’s preparing China for the economic world it will encounter in 2025. Trump, by contrast, wants to drag America back to the one that existed in 1985, one globalization long ago replaced. We’ve seen this movie before—some even set at the Plaza—and it doesn’t end well.
William Pesek, based in Tokyo, is a former columnist for Barron’s and Bloomberg and author of Japanization: What the World Can Learn from Japan’s Lost Decades.
His Twitter handle is @williampesek