The domestic U.S. economy remains strong. Unemployment is low, consumer sentiment is high, and wage growth has been promising for low-income workers. But the yuan’s devaluation is especially bad news for multinational companies with exposure to the Chinese marketplace. Technology firms such as Apple and IBM, which both have billions of dollars in annual sales from the Chinese market, both crashed in Monday trading.
It’s generally prudent to say that the American president doesn’t determine the stock market’s gyrations or the nation’s overall economic growth any more than a boat captain controls the ocean’s waves. In this case, though, the captain seems to be purposefully steering the ship into a swell while everybody around him screams “STOP!” President Donald Trump has stubbornly insisted on Chinese tariffs over the objections of his economic advisers—not to mention the near-universal outcry of the professional economic community. In a University of Chicago poll of several dozen international economists, zero disagreed with the statement that “the incidence of the latest round of US import tariffs is likely to fall primarily on American households.”
Just because the president’s trade war is masochistic doesn’t mean Trump is entirely wrong in his diagnosis that China is a bad actor. The country’s long history of intellectual-property abuse spans counterfeiting, stealing trade secrets, and forcing companies to give up their IP to do business on the mainland. A 2019 CNBC survey found that one in five U.S. corporations says that China has stolen its IP in the past year.
Still, the president is playing a dangerous game of high-stakes poker, with American wages and savings as the chips at the center of the table. And, of course, the stakes can always get higher: Trade wars can become literal wars. In 2015, the Chinese state-owned newspaper Global Times wrote in one saber-rattling editorial that if the U.S. presses China to accept all of its trade demands, “then a US-China war is inevitable in the South China Sea.”
An armed conflict between the two countries would be both catastrophic and anomalous. According to research by the J.P. Morgan analyst Michael Cembalest, the U.S. and China are more economically linked through bilateral trade, foreign direct investment, and central-bank holdings than any two countries that have declared war since the 1930s. A violent showdown between the U.S. and China in the near future remains extremely unlikely. But if Donald Trump has taught the world anything in the past two and a half years, it’s that this presidency does not seem particularly constrained by the forces of historical precedent.