Trade War? Maybe Not

The dire sound of sabers rattling in a trade war quieted down somewhat after Chinese President Xi Jinping promised a more open economy.

Xi’s speech at the Boao Forum for Asia in China’s southern Hainan province on Tuesday appeared to take a conciliatory stance in response to President Donald Trump’s recent imposition of tariffs on steel and aluminum and a threat of further sanctions on other Chinese imports.

Although Xi stuck to generalities and reiterations of previous Chinese promises — mostly unfulfilled — to assuage Western economic grievances, both President Trump and the business community hailed his comments as a sign that, even though China will fight back, it wishes to steer clear of an all-out trade war.

Following the speech, President Trump sent out a message indicating a possible compromise in the works: “Very thankful for President Xi of China’s kind words on tariffs and automobile barriers … also, his enlightenment on intellectual property and technology transfers. We will make great progress together!”

Wall Street basked in the ray of Chinese positivity, the Dow Jones industrial average rising as much as 500 points. General Motors, Ford, Tesla, JPMorgan, Chase and Citigroup all registered gains.

This, despite the doom-saying chorus of recent weeks that assailed President Trump for an allegedly “impulsive” move against China, one virtually guaranteed to precipitate a trade war, alienate Europe, plunge American consumers into a new period of inflation, and generally wreck the future of our children and our children’s children.

Among others, European Union trade commissioner Cecilia Malmström branded President Trump’s China-chiding as “irresponsible.”

In the United States, National Retail Federation president and CEO Matthew Shay said: “This is what a trade war looks like, and what we have warned against from the start. We are on a dangerous downward spiral and American families will be on the losing end.” Shay urged President Trump “to stop playing a game of chicken with the U.S. economy.”

Time Magazine counted 15 ways a trade war could hurt you. The Atlantic called the Trump policy “belligerent.”

Republican Senator from Nebraska Ben Sasse said, “Let’s absolutely take on Chinese bad behavior, but with a plan that punishes them instead of us. This is the dumbest possible way to do this.”China itself contributed to the anxieties, which of course work in its favor. Senior officials in Beijing in recent weeks counseled that a “trade war only hurts the initiator,” and similar compassionate thoughts.

Even during Xi’s speech on Tuesday, he warned other countries (like America) not to “seek dominance” and to reject the “Cold War mentality,” though carefully avoiding mentioning the United States or President Trump by name.

But as of this week, at least, the sky hasn’t fallen on the global economy.

On the contrary, Xi said he would raise the foreign ownership limit in the automobile, shipbuilding and aircraft sectors “as soon as possible” and come through with previously announced measures to open the financial sector.

Dallas Federal Reserve Bank President Robert Kaplan, on a visit to Beijing, expressed optimism that very few if any of the tariffs proposed by the United States and China will actually materialize. “I think it’s so clearly in the interest of both countries that we have a constructive trading relationship and that we have substantive talks to redress these issues,” he said.

The Chinese are known for taking the long view of things, of thinking in terms of centuries rather than years or decades. So when the Chinese leader says that “this year (italics ours) we will considerably reduce auto import tariffs, and at the same time reduce import tariffs on some other products,” it should mean something.

Then, too, it depends on what “considerably reduce” means. On Monday, President Trump lambasted China for maintaining 25 percent auto import tariffs compared to the United States’ 2.5 percent duties. The months to come will no doubt see robust haggling over how much to narrow the 10 to 1 tariff gap.

In addition, Xi’s concessions were arguably less than meets the eye. Jonas Short, head of the Beijing office at Everbright Sun Hung Kai, pointed out that “China is opening sectors where they already have a distinct advantage, or a stranglehold over the sector,” and cited its banking industry, which is dominated by domestic players.

After eight years of Mr. Obama, anything of an assertive nature feels to many people like belligerence. To be sure, President Trump’s rhetoric (calling China’s economic policies “stupid trade,” for example) is not to everyone’s taste.

And the threat of a damaging trade war can give even the staunchest supporters of “make America great again” a staunch case of the willies.

But sometimes saber-rattling can work to avert war. Providing you have a real saber in your scabbard and a known willingness to use it if necessary. It may well be that this is what China has come to recognize in President Donald Trump — that he’s not just making noise, that he’s not bluffing.

White House press secretary Sarah Huckabee Sanders summed it up well on Tuesday, saying the administration is “encouraged by President Xi’s words,” but “at the same time, we want to see concrete actions from China, and we’re going to continue moving forward in the process and in the negotiations until those things happen.”

Whether the tariffs will lead to a trade war, or on the contrary, to an historic redress of trade imbalance, remains to be seen. Give it time.