Trump picks the worst possible moment to attack China

In the midst of the most challenging economic and public health crisis in generations, the Trump administration is falling back on familiar grooves, using the devastation wrought by the pandemic to revisit stalled policies such as immigration restrictions, curbing independent watchdogs and, of course, China. As the most intense weeks of the crisis give way to the more muddled months ahead, and as the president gears up for an election campaign, China once again is the whipping boy of choice.

It would be difficult to select a worse moment not just to escalate the rhetoric against China for its culpability in the globalization of COVID-19 but to consider a raft of economic sanctions. Those sanctions range from more tariffs on Chinese imports to barring Chinese purchases of U.S. companies, banning Chinese students from studying science in the United States and cancelling Chinese holdings of U.S. Treasuries.

To be fair, that last idea – refusing to honor repayments on U.S. bonds held by the Chinese government – came from Sen. Lindsay Graham (R-S.C.) and has been quietly refuted by voices such as Larry Kudlow, who directs the White House’s National Economic Council and recognizes the truly disastrous blowback of any violation of U.S. debt covenants, especially when the U.S. government will borrow trillions of dollars to fund various emergency spending measures necessitated by the pandemic. But the push to make China pay for the origin of the virus, for not disclosing its severity sooner and for its opacity, has widespread support in Washington and, judging from recent reports from multiple state capitals, throughout America. That doesn’t make it a good idea.

Retaliating now against China would rank as one of the greatest policy mistakes in recent memory. The trade war launched by the White House at the end of 2017 was questionable at best and yielded few tangible results, other than requiring tens of billions of dollars in bailouts for American farmers shut out of the Chinese market when Beijing retaliated. The long campaign against Chinese telecom giant Huawei took on global dimensions and certainly dinged Beijing’s attempts to become a dominant force in the rolling out of 5G technology. On the whole, however, in 2018-2019, as U.S. economic growth steadily improved, the U.S. could afford the luxury of a multibillion-dollar tariff war even if it delivered minimal results and barely dented U.S.-China trade.

Now, however, the economic, political and even health costs of attempting to punish China are massive. 

Let’s say that China indeed is partly responsible for this pandemic’s devastation. The fact that it may deserve retaliation morally (debatable but, for the moment, let’s say it does) does not mean that retaliating makes sense for the United States. It makes no sense.

The pseudo-trade war of the past two years (“pseudo” because, for all the stern words, the actual amount of tariffs ultimately levied was less than $100 billion over two years on a bilateral trade relationship of goods and services of close to $800 billion a year) could be absorbed into a larger economy of $20 trillion growing 2.5 percent annually. 

But a new round of tariffs, or cutting off Chinese investment or students, would hit the U.S. economy at one of its most vulnerable moments ever. Even the student issue, which seems relatively small potatoes, is actually larger than most agricultural exports to China; Chinese students spend tens of billions of dollars a year on higher education in the United States, which not only not helps sustain top-notch universities but allows many universities to offer more generous financial aid packages to American students. Eliminating that is non-negligible.

Then there is the sheer impossibility of reshoring or rebuilding supply chains that bypass China when there is no money to do so. Before the pandemic, the White House frequently celebrated the supposed movement of companies out of China. Some of that indeed happened, but most of it was talk — and the part that was substance applied to new projects that might now go to Mexico or Thailand, rather than actually closing factories in China or terminating current supply chains.

Take the sudden awareness of how much of our medical supply chain goes through China, either in the form of medicine, personal protective equipment (PPE) or high-end medical instruments. All of those will be in high demand as we battle the pandemic. That is not when you want to upend the supply of those materials by risking retaliatory measures. And you cannot just slap on tariffs, make a speech calling for domestic production and, voila, there is it. Doing that would require a fully planned, well executed industrial policy to spend tens of billions of dollars or more on U.S. medical supply production alone, quickly and effectively, when we have shown little capacity to do so.

And then there is the need for cooperation around decoding the virus and racing toward a vaccine. What if China crosses that finish line first? And what if, as part of its retaliation against the United States, Beijing creates more friction for the United States in manufacturing the vaccine? Is that a gamble you want to take now? 

The stark reality here is that the United States has less leverage than it thinks it has or craves. For sure, China also is reeling from the pandemic and the collapsed global trade market; it is constrained and vulnerable. Beijing itches for a more combative relationship with the United States, believing the Trump administration will overreach and that China will be able to capitalize on that, but it too has few options that won’t cause significant domestic pain at a time when that can be ill-afforded. 

But the fact that China hardly holds a winning hand doesn’t mean the United States is in a position to adopt coercive punitive measures. The last time Washington so miscalculated its relative position was in 1930 with the Smoot-Hawley Tariff Act, which rightly has gone down in history as the worst-timed protectionist legislation ever. The Trump administration and its many supporters, in both the Republican Party and parts of the Democratic Party, seem prepared to break that record.

Wisdom is knowing your strengths and accepting your limitations; foolishness is believing you are invincible, all evidence to the contrary. It is not weak to step back and recognize that now is not the time to escalate a confrontation with China that never yielded much to begin with, and which could, in the current climate, magnify an already critical domestic situation. 

The appeal of an electoral-year “bash China” strategy is clear and, cynically, if the bashing remains rhetorical, that might work. But if pressure to turn those words into action mounts and Washington does attempt more than symbolic measures to “hold China accountable,” it will make a bad situation worse and compound rather than heal the damage already done. It would have been better over the past years if Washington had focused on inoculating the country to meet a variety of future challenges by spending more intelligently on domestic resources and obsessing less about China. That was true up until a few months ago. Today, it is essential. 

Zachary Karabell is founder of the Progress Network, under development at the think tank New America. He is president of River Twice Research and River Twice Capital, and the author of 12 books, including “The Leading Indicators: A Short History of the Numbers That Rule Our World” (2014).