Trump’s trade war won’t deliver as advertised

OPINION:

President Trump’s trade war won’t make America great again.

Tariffs imposed during the 90-day suspension periods for reciprocal duties on China, the European Union and other nations are likely permanent.

A reordering of the rules of trade — replacing the World Trade Organization, the U.S.-Mexico-Canada Agreement and bilateral deals with South Korea, Chile and others — to trim the huge U.S. deficit and resurrect manufacturing is simply not possible without radical systemic reforms in China and the United States. However, these are changes neither side is compelled to make.

China’s economy is oriented to generate lots of investment that is plowed into urbanization and export-oriented manufacturing. China has taken the lead in green energy and next-generation automobile technology. The United States can’t stop or overcome these with punitive tariffs, at least not without getting U.S. partners in Asia and Europe to similarly tax trade with China.

The United States has a huge savings deficit. Americans are consumers with low household savings, and the federal government is premised on big entitlements and defense spending financed by a deficit of nearly 7% of gross domestic product.

These are mirrored by huge foreign sales of U.S. Treasurys and trade deficits that permit Americans to consume more than they produce.

If Mr. Trump wants to resurrect (more likely, create the nostalgia) of a manufacturing golden age, he must either impose huge new taxes or radically cut Medicare, Medicaid and Social Security and surrender the Pacific to the Chinese navy.

Good luck with all that.

In April and May, China’s economy demonstrated that it could turn on a dime. With Mr. Trump initiating large tariffs, China’s exports to the United States dropped 34%, but its overall foreign sales jumped 4.8% as it found new markets in Asia, Africa, Latin America and Europe.

This agility is remarkable and reveals that all those tales about the Chinese factories that service the U.S. market shuttering were only half the story. Other businesses were stepping up to keep China’s export machine going.

Canadian, European and Asian leaders are hardly inspired to support Mr. Trump when he is threatening them with annexations and punitive tariffs. It’s just not in the likes of Canadian Prime Minister Mark Carney or European Union President Ursula von der Leyen to cow.

The deal with Britain and the interim agreement to roll back the tariffs on China to 40% are likely where we will end up with most other countries as well.

The baseline 10% additional tariff will be the norm for most major trading partners. They will agree to buy some additional U.S. products — Britain is taking more beef and Boeings — but American negotiators will be frustrated by major irritants. London made no concessions regarding its digital services tax that targets U.S. high-tech service exports or its subsidies that are luring Hollywood studios to make movies and TV shows in England.

When the U.S. reduced its tariffs on China to 40%, Beijing rolled back most retaliatory measures but made no concessions on preexisting nontariff barriers and subsidies to manufacturers. It committed only to further discussions.

Treasury Secretary Scott Bessent will likely obtain concessions from China to buy more American goods, but if other nations let China divert its surplus manufactures into their markets, it has no reason to agree to radical reforms.

Wells Fargo economists estimate that the effective U.S. tariff on Chinese products, after accounting for exemptions, is now 32%, up from about 10% last year. That should permanently reduce China’s exports to the United States by about one-third.

Before Mr. Trump’s trade war, the United States was taking about 15% of China’s exports. Hence, China is faced with finding new markets for about 5% of its exports.

Its goods exports are 19% of GDP, so the Middle Kingdom must find new markets for only about 1% of what it makes.

Trumpsters who think the United States has long-term leverage are hallucinating.

Factoring in larger new tariffs on steel, aluminum and autos and exemptions to the 10% across-the-board levy, the overall effective increase in U.S. tariffs, excluding trade with China, will be about 10%.

The dollar should eventually appreciate to compensate, and overall U.S. trade and dependence on foreign Treasury purchases to fund Medicaid, Medicare and the U.S. military will remain unchanged.

If the 25% tariff on motor vehicles and parts mostly sticks, a fully autonomous U.S. industry will be terribly painful.

Foreign auto and parts makers will come here and shoulder higher costs, and American cars will be more expensive and less technologically advanced than what Chinese competitors can offer worldwide.

As with President Biden’s industrial policies, Mr. Trump’s real contribution will be dealmaking on behalf of high-tech companies such as Nvidia and AMD.

His tariffs detract from this and encourage other nations to go around, rather than embrace, America.

Mr. Trump’s tragic error, his hubris, was to make war on the entire world, not just China.

Napoleon redux.

• Peter Morici is an economist, an emeritus business professor at the University of Maryland, and a national columnist.