Voters elected Donald Trump in part because they wanted a fighter. But increasingly it seems that in international trade, he’s good at shaking his fist for the cameras but utterly outclassed when he steps into the boxing ring.
Indeed, Trump may be more dangerous to his own side of a trade war than to the other guy.
Even after Trump’s climb-down — declaring a 90-day pause on many of the “Liberation Day” levies that sent the stock market reeling — America’s tariff rates remain the highest in more than 90 years. They amount to an enormous tax hike on consumers, with researchers previously estimating that they might add something like $1,700 in costs per year to a middle-income American family. They’re a reason many economists fear that the United States is slipping into a recession.
The most heated trade war is with China, and it’s there that I fear Trump has particularly miscalculated. He seems to be waiting for President Xi Jinping to cry uncle and demand relief, but that’s unlikely; instead, it may be the United States that will be most desperate to end the trade conflict.
China does have serious internal economic challenges, including widespread underemployment and a deflationary loop with no end in sight. The trade war could cost China millions of jobs, and that raises some risks of political instability.
Yet it’s also true that China has prepared for this trade war. I’m guessing some Chinese factories are already printing “Made in Vietnam” labels and preparing to ship goods through third countries. And China will fight with weapons that go far beyond tariffs.
China buys agricultural products and airplanes from America, and it can almost certainly get what it needs elsewhere. But where is the United States going to get rare-earth minerals, essential for American industry and the military-industrial base?
These days we rely on China for 72% of the 17 metals known as rare earths, used in everything from glass to ceramics to catalytic converters. And in the subcategory of heavy rare earths, China is the sole world producer of six.
China has already announced that it will limit the export of those six heavy-rare-earth minerals, as well as rare-earth magnets, of which it controls 90% of the world supply. In effect, China is the OPEC of rare earths. Without them, we’d struggle to produce drones, cars, planes, wind turbines and more. A single F-35 fighter plane contains some 900 pounds of rare earths, and a submarine may use more than four tons of them.
In 2010, when China and Japan were caught in a maritime dispute after a boat collision in contested waters, Beijing halted rare-earth exports to Japan. The result was a mad scramble in Japan to find sufficient rare earths to keep factories open, and Japan hurriedly became conciliatory and pleaded for a resumption in the trade.
Perhaps Trump thinks he’ll find alternative sources of rare earths. We should. But because rare earths are polluting to mine and process, it can take nearly three decades to get permission to open and operate a rare-earth mine in America, so finding substitutes won’t be easy.
Rare earths aren’t all that rare in nature, despite their name, and they offer a window into the vulnerability of the West’s military-industrial base and our dependence on China. Until 1995, they were produced mostly in the United States. But then China began refining them inexpensively, and the United States couldn’t compete (and didn’t seriously try to).
Trump’s concerns about China are in many ways legitimate: It has manipulated trade. He’s right that our weakness in manufacturing and supply lines is a critical security deficiency, especially given China’s strengths in areas like drones and batteries. I’d be delighted if Trump tackled these issues seriously with targeted tariffs, a crackdown on transshipments to evade tariffs, subsidies for critical industries at home and cooperation with allies abroad. Instead, it’s not quite clear what his aim is, and the United States has gone out of its way to antagonize allies.
One alarming sign: Even before the latest tariffs, a poll in Southeast Asia found that for the first time, a majority of people there would choose China over the United States if forced to align with one side or the other.
China has other tools available in this trade war with America beyond stopping most exports of rare earths. It could stop its limited cooperation on narcotics and turn a blind eye to its greedy private companies that would like to export fentanyl to America or fentanyl precursor chemicals to Mexico. Conversely, it could tighten shipments to the United States of cardiovascular or cancer medicines that Americans rely on.
China could also dump U.S. Treasuries for a few days, panicking the bond market and weakening the dollar. I doubt China would do this for long, because it would lose as well, but it might be satisfying for the Politburo to remind Trump who he’s messing with.
While all that’s going on, the People’s Liberation Army might cut multiple undersea internet cables leading to Taiwan. It could hold more military drills off Taiwan, the Philippines or the Senkaku/Diaoyu Islands. It has already burrowed into American infrastructure as part of its Volt Typhoon cyberespionage campaign and could try turning the lights off in a small American city or creating havoc for a day in the banking system.
A trade war may well be devastating for China as well as for America. But economic forecasters think a recession is far more likely in the United States than in China. And Xi may now have a scapegoat for his economic underperformance, calling on his citizens to resist what he will portray as one more chapter in a two-century history of Western bullying. All in all, Xi may be better positioned to ride out a downturn than Trump.
There’s nothing wrong with picking the right fight and taking a stand, and China’s trade policies are a legitimate target. But Trump’s campaign seems destined to fracture our alliances and magnify American weakness. He is taking a tariff to a gunfight.
