China's Trump Card

Chapter 8The Endgame

8.1 The Trade War as the Perfect Shock

When Donald Trump took over the White House as the US president in the first week of January 2017, he announced that he would pick Robert Lighthizer as the US Trade Representative (USTR). Lighthizer was deputy USTR under former US president Ronald Reagan. After the appointment, Lighthizer took charge of the trade war with China. He used the same trade tools the administration used previously, notably “Section 301” tariffs to combat a tide of imports of steel and vehicles from Japan in the 1980s. The US also struck the Plaza Accord currency deal with Japan and West Germany, based on a belief that weak currencies of other countries were the culprit behind the loss of US international competitiveness. However, the effort was proven to be useless. The US has continued to run trade deficits to the present day.

History clearly suggests that trade barriers, as well as currency agreements, cannot address the trade imbalance in the US. Shortly after the worst trade deficits, it experienced the worst economic recession, the global financial crisis (GFC), a financial phenomenon due to global saving glut, as Bernanke put it. It was a problem of the dollar dominance, a structural deficiency inherited from its “exorbitant privilege.” After the Nixon shock, the fiat money regime gave a passport to the US for indiscipline spending, fueled by unsatiated foreign demand for US dollar assets. Half a century ago, Professor Triffin warned ...