Wars should not be judged by one battle, and trade wars should not be judged by one day on the stock market.
But even if you set aside the nearly 3 percent plunge in the Dow Jones industrial average on Monday — three days after President Trump announced new Chinese tariffs, triggering Beijing to allow the yuan to drop in value and causing the Trump administration to designate China a currency manipulator — there are signs that the cracks in the foundation of this economically and politically dicey trade war are expanding.
The Washington Post’s Damian Paletta does a great job of laying out how this is increasingly a go-it-alone war for Trump, who is shrugging off the advice of his top economic advisers and pushing forward. And one quote in particular, from outside Trump economic adviser Stephen Moore, stands out.
“We’re learning that maybe China has a higher pain threshold than we thought here,” said Moore, who advised Trump’s 2016 campaign and was briefly his pick to serve on the Federal Reserve earlier this year. “They don’t seem to care that this is having extreme negative effects on their economy. It’s kind of a mutually assured destruction game right now.”
Larry Kudlow, the president’s chief economic adviser, was asked about reports of internal dissension Monday, and he would neither confirm nor deny them.
“I would never talk about internal discussions,” Kudlow said on CNBC. “I read a lot of stuff in the papers. I don’t have any comment on that.”
Meanwhile Daniel Clifton, who was considered for a top job under Kudlow last year, said Trump may be sacrificing the 2020 election by risking an economic slowdown. Clifton, an expert on melding economic policy, forecasts and electoral politics, cited forward-looking inflation indicators.
“Trump is trading away his reelection,” Clifton told CNBC, adding: “He’s digging in against the advice of all of his advisers.”
Of course, just because Trump advisers or those tied to the White House may not be fully onboard with his gambit doesn’t mean it won’t work. Trump has surrounded himself with a number of free-market advocates, including Moore and Kudlow, so there is a natural and, perhaps, even healthy tension involved.
But Moore’s quote highlights something: the relative resolve of the two superpowers. Trade wars are about inflicting pain via tariffs and seeing who blinks first. If one side has a higher economic pain threshold, that’s a huge advantage. And it’s perhaps no surprise that China’s is higher than the United States’. “The Chinese have a very high threshold for pain,” former Nixon economic adviser Sung Won Sohn said last year, adding: “After all, China used to be in much worse economic shape.”
Moore seems to be saying those around Trump have underestimated this imbalance, which is both a remarkable admission and a reflection of just how serious he sees things getting. Calling it a “mutually assured destruction game” is a far cry from when Trump called trade wars “good and easy to win.”
The question from here is how far Trump is willing to go. Looming over all of this is the 2020 election. And just as the Chinese have an advantage because of their recent economic past, they also have an advantage because of their political system, in which the leaders’ decisions are much more difficult to question and hold to account.
Trump, by contrast, has no such luxury. The longer this drags on — Chinese officials are coming to Washington in September — the closer Trump’s reelection race gets. If you are the Chinese and you see a president who appears to have something less than a 50-50 shot at staying in his job past January 2021 (and you are blessed with that higher pain threshold), it becomes easier and easier to justify waiting things out, no matter what Trump does.
Moore, himself, has said he told Trump to cut a deal early to get past the 2020 race. “My personal advice to Trump,” he said last month, “is get a deal that you’ve got now and pick up a much harder line with China after you get reelected.”
That ship is apparently sailing. We’ll see if Trump’s main 2020 talking point — a strong economy — might be sailing with it. It’s a heck of a gamble.