Trade war with China won’t end in 2020
Small businesses that do business with Chinese companies had better start making other plans. That’s because our economic war with China will likely last for a while. There’s no better proof of that than last week’s trade plan released by former congressman and current presidential candidate Beto O’Rourke (D-Texas).
O’Rourke, a fierce opponent of President Trump, made it a point that if elected he would immediately end tariffs on about $500 billion of Chinese goods. But he acknowledges that “targeted tariffs” are a “tool that may sometimes be necessary.”
O’Rourke doesn’t deny that something needs to be done about China’s trade imbalance with the U.S., unfair practices and currency manipulations. He just wants to go about it a little differently. His plan would involve allies in places like the International Labor Organization and the World Trade Organization enforcing China’s labor and environmental practices. His plan would also address issues around competition, overcapacity, industrial subsidies and other modern trade issues.
That said, a President O’Rourke would not be above taking “unilateral action” against China by limiting its access to U.S. markets, banking and financial resources as well as curtailing the ability of Chinese companies – particularly those that have been stealing technology – to invest and do business in the U.S.
What’s telling, though, is that O’Rourke is not the only Democratic presidential candidate who plans on taking aggressive action against China. All of the candidates have expressed concern, and even though some have tiptoed around using tariffs and other measures to bring China into line, the leading candidates have recently been displaying their mettle.
Elizabeth Warren, arguably the frontrunner, has actually embraced some of the president’s policies, saying, like O’Rourke, that “tariffs are one part of reworking our trade policy overall.” Some say that her trade plan is almost as protectionist as Trump’s.
Warren has created a set of environmental, labor and human rights “standards” that she says “countries must meet as a precondition for any trade agreement with America,” vowing to “renegotiate any agreements we have to ensure that our existing trade partners meet those standards as well.” Not surprisingly, just a quick review of her list will confirm to anyone who has ever done any work with China that the country will not fare well.
Like O’Rourke, Warren emphasizes protecting workers and the environment. But unlike O’Rourke, she plans to go aggressively after big corporations and – most importantly – countries like China that violate agreements. “My administration will create automatic triggers to initiate investigations into unfair trade practices,” she writes. “If those investigations produce compelling evidence of a violation, the [State] Department will impose trade remedies immediately until the offenders show they are no longer engaging in an unfair trade practice.”
Not to be left out of the conversation, Warren’s chief opponent, former Vice President Joe Biden, said in a July speech that the U.S. needs to “get tough” on Beijing, particularly on intellectual property theft and trade abuses and also supports building coalitions to fight China’s rising power.
The other leading candidate, Bernie Sanders (I-Vt.), has for years publicly opposed normalizing relations with China. Sanders – an avowed protectionist – wants to end free trade with the Chinese and instead “develop trade policies which demand that American corporations create jobs here, and not abroad.” Even if the Trump administration and China come to terms, the president will be under much pressure to keep tariffs in place until China proves it can abide by the agreement.
What does all this mean for the small farmer, the craft beer brewer, the clothing manufacturer, the online retailer and the auto parts supplier? It means that if you’re relying on the Chinese as either a customer or supplier as part of your long-term business plan then you’ve got a seriously flawed plan. You’d better start looking at Vietnam, the Philippines, India and other friendly partners.
Trump’s trade war train has only just left the station, and his opponents are jumping on board. They’re no dummies. They can tell which way the wind is blowing. They’re recognizing that, when it comes to the economy, American voters do have a common enemy.
Smart business owners will adjust. And American consumers will be willing to endure some economic pain – even it means (gasp) paying a few extra dollars for their iPhones and video game consoles – if it means making things right.
Gene Marks is founder of The Marks Group, a small-business consulting firm. He frequently appears on CNBC, Fox Business and MSNBC.