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10 Leaders
The Economist
September 22nd 2018
1
I
N HIS trade war with China,
President Donald Trump ap-
pears to have the upper hand.
The new tariffs his administra-
tion unveiled this week, which
will raise the share of Chinese
imports subject to levies to at
least 44%, are unlikely to dam-
penAmerica’s sizzling economy, or to boost inflation bymuch.
Though some firms will be disrupted, most Americans will
not notice the damage (see Finance section). China, however,
is under pressure. Its growth seems to be slowing and its stock-
market is down almost a quarter from its peak in January. Chi-
na’s government has announced retaliatory tariffs against
American goods, but it is fast running out of imports to tax.
During conflict, an imbalance in strength should lead to a
swift resolution. Here the side with the advantage may pro-
long the war. That is because America has several goals, some
of themunachievable.
Unjustwar
The official justification for the tariffs is rooted in anger about
Chinese mercantilism—anger which is shared across the rich
world. China gives vast and opaque subsidies to its state-
owned firms. It requires exporters to hand over intellectual
propertyas a conditionofaccess to itsmarket. Theworld’s con-
sumers benefit from the artificially cheap imports that result.
But trade of this sort is unsustainable, politically and economi-
cally. America is right to demand that China play fair.
That is not the limit of Mr Trump’s ambition, however. He
also wants to eliminate America’s trade deficit with China,
which he mistakenly sees as a transfer of wealth. He has
broadcast hisdesire to forcemanufacturing supplychains back
to America. And his administration has identified China as a
strategic competitor. Some of the president’s advisers seem to
relish the chance to do it economic harm.
TheWhiteHousemayargue that China’s abuse of the rules,
the trade deficit and the decline of American industry are one
and the same. They are not. Even without subsidies, China,
like most other emerging markets, would enjoy a substantial
cost advantage over America. The trade deficit, meanwhile, is
tied to the difference between domestic saving and invest-
ment. Tariffs might cut the bilateral deficit with China, but
America would find it nearly impossible to shrink its overall
deficit without engineering a domestic recession.
The goal of rolling back decades of American deindustrial-
isation is a pipe-dream. Should America succeed in forcing
supply chains back onshore, it will find that many fewer jobs
are attached, because of rapid automation and productivity
growth. American manufacturing’s share of
GDP
has fallen
only by a fifth since 2000, while its share of employment is
down by a third. Besides, the lowest-skilled jobs would not go
to America, but to low-wage Asian countries, like Vietnam.
There is a faint hope that Mr Trump’s advisers and allies
will play good cop to his bad cop, using tariffs as a bargaining
chip in rewriting global trading rules to constrain China’s mer-
cantilism—a legitimate goal. More probably, the bad cop—who
is, after all, in charge—will refuse to be stood down, because of
his obsession with trade deficits and jobs and because Chi-
nese leaders seemunwillingor unable to contemplate reforms
that would strengthenmoderate voices in TeamTrump.
The prospects for any truce with China look grim. Recent
history suggests that tradedisputes arehard to settle. Tariffs im-
posed on Chinese tyres in 2009 under President Barack
Obama, a free-trader, lasted three years. Mr Trump’s recent
trade agreementwithMexico does not include an end to levies
on its steel and aluminium. America’s latest escalation against
China is nomore likely to be speedily reversed.
7
Trade
Hunker down
US tariffs on China
Value of imports, 2017, $bn
Effective from:
0 50 100 150 200
Jul 6th 2018
Aug 23rd
Sep 24th
America’s tariffs onChina have several goals—some of themunachievable
T
HE two superpowers of arti-
ficial intelligence (
AI
) are
America and China. Their tech
giants have collected the most
data, attracted the best talent
andboast the biggest computing
clouds—the main ingredients
needed to develop
AI
services
from facial recognition to self-driving cars. Their dominance
deeply worries the European Union, the world’s second-larg-
est economic power (see Business section). It is busily concoct-
ing plans to close the gap.
That Europe wants to foster its own
AI
industry is under-
standable. Artificial intelligence is much more than another
Silicon Valley buzzword—more, even, than seminal products
like the smartphone. It is better seen as a resource, a bit like
electricity, that will touch every part of the economy and soci-
ety. Plenty of people fret that, without its own cutting-edge re-
search and
AI
champions, big digital platforms based abroad
will siphon off profits and jobs and leave the
EU
a lot poorer.
The technology also looms large in military planning. China’s
big bet on
AI
is partly a bet on autonomousweapons; America
is likely to follow the same path. Given the doubt over wheth-
er Americawill always bewilling to come to Europe’s defence,
some see spending on
AI
as amatter of national security.
Both arguments make sense. But can Europe support
AI
Artificial intelligence
AI, EU, go
Europe can influence the development ofAI for the better—and not just at home