As President Donald Trump intermittently escalates and moderates his trade war with China, his conflicting signals reflect a reality that limits his actions: He can try to sever the deeply intertwined US commercial relationship with China, or he can prod economic growth to assuage the fears of investors around the planet.
But he cannot do both at the same time.
Trump need not rely on the testimonials of economists to deduce this. He can disregard the admonitions of news outlets he derides as fake news. He can simply consult the one source whose verdicts he tends to celebrate: the stock market.
Among those who control money, portents of further trade hostilities between the United States and China, the two largest economies on Earth, have proved an impetus to sell with abandon while amplifying talk of recession. Intimations of a deal avoiding further animosity reverberate as a clarion call to buy, sending share prices higher while easing worries about a potential global economic downturn.
Trump often appears caught between competing impulses that pull markets — and his China policy — in opposite directions.
Talk of a trade deal with China makes for happy stock markets and retirement account statements that Americans open up to learn that they are, also happily, richer. For a president seeking reelection next year, this option holds appeal.
Thunderous threats of fresh tariffs on Chinese goods and the forging of a new order in which American industry forsakes China may damage share prices and shrink economic growth prospects. But it brings plaudits from Trump's most ardent political base — nationalists who portray the trade war as a tough but necessary piece of business, the sort of action evaded by the cowards who resided at the White House before.
The latest evidence for this state of affairs followed Trump's angry reaction to China's announcement of retaliatory tariffs of 10 per cent on some US$75 billion ($117.3b) worth of US exports.
On Friday, the president unleashed furious tweets threatening China with pain. He vowed to raise tariffs on US$550b of Chinese goods. He declared that China's president, Xi Jinping, whom he had previously called a "good man," was an "enemy." And he commanded US companies to abandon China and start making their products in the United States.
That last bit was especially striking given that successive American administrations have criticised Chinese counterparts for using state-owned companies as tools of policy in contravention of market forces. Now, here was the president of the United States, traditional champion of swashbuckling capitalism, ordering American companies to heed his dictates.
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In markets around the globe, investors reacted to these developments as powerful signals to yank their money to safety. They sold stocks and bought bonds. They dumped a vast assortment of currencies and purchased the US dollar, the ultimate haven in moments of worry.
They reacted, in short, as if much of the globe suddenly appeared riskier.
Signs of trouble had already been mounting. For better or worse, the United States and China have been fused for two decades, with their fortunes influencing economic conditions everywhere.
China has invested aggressively in manufacturing plants, ports and power systems to become the factory to the world. American consumers are the most significant drivers of economic growth on Earth. Together, the United States and China are responsible for about 40 per cent of the world's economic output.
Any sign of a breakdown in this arrangement — the threat that China will be impeded in selling its goods, or that the American appetite is waning — spreads worry far and wide.
The trade war that has escalated over the last year has already produced distress. Germany, the largest economy in Europe, is teetering toward recession in large part because of weakening exports. As China's economy slows in the face of American tariffs, Chinese factories have less need for goods made in Germany, from machinery to petrochemicals.
German weakness has contributed to a general sense of malaise in Europe, just as the Continent grapples with the prospect that Britain — also contracting — might crash out of the European Union without a deal governing future commercial relations.
Across Asia, the drop in trade has sown trouble, with Singapore and Hong Kong now declining and South Korea slowing. Even Vietnam — a country that has received fresh investment as multinational companies seek alternatives to making their wares in China — looks vulnerable if global trade overall continues to diminish.
As far away as Brazil and Argentina, the effects of a slower-growing China are being felt by soybean farmers who ship their harvest to Chinese ports to feed livestock.
"For the rest of the world, there are many other countries that are innocent bystanders that will actually suffer even more than the United States and China," said Louis Kuijs, the Hong Kong-based head of Asia economics at Oxford Economics. "There is not going to be any deescalation any time soon."
The United States is still growing, with the unemployment rate lower than it had been in half a century. But companies are deferring investments as they puzzle over the effect of trade hostilities. How can executives proceed with expanding operations in Ohio or Michigan when they have no certainty over the tariffs that will apply to parts and electronics brought in from China? A slowdown in investment could eventually prompt households to curb their spending, bringing a recession.
If a continued trade war footing tanks stock markets, share prices could themselves become an affliction. As millions of Americans absorb the reality that their investments are worth less, they may question whether to buy that new home, take that trip or open that new business.
Long before Trump took office, US governments complained about China and its failed promises to open its market. China has lavished subsidies on state-owned companies. It turned itself into an export juggernaut while ignoring labour and environmental standards.
Beijing and Washington have argued over this state of affairs for decades, while American labour interests and industry groups have demanded redress.
But Trump has gone much further than his predecessors in his diagnosis. In his telling — at least, in his combative moments — China is a rogue operator that fleeces Americans. The solution is not another slow-moving case at the World Trade Organization, but a fundamental redrawing of commercial geography. American companies must vacate China, walking away from customers and supply chains. In his view, the US economy is supposed to "decouple" from China, as the think tank vernacular has it.
Trump's tweet storm on Friday morning appeared to underscore that he was serious, that he was truly willing to see Americans accept the costs — plunging stock markets, weakening investment — for a wholly new sort of relationship with China as adversary.
Stock markets suffered a sell-off because a dissolution of American and Chinese commercial arrangements was certain to be disruptive. Companies with global operations would have to figure out where they would buy parts and raw materials. The potential outcomes were many, but none of them involved the world's getting richer.
Yet by Sunday morning, at the Group of 7 summit in France, Trump was expressing "second thoughts" about the new tariffs on Chinese goods. By Monday morning, he was calling Xi a "great leader" and reporting that China was interested in resuming trade talks. Stock markets were buoyant. At least for a few hours, the bewildering notion that the United States and China were dissolving ties could be forgotten.
But for how long? And what is the end game?
For as long as Trump has occupied the Oval Office, trade experts have parsed his often contradictory words and actions for clues to his real policy aims and beliefs. They have laboured to divine what he values, and somehow separate it from what he may say as a negotiating ploy or as a diversion from scandal.
Most have come to conclude that his policy is perpetually flexible, depending on which advisers have his ear and on the tenor of television conversations about American economic growth prospects and — especially — the stock market.
His hard-line advisers — like the US trade representative, Robert Lighthizer, and Trump's chief trade adviser, Peter Navarro, author of a book called "Death by China" — urge him to untether the US economy from China.
The president's national security adviser, John Bolton, portrays trade as but one element in which China poses grave peril to US interests. In this calculus, economic damage is the unavoidable cost of reclaiming American status as a superpower that dictates the terms of world engagement.
But Larry Kudlow, the former television host who leads Trump's National Economic Council, and Treasury Secretary Steven Mnuchin tend to focus on areas of interest to investors, not least share prices. Conventional wisdom has it that Trump is channeling their influence when he talks up possible deals with China.
Trump is famously adept at maintaining positions that seem mutually exclusive. In recent weeks, he has touted the awesome strength of the US economy while excoriating the Federal Reserve chair for imperiling it by not aggressively lowering interest rates. He has flirted with tax breaks to juice the economy further.
But the trade war threatens to force Trump to choose between it and economic growth.
In Beijing and Washington alike, hard-liners have dug in, shrinking room for a compromise. In both capitals, a sense of permanent alteration has transpired, a deepening assumption that — whatever comes next — China and the United States will proceed with profound wariness.
For the global economy, that could entail grave uncertainties and perils.
Written by: Peter S. Goodman
© 2019 THE NEW YORK TIMES