President Donald Trump‘s trade war comes with an aggressive and clear-cut strategy but a fuzzy endgame, namely that it’s unclear just what victory would look like.
True, there are lofty ambitions: a world without tariffs, a “level playing field” with China where goods would flow freely between the two nations, and the promise of untethered growth thanks to the opening of new markets and the end to the theft of intellectual property.
But what that really would mean for the economy is squishy.
Would there truly be a stronger U.S. or just a weakened China? If American companies had full access to Chinese markets, would there really be that much to gain? And what are the costs between here and there?
In a CNBC interview Tuesday, White House economic advisor Larry Kudlow somewhat quantified what the White House is looking for as it cranks up the trade tensions with China and looks for an agreement it deems favorable to U.S. interests.
“The president has said numerous times his ultimate goal with respect to the world trading system is zero tariffs, zero non-tariff trading barriers and zero subsidies,” said Kudlow, director of the National Economic Council. “There are considerable benefits to truly free and lawful trading. There are consumer benefits and business benefits on both sides.”
‘You have to be strategic’
In raw numbers, Kudlow tossed out a dollar figure of $600 billion “if we were able to reclaim what we have lost” in intellectual property theft. The number likely came from an oft-cited 2017 estimate from the Commission on the Theft of American Intellectual Property, which put the price tag in the $225 billion to $600 billion range.
“The president is a transformative president. He’s rebuilding the American economy and we’ve had some considerable success. These things are not easy, and that includes trade imbalances,” Kudlow added. “So what we’re trying to do is have fair, freer, reciprocal trading with China.”
What that looks like, though, is anybody’s guess.
Trade uncertainty already has cut a swath across the U.S. financial landscape. Corporate earnings have wobbled as multinationals watch their profits fall away due to higher costs and upset supply chains, while Wall Street has sustained a rough patch of volatility that has sent the major stock market averages off nearly 5% apiece over the past month.
Trump, meanwhile, continues to hammer away at China without ever specifically delineating what the results could be after he gets his deal. He’s frequently promised an economy that would grow well in excess of 3% a year, but the tariffs thus far have only acted as a drag.
“If you want to be successful, you have to be strategic,” Steven Blitz, chief U.S. economist at TS Lombard. “Be very clear what the point is, how you want to get it, what is the victory. Because the fact is, you’re asking this question and I can’t even tell you what victory is.”
Despite a generally positive view on the Trump economy, the president has not enjoyed as much favor on the trade war. A recent Quinnipiac University national poll showed that while 71% viewed the economy as in either excellent or good shape, just 40% approved of Trump’s trade policies, while 48% opposed.
Business leaders also have voiced concerns, as earnings conference calls have been filled with CEOs bracing for tariff fallout.
“It’s really about putting some of the things he broke back together again,” Blitz said. “His heart is in the right place, but the execution is proving somewhat clumsy. We’ve lost the narrative of the final objective. Because how do you know you’ve gotten free trade?”
Tariffs are hurting China, and at least theoretically the U.S. could change supply chains and push China to the periphery of world commerce, as in the Maoist era. However, that still wouldn’t guarantee a free-trade environment that would take U.S. growth to another level.
“You’re creating a disruption, but all you’re really doing is potentially weakening the Chinese economy,” Blitz said. “But to what effect? It’s a good question.”
Pain before gain
For business owners with interests in China, there are some clear objectives: to not have the Chinese force U.S companies to transfer their technology secrets, a more equal tariff structure and the ability, without government interference, to expand their operations.
“I need the end game with this administration to end up with access to the Chinese market and protection of my IP,” Kevin O’Leary, an investor, business owner and star of “Shark Tank,” told CNBC. “Those are two things I want, and until we get that I don’t care how much soybeans they buy, it’s irrelevant. What we need is a level playing field.”
O’Leary said that if the impasse is settled in a positive way, he’ll be investing heavily, launching “at least” 30 products and hiring “hundreds of people” to expand lines. He also said there will be big benefits for the stock market.
“The upside is immense for the S&P if we get this deal done,” he said. “Keep squeezing their heads. Don’t stop.”
Still, nervousness remains as clarity stays elusive.
Getting to a final goal like O’Leary outlined could involve sustained pain for those farmers he mentioned, as well as for the rest of the economy that would labor under a protracted battle.
DWS Group speculated that China may want to wait out the negotiations to see what happens in the 2020 election. The firm added that market volatility could have “a certain disciplining effect” that would force a deal, but not without harm.
“This suggests that a sensible compromise might yet be reached in the longer term, but that the way there may well cause some headaches for investors,” DWS said in a note. “The risk that the conflict takes on a momentum of its own and gets out of control has risen significantly.”