There may be a ray of sunshine amidst dark stormy clouds when it comes to avoiding a massive trade war between the U.S. and China. The state-run China Daily reported today the government was mostly pleased by the results of weekend negotiations with Commerce Secretary Wilbur Ross over tariffs but still issued a warning to the Trump Administration.

While acknowledging the positive development, the statement emphasized that the results achieved between China and the US should be based on the condition that the two sides meet each other halfway and agree not to engage in a trade war.

If the US introduces trade sanctions, including tariff increases, all the economic and trade achievements negotiated by the two sides will not take effect, according to the statement…

China reiterated in the statement that its attitude has been consistent and it is willing to increase imports from numerous countries around the world, including the US, to meet the Chinese people’s growing demand for a better life and the requirements of high-quality economic development.

Sunday’s statement also emphasized that reform and opening-up as well as boosting domestic demand are China’s national strategies and the established pace (of implementing the strategies) will not change.

The article also features comments from a Chinese Academy of Social Sciences official worrying a trade war will hurt both economies which is kind of interesting to see given China’s communist government. One would think communists wouldn’t 100% worry about a trade war because, “the state will survive,” and they’d be gunning for a trade war, tariffs and all. One thing Daniel Ikenson wrote at Cato last week was China would probably do okay in a trade war because their government would just keep propping up business.

The administration is right to be concerned about China’s mercantilist technology policies, but it seems to have no clue about how to mitigate the problem. Tariffs will do nothing to address China’s promotion of national champion industries, nor will it dissuade intellectual property theft of forced technology transfer policies. They will disrupt global supply chains and make Americans, Chinese, and many others around the world less well off than they are today.

There are those who disagree with the notion a trade war will cause the American economy to crash and burn like the Hindenburg. Daniel McCarthy argued at Spectator USA the U.S. will come out on top should World Trade War X break out.

The thing to keep in mind when reading about retaliation is that the US has trade deficits with all of these countries—as well, of course, with China, which is not one of America’s leading sources of steel but whose state-subsidized steel industry is responsible for depressing prices globally. Because the US buys far more goods from these countries than they buy from us, they stand to lose much more in a tit-for-tat over tariffs. How can China or Canada put tariffs on American goods that they don’t actually buy? They can’t, and what they do buy, while not insignificant, pales before what Americans buy from them…

China’s long-term goal in this will be very familiar to anyone who has studied the history of trade, war, and imperialism. Beijing would like to build up its own industrial power and hollow out that of the United States, its chief long-run strategic rival. Under imperialism, the metropole liked to foster and protect industry at home and keep colonies dependent by depriving them of manufacturing and getting them to import finished goods rather than creating them (let alone exporting them). Leverage belongs to the manufacturers. China has no need to start a war with the United States. One superpower can replace another by a gradual process of economic eclipse and induced de-industrialization. Let Americans think that their “service economy” will sustain itself. It won’t: a nation without a strong manufacturing base is as vulnerable as a nation that cannot feed itself or supply its own vital natural resources.

Those who fear Trump’s tariffs need not lose hope, however. The president is a negotiator, as he is proving in his complex diplomacy with Kim Jong-un.

The heavy tariffs are leverage for negotiating, and Trump might yet back off if, for example, Mexico agrees to pay for the border wall he has pledged to build, or Canada cooperates in renegotiating NAFTA.

Maybe? I get where McCarthy is coming from but disagree based on past history. The Smoot-Hawley Tariff hurt the U.S. economy and the Tariff of 1828 was a factor in the lead up to the Civil War. It doesn’t make sense to just raise taxes on products which American companies and consumers are using. Calvin Coolidge biographer Amity Shlaes is right.

Lower taxes, higher market. Higher tariffs, lower market. It seems that policy affects markets. This is not a Random Walk.

— 𝔸𝕞𝕚𝕥𝕪 𝕊𝕙𝕝𝕒𝕖𝕤 (@AmityShlaes) June 1, 2018

I’m still holding out hope there won’t be any trade war and all this is bluster on the part of Trump. Congress still needs to do its job and repeal Section 232 of the 1962 Trade Expansion Act. It might be a tiny thread of hope, but there’s still a chance a trade war won’t happen and a better economic relationship with China (and other nations) will happen.