Wellesley Professor Tells NBC News U.S. Is Engaging China in a “Game of Chicken”

May 28, 2019
Diplomats sit around a large table.
Credit:
AP/Jacquelyn Martin

With the trade war between the United States and China in its second year and no end on the horizon, NBC News online asked David Lindauer, Stanford Calderwood Professor of Economics at Wellesley, for his perspective on the standoff.

“American firms want to do business in China, but there’s enormous difficulty doing business there, and this trade war is about trying to get China to be a more compliant member of the World Trade Organization,” Lindauer told NBC.

Both sides have fundamentally different goals in this conflict, which increases the difficulty of coming to a resolution, NBC reported. American companies have a long list of concerns.

“This trade war is really about creating s system where American firms can do business in China without all sorts of fears,” Lindauer said in the NBC article. “Protection of [intellectual property] is high on the list. The Chinese are notorious for producing counterfeit goods, reverse-engineering, or requiring technology transfers.”

Earlier this month, President Trump said the two sides could reach an agreement, but the stalemate has continued as both countries experience volatile markets and rising prices.

More recently, hopes for a quick resolution to the trade fight faded with Treasury Secretary Steven Mnuchin saying that no additional meetings with Beijing are scheduled. Also, the Trump administration last week announced a new $16 billion farm aid package to offset losses from the U.S. trade war with China.

In the meantime, consumers are facing the fallout and can expect more as tensions continue. “If the administration follows through with another round of tariffs, everything from iPhones to running shoes will become more expensive for U.S. households,” said Lindauer in a separate interview. “Some recent estimates suggest that the trade war will cost the average U.S. household $300 to $800 a year, sharply reducing the benefits these same households received from the president’s 2018 tax cut.”

The ramifications are also being felt in China, said Lindauer: “They are selling less to the U.S. as firms in other nations now can compete in U.S. markets, with tariffs leading to higher prices for Chinese imports.”

Lindauer said predicting an end to the conflict is difficult at this point. “Both sides have an incentive to stop this trade war. But what are they willing to give up? If financial markets suffer large and sustained losses, President Trump may feel the need to reach a resolution, but domestic economic and political considerations may be less salient than personal ones. The personalities of both presidents Trump and Xi may impede making a deal,” he said.

Photo: Delegations from the United States and China meet in the Eisenhower Executive Office Building’s Indian Treaty Room on February 21, 2019, as the two sides continue to balance their bilateral trade relationship.