Beijing has escalation dominance in the U.S.-Chinese tariff fight.
www.foreignaffairs.com
Trade Wars Are Easy to Lose
Beijing Has Escalation Dominance in the U.S.-China Tariff Fight
“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with,” U.S. President Donald Trump famously tweeted in 2018, “trade wars are good, and easy to win.” This week, when the Trump administration imposed tariffs of more than 100 percent on U.S. imports from China, setting off a new and even more dangerous trade war, U.S. Treasury Secretary Scott Bessent offered a similar justification: “I think it was a big mistake, this Chinese escalation, because they’re playing with a pair of twos. What do we lose by the Chinese raising tariffs on us? We export one-fifth to them of what they export to us, so that is a losing hand for them.”
In short, the
Trump administration believes it has what game theorists call escalation dominance over China and any other economy with which it has a bilateral trade deficit. Escalation dominance, in the words of a report by the RAND Corporation, means that “a combatant has the ability to escalate a conflict in ways that will be disadvantageous or costly to the adversary while the adversary cannot do the same in return.” If the administration’s logic is correct, then China, Canada, and any other country that retaliates against U.S. tariffs is indeed playing a losing hand.
But this logic is wrong: it is
China that has escalation dominance in this trade war. The United States gets vital goods from China that cannot be replaced any time soon or made at home at anything less than prohibitive cost. Reducing such dependence on China may be a reason for action, but fighting the current war before doing so is a recipe for almost certain defeat, at enormous cost. Or to put it in Bessent’s terms: Washington, not Beijing, is betting all in on a losing hand.
SHOW YOUR HAND
The administration’s claims are off base on two counts. For one thing, both sides get hurt in a trade war, because both lose access to things their economies want and need and that their people and companies are willing to pay for. Like launching an actual war, a trade war is an act of destruction that puts the attacker’s own forces and home front at risk, as well: if the defending side did not believe it could retaliate in a way that would harm the attacker, it would surrender.
