Why Trade Wars Are Inevitable
EVEN AS U.S. PRESIDENT DONALD TRUMP and Chinese President Xi Jinping announce and then cancel tariffs in a seemingly endless back-and-forth, it is a mistake to view the ongoing trade dispute as simply a spat between the two. It is not a Trump-Xi fight or even mainly a U.S.-China one.
In fact, when it comes to creating global trade imbalances, China is not the only—or even the worst—offender. Its current account surplus is no longer the world’s largest; the most recent data suggests China’s annualized surplus stands at about $130 billion, significantly smaller than Japan’s (roughly $180 billion) and Germany’s (roughly $280 billion).
The real problem is that, over the past two decades, it has become increasingly difficult for the world to fix its massive trade imbalances; the very mechanisms that created them also make them harder to absorb. That is because trade surpluses and deficits are mainly the result of domestic savings surpluses and deficits, which are themselves a result of domestic income inequality. Until such inequality is substantially reversed, high-saving countries will continue to use trade as a way to pass the effects of their distortions onto other nations, such as the United States. This makes global trade conflict nearly inevitable—regardless of who sits in the Oval Office. For the United States, the
