Trump trade war: It’s worse than a crime, it’s a blunder

Upon hearing of the kidnapping and execution of Duc d’Enghien for plotting against Napoleon, French diplomat Charles-Maurice de Talleyrand-Périgord, bracing for political fallout, quipped, “It’s worse than a crime, it’s a blunder.”

In the affairs of man, mistakes are forgiven while crimes are punished. In the affairs of state, crimes are forgivable while mistakes can prove fatal. Many nations have ceased to exist because of blunders. And behind many great nations is a long-forgiven crime.  

Heavy is the crown of the sage sovereign, righteous in personal affairs but amoral on behalf of nation. But what about the crown of the foolish sovereign – lurid in personal life, amoral on the world stage and, worst of all, prone to blunder?

Winston Churchill once quipped, “Americans can always be trusted to do the right thing, once all other possibilities have been exhausted.”

Otto von Bismarck channeled the same idea when he said, “There is providence that protects idiots, drunkards, children and the United States of America.”

This idea is also the theme of F Scott Fitzgerald’s “The Great Gatsby”, “They were careless people, Tom and Daisy – they smashed up things and creatures and then retreated back into their money or their vast carelessness or whatever it was that kept them together, and let other people clean up the mess they had made.”

Churchill, Bismarck and Fitzgerald understood that America had the luxury for all kinds of gross and negligent behavior. Providence saw to it that native Americans had little to no immunity to European diseases, opening up a vast continent for the easiest expansion in the history of empires – from sea to shining sea.

Providence allowed Franklin Roosevelt to saunter into WWII in its fourth act, participate in mop-up operations and declare victory. Providence allowed America to kick the legs out from under Japan in the 1980s and then ride Chinese and Indian PhDs into the internet age. Providence allowed Wall Street to securitize everything, sell bits and pieces to foreigners and buy bass boats for suburban dads. 

This is Peter Zeihan’s America – a vast, sparsely populated continental economy with convenient river systems and coasts on two oceans, blessed with energy, mineral and agricultural riches.

But of late, Zeihan’s America has been squandering its blessings on foreign wars and living beyond its means at home. And now, under President Donald Trump, America is squaring up for an economic showdown against what is certainly not Zeihan’s China (i.e., the one that collapsed in 2022).  

Churchill’s powers of imagination are no match for all the possible follies Trump can cook up before exhausting himself. And the providence that has protected America is surely being stretched as Tom and Daisy smash things up with US$37 of debt.

All this nonsense, this sturm und drang – the Liberation Day tariffs, threatening to annex Canada and Greenland, sending migrants to prison in El Salvador, crushing state capacity with DOGE, laying siege to elite universities etc, etc – is Trump speed-running all other possibilities because he, and the rest of America, knows that the right thing is too little, too late, too difficult and might not work even if attempted.

The smartest thing America can do is skip to the right thing without going through this destructive trial and error. But like those 20 pounds you mean to lose, those cigarettes you mean to give up and those websites you mean to stop visiting, the right thing is easier said than done – especially when one has serious doubts that it can be done at all.

America is facing a China that planted its tree at the best time – 30 years ago – with the panicked realization that the best it can do is plant its tree today. China’s universities now produce ~1.7 million engineers per year, an eightfold increase since the turn of the century and approximately 6.7 times the ~250,000 engineers graduating from American universities.

All of China’s achievements are downstream of education. What did people think would happen when Chinese universities increased student enrollment tenfold? Adult education programs quadrupled China’s literacy rate under Mao, setting up the nation’s workforce for Deng’s market reforms. It’s human capital all the way down. 

And, of course, Trump’s exploration of all possible follies includes rampaging through the crown jewel of America’s education system – its world-class research universities. Eradicating the woke mind virus from higher education may be a justifiable political goal, but to do so by holding research funding hostage and demonizing international students is the height of madness.

The bond vigilantes can immediately force a President’s hand. The international graduate student mob can cause far more damage to America’s long-term economic viability. International students make up half of America’s STEM graduate students. This is a testament to both America’s superb universities and the decrepit state of its public education system.

The pain of increasing 10-year Treasury yields is instantly felt by all borrowers. The loss of international PhD students will fly under the radar, but the loss of economic dynamism as American science and technology withers could not be more calamitous.

China has pulled ahead of the US in science and technology – probably by a significant margin. This is already difficult for many Americans to accept, but the data is clear. Among the top 20 global research universities ranked by Nature, 14 are Chinese and four are American.

According to a recent report published by the Korea Institute of Science and Technology Information (KISTI), out of ten major research fields, China leads in seven (chemistry, agriculture, environment and ecology, electrical engineering and computer science, engineering and materials science and earth science). The US leads in three (clinical and life sciences, physics and arts and humanities).

According to the report, China is now producing more top 1% papers with fewer total papers published than the US in fields such as chemistry, agriculture, environment and ecology, and electrical engineering. China’s Ministry of Science and Technology has spent the past decade tweaking incentives like phasing out government payments for publications to improve efficiency.   

All of this is confirmed downstream as China rockets up the value chain to lead industry after industry (e.g. 5G equipment, shipbuilding, cars, solar power, batteries, nuclear power, high-speed rail) and create new ones along the way (e.g. consumer drones, cashless economy, super apps).

So what is this all about? As crazy as things are, Trump’s second-term nuthouse is just an absurd magnification of the China anxiety carried over from the first Trump term with continuity through the Biden interregnum. Trump’s second time around just has fewer guardrails on his lunatic imagination.

This is all about an America that knows it cannot win but will not go down without a fight. There is no way any economist can look at energy consumption and industrial output charts and honestly believe the US can close the China gap.

There is no way Pentagon strategists can look at China’s 250x shipbuilding capacity advantage and honestly believe that the US can maintain its forward military position in Asia. There is no way that National Science Foundation wonks can look at the trajectory of China’s tertiary education and honestly believe that the US will not be a distant second in science and technology.

Unfortunately, there is a difference between losing and losing even worse. There is a price to pay for not going down without a fight. Trump’s economic war with China is a blunder of historic, perhaps civilizational, proportions.

Because a second-place America is so distasteful to certain parts of the US psyche, Trump is obliged to choose losing even worse. On some level, America rationally understands that it cannot win with the hand it holds and because of that, the only option is to chimp out, throw everything at the wall – chip sanctions, tariffs, alliances, libelous accusations – and lose spectacularly, irrationally and cathartically.

Apologies MAGA folks, Trump is not playing 5D chess. America will soon fold in its foolish economic war with China. In the next few months, large swathes of American industry will shut down as prices of intermediate goods surge and supply of rare earth and other crucial inputs dries up. Store shelves will empty out and inflation will skyrocket. Whoever believed that deficit economies with a deficient industrial base had leverage will eat humble pie.

Whatever face-saving climb-down Chinese President Xi Jinping offers President Trump will be understood by all to mean the US has surrendered global economic leadership to China. Treasuries will embed a permanent “moron premium”, American universities will fall in the league tables and America’s global alliances will come undone – slowly at first, then suddenly.

This is, mind you, the best-case scenario. Permanent damage has already been done. The worst-case scenario will veer off from the blunder of a trade war to something more sinister and criminal. We can all use our imaginations for the possible combinations and permutations of worst-case outcomes.

How bad would surrendering economic leadership to China be? Much of it is just accepting reality. China is already a far bigger economy than the US (see here). People who insist otherwise have just led the US into an unwinnable trade war.

China already leads in science and technology. No one is denying that America has made a greater contribution to science than China in the past– far greater. It’s just that China will contribute more in the future – far more.

Second place is not something that should embarrass any American. The nation still has the magnificent physical endowments Zeihan correctly points out. It’s just that the people have been run ragged by decades of foreign wars, political capture by capital and political division.

Zeihan gets China wrong because he refuses to appreciate the breathtaking leveling up of the nation’s human capital. That is also his blind spot for America, whose human capital has been stagnant at best.

Liberated from the burden of being number one, which has largely been a pretense anyway, America can finally surrender to the generosity of providence and do the right thing for its citizens – come home, circle wagons, lick wounds and get around to planting that tree.