World Economy

Economist: Global trade tensions are now here to stay — no matter who leads the US

Key Points
  • Trade tensions are here to stay, with or without Donald Trump, says George Mason University economist Tyler Cowen.
  • Trump's style is unconventional, but his attacks on trade reflect widespread frustration and unease in the United States over the global trading system and the positions of China and the U.S. in it, Cowen says.
  • The breakdown of international cooperation is a far greater problem than that of tariffs, Cowen tells the annual CLSA Investors' Forum in Hong Kong.
The Chinese port of Nantong in Jiangsu Province, China.
Xu Congjun | Visual China Group | Getty Images

Those hoping that U.S.-China trade tensions will disappear when President Donald Trump leaves office should think again, according to economist Tyler Cowen.

Those tensions are here to stay and the world must prepare for a new paradigm in global trade, the professor of economics at George Mason University in the United States told the annual CLSA Investors' Forum in Hong Kong on Monday.

Trump's approach — although unconventional in recent history — is an indication of decades of built-up stress in the global trading system, Cowen said.

"It's a story about international cooperation breaking down and a much greater likelihood that we're now sliding along a scale where we will have 10, 20 years more of cooperative breakdown," Cowen said.

"The real cost over the short, medium and long term is that the world as a whole is stuck with less cooperation and that the world's two most powerful countries — economically, militarily — are no longer cooperating," he said. "I don't think this will change anytime soon."

Also at play is the fact that China's entry into the World Trade Organization has not led to its economy becoming as liberal and free as many had hoped.

Limitations on Chinese investment in the U.S. — for which Trump has pushed — will likely become even stronger in the future, no matter who is president, Cowen said.

"The Republicans and the Democrats actually agree on that," he said. "A Democratic president would do more or less the same."

What Trump has brought to the table is his transactional, one-dimensional approach to negotiating, which was developed through his career in the real-estate and entertainment industry, Cowen said. Contracts in those sectors, the economist added, focus only on one thing: price.

He described Trump's hardline negotiating approach — which includes threatening close ally Canada in order to warn adversary China — as "chaos."

However, Cowen said that strategy would eventually run into the force of "inertia," which could be a political change such as the the midterm elections that may bring Democrats more power in Congress and blunt some of Trump's agenda.

Trump is also taking advantage of complex factors that have turned Americans against trade, he said, citing the example of a four decade-long stagnation in wages for male workers in the United States.

Even Americans who didn't vote for Trump support his stance on trade and that's unlikely to change anytime soon, Cowen said.

"What Trump is doing is not against the wishes of the median American voter," he said.