The immediate, the tactical and the strategic - you can't play only on one platform

This study in contrasting commentary forces a larger question. Not the obvious one "Does anyone in the chattering class know what they are talking about?" but a much more subtle "Does anyone in the chattering class know what they are talking about?"

These are bright people but they so often get stuck in their own frame, they fail to step back and look at the larger picture. In this instance, Cowen is the foil to Lowrey.

From China Loses More From This Trade War by Tyler Cowen. Cowen is looking at Trump using tariffs as a mere tool within his larger objective to rewrite international trading rules so that there are more beneficial to the American consumer and to the American economy. Cowen attempts to follow the logic of tariffs as a negotiating tool through to a view on the likely overall impact in the short term but also the possible long term impact as well. He notes that China "is vulnerable because it is a much poorer country with more fragile political institutions." That is fairly indisputable.

With the U.S.-China trade talks now at a halt, odds are that the recent U.S. tariffs on China will continue — and perhaps even rise and multiply. So it’s worth considering what effects those tariffs will have. One prominent argument, which can also serve as a criticism of President Donald Trump, is that the U.S. consumer is the loser. Yet in reality, China is probably in the more vulnerable position.

To be clear, there are well-done studies showing that the recent tariffs have translated into higher prices for U.S. consumers. I am not contesting that research. The question is whether those studies give sufficient weight to all relevant variables for the longer run.

To see why the full picture is more complicated, let’s say the U.S. slaps tariffs on the industrial inputs (whether materials or labor) it is buying from China. It is easy to see the immediate chain of higher costs for the U.S. businesses translating into higher prices for U.S. consumers, and that is what the afore-mentioned studies are picking up. But keep in mind China won’t be supplying those inputs forever, especially if the tariffs remain. Within a few years, a country such as Vietnam will provide the same products, perhaps at cheaper prices, because Vietnam has lower wages. So the costs to U.S. consumers are temporary, but the lost business in China will be permanent. Furthermore, the medium-term adjustment will have the effect of making China’s main competitors better exporters.

Obviously, no final long-run estimates are possible right now. But it is quite plausible that China will bear the larger costs here, not the U.S.

[snip]

In my numerous visits to China, I’ve found that the Chinese think of themselves as much more vulnerable than Americans to a trade war. I think they are basically correct, mostly because China is a much poorer country with more fragile political institutions.

And finally: My argument isn’t about whether Trump’s policy toward China is correct. I am only trying to get the basic economics straight. Next time you hear that the costs of the trade war are simply being borne by Americans, be suspicious. In their zeal to make Trump look completely wrong, on tariffs or other issues, too many commentators pick and choose their arguments. A more fair and complete economic analysis indicates that China is also a big loser from a trade war. Trump’s threats are exerting some very real pressure on the country.

Cowen's is a reasonably nuanced view. Most importantly, he understands that tariffs are merely a single tactical tool in a larger strategic contest. Whether we make or lose money off of tariffs is not the point. What the president says about why he is using tariffs is not the point. The question is whether tariffs are the best tool to achieve the stated outcome - a more equal sharing of the benefits of global trade and international protections, and ensuring that all citizens are beneficiaries, not just the select insiders.

If you agree with the goal (more equal international agreements) then how to achieve those goals is pertinent.

The next example is far less intelligent than Cowen. From How Trump Thinks Tariffs Work (And How They Actually Work) by Annie Lowrey. You can pick up some of the differences in framing from the gitgo.

Cowen is trying to play out scenarios and assessing probable winners and losers.

Lowrey is reading the president's mind. She is trying to convince us not of what is happening and why it is happening. Such facts and interpretations are too hard work. She is instead claiming to know the thought processes within the President's head. Now which is more likely to be usefully true? An effort to work with facts and interpret them, or an effort to read someone else's mind?

Cowen might be wrong, but Lowrey almost necessarily has to be wrong.

Lowrey continues through her whole article, constantly berating and mocking the president for not knowing how tariffs work. She ends with:

Not that Trump himself would admit it. In his mercantilist, protectionist understanding of the world, trade wars are good, tariffs are a way of hitting the bad guy, and whatever the United States is doing on trade, it is winning. Alas, here in the real world, Trump’s trade war means that consumer goods are about to get more expensive and certain exporting businesses are about to face a much tougher climate, all thanks to the White House.

For someone who is a 35 year old reporter with no work experience outside media, no business management experience, no executive experience, no knowledge beyond a Harvard degree in English AND American literature, she is pretty confident in her own knowledge of economics, negotiations, businesses and industry, and foreign affairs. Oh, and she is awfully confident that she knows exactly what the president is thinking.

Were that all usefully true, she could be a rich person at this point, if only by betting on her own forecasts. That she is not suggests that her confidence is likely misplaced.

Beyond the fact that her article appears only written in order to denigrate the president and vent her own anger, there is a further insight by comparing her to Cowen.

Lowrey just wants, desperately, to show that the president is stupid and ignorant. Her mental frame is immediate. The president says something upon which doubt can be thrown? SCORE!

But that is not life and that is not success. We live in a multitiered world in which we have to successfully manage and navigate three (at least) dynamics at the same time.

Immediate response

Tactical response

Strategic response

Lowrey is operating solely at the level of the immediate response. It is very one-dimensional. Very superficial. And yet it can also be, within its limited perimeter, accurate. At least, nominally accurate. Yes, tariffs increase costs. They increase uncertainty which has its own cost effects. It is disruptive. That disruption, no matter how well you try and manage it, is unequally distributed among Americans. All true. And possibly all irrelevant depending on the perspective you are taking.

Cowen is operating more at the tactical level. He sees that there are ulterior reasons for actions beyond simple tit-for-tat. One thing has a probability of leading to another and that probability has to factored with the estimated effect size, quantifiable risk, and uncertainty. The question is not whether an action is right or wrong, it is whether it is likely to lead to desirable outcomes in the longer run.

Then there is the strategic response. You can win wars not just despite losing battles, but by choosing which battles to lose and which to win. Cowen incorporates some of this perspective into his analysis. But I think the truly strategic perspective is to think beyond the economy and beyond the balance of accounts this year and next. Think past the sale.

China has gained from its reentry into the brotherhood of nations. The US has gained from China finally, after more than a couple of centuries in the doldrums, beginning to retake its historical position as a leading economy. We want them to do that. At some point though, they need to get their domestic political structure in order. A party dictatorship is not stable for the long run and we want a stable China.

China needs to commit to global rules of order (the idea of rule of law). The second largest economy where everyone rips off everyone else as long as they can is also not a stable engine of progress. The global community insisted on none of these goals.

In the beginning there was good reason for this mission. China's relaunch into the global community was so precarious that they needed multiple undesirable buttresses. But we are long past the point where their membership has to begin to be normalized. They can't continue to play the role of the impoverished developing nation needing help. As long as they are getting a free ride, they have no incentive to change. As long as there is risk, politicians don't want to upset the apple cart.

It takes a firm commitment to some long term vision, and some fundamental principles, to play the challenging great global game and the Mandarin Class has avoided doing so as long as it was the average American was paying the cost of that failure to renegotiate terms and conditions of being a full-fledged members of the brotherhood of nations.

There is no doubt that Trump's actions are dangerous and risky. There is no guarantee of success. But, contra the small horizons of the Lowerys of the world, it is a game that has to be played. Projecting immediate anger, carping, and pedantic fact-checking betrays a lack of perspective. If that is all you write about, it is a waste of time.

The tactical and the strategic are the interesting arenas. But few of our journalists have the mindset, the knowledge and experience, or the cognitive capacity to focus there. It is faster and easier to take pot shots on the immediate access, hoping to score points, but failing to realize how bad a light it puts them in.