The economy is dragging. End the trade war.

The harmful and ill-considered conflict just isn't working out

President Trump.
(Image credit: Illustrated | Mark Wilson/Getty Images, zenink/iStock, Asya_mix/iStock)

Economic expansions don't have a predetermined shelf life. They don't come with expiration dates or time limits. They don't die of old age. Australia hasn't experienced a recession — defined as two or more consecutive quarters of negative growth — since 1991. So the mere fact that the current U.S. expansion is the longest on record shouldn't necessarily be concerning.

But make no mistake, the American economy has downshifted. Just take a look at the September jobs report, out Friday. Although the unemployment rate dipped to a 50-year low, the report also showed that both job and wage growth have slowed. JPMorgan economist Michael Feroli called it a "labor market in a controlled descent." Meanwhile, major banks, including JPMorgan, are forecasting third-quarter GDP growth will be lucky to hit 2 percent, and the manufacturing sector likely continues a contraction that began in July.

In other words, the economy could use a boost — like ending President Trump's trade war. The harmful and ill-considered conflict just isn't working out. Everything that's supposed to be down is up, and everything that is supposed to be up is down. Factory jobs are down, the trade deficit is up. Business investment is down, uncertainty is up. Once again, trade wars are proving neither good nor easy to win, despite the president's promise of easy victory over China.

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One big problem with the Trump trade war is that it's unclear what a victory or big deal would look like — other than, in Trump's words, "100 percent" favoring the United States. Or at least favoring Trump. Since the president decided to invite Beijing to investigate former Vice President Joe Biden, it's hardly a huge mental leap to wonder whether he would consider successful Chinese sleuthing to be as valuable as Chinese leaders directing more sorghum and soybean purchases. Even Trump clearly understands this — in a bit of damage control on Friday, he said he wouldn't link the two issues.

Yet big problems remain, not the least of which is the massive uncertainty the trade war is causing. In a recent analysis, economists Scott Baker, Nicholas Bloom, and Steven Davis called the continuing protectionist turn in American trade policy "the most pressing question affecting financial investments and corporate strategy around the globe." Anxious American firms sure can't stop kvetching about it.

Indeed, the well known index of economic policy uncertainty from Baker, Bloom, and Davis finds uncertainty spiking to levels even higher than during the Global Financial Crisis. The researchers note, "There is now a sizable body of empirical research that supports the proposition that high policy uncertainty harms macroeconomic performance." Uncertainty can be a harmful tax on investment and economic growth.

And why are we paying that tax, exactly? The Trump trade war is a confused, intellectually vaporous, internally contradictory mess. Some anti-China hawks in the White House want to break up "Chimerica" for both economic and national security reasons. Yet that conflicts with the president's stated goal of having China effectively deepen its economic ties with America by buying lots more American stuff, including sophisticated technology such as semiconductors.

Then there's the oft-stated U.S. trade goal of cracking down on Chinese theft of American intellectual property and coerced transfer of American corporate technology. But think about it: What America is asking China to do is make itself a more business-friendly place for American companies. That would obviously make it more likely that they would choose China as a place to build and sell their products and services, as well as conduct technology research. Again, this goal conflicts with the idea of trying to push American companies to move their supply chains and other operations from China to other countries such as Vietnam and Mexico or, preferably in view of hawks, back to America.

An end to the trade war would almost certainly boost consumer, investor, and business confidence right when the economy seems to need it the most. Every time Trump even hints at de-escalation, stocks jump.

But that's not enough. Washington, whether led by the current president or the next one, needs to outline a long-term China strategy that punishes bad behavior — such as punitively targeting Chinese companies that swipe American tech — while also creating a comprehensive strategy to enhance American technological prowess, including significant boosts to federal funding of military and civilian research. As economists Jonathan Gruber and Simon Johnson recently argued in Foreign Affairs, "The best way to counter China is to out-invent it—and to turn inventions into products and services that people around the world want to buy."

There's also no better way to keep the American economy rolling today and in the future.

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James Pethokoukis

James Pethokoukis is the DeWitt Wallace Fellow at the American Enterprise Institute where he runs the AEIdeas blog. He has also written for The New York Times, National Review, Commentary, The Weekly Standard, and other places.