Donald Trump should realise that the prior relationship between China and the United States was favourable to both countries

President Trump wants to impose massive taxes on US imports from China, with the stated objective of eliminating the US external deficit with China. But he should realise that the prior equilibrium between China and the United States was favourable to both countries: China had a large external surplus with the United States, and lent to the United States by accumulating foreign exchange reserves; There was therefore increased production in China and increased consumption in the United States, and the increased US consumption was financed by China on very favourable terms for the United States. The transition to a new equilibrium without a US external deficit with China and without Chinese lending to the United States will therefore reduce US consumption (as Chinese products become more expensive in the United States) and Chinese production, and will therefore be unfavourable to both countries.