Whether Sun Tzu or Clausewitz, military strategists have long-warned against fighting a two-front war. Napoleon and Hitler attempted it and failed miserably, as we all well know.
The same warning can be applied to trade wars. But President Donald Trump is ignoring history again, as he so willingly does, time after time after time.
In addition to the wrongheaded notion that all trade deficits are equal, and equally bad, the president is opening this two-front trade war with China and Mexico just when we need them most.
Without regard for the fact that foreigners are now the biggest buyers of U.S. Treasury bonds — China is among the three largest holders — the president is making enemies out of economic friends, or at worst, "frenemies."
It is true that we have legitimate complaints about China's trade practices, including questions about the theft of American intellectual property.
But instead of using established institutions, such as the World Trade Organization, to help resolve these differences amicably, Trump has pre-emptively launched a trade war with China. This could lead to disastrous consequences for both sides.
In addition, the president is hell-bent on launching a trade war with Mexico, constantly threatening to pull out of the North American Free Trade Agreement at a time when trilateral trade among the U.S., Canada and Mexico tops $1 trillion.
The president has never made his grievances about NAFTA clear, suggesting only that Mexico is essentially ripping off the U.S.
On Tuesday, Trump also said he would deploy the military to guard the southern U.S. border. The White House walked that statement back, saying the National Guard would be deployed instead.
In any case, when added to rising trade tensions with Mexico, the unnecessary militarization of the border adds another dimension to tensions with our neighbor to the south. That only serves to exacerbate, needlessly, the risk of a full-scale trade war on a second front.
As this two-front war opens up, the U.S. is becoming increasingly reliant on the kindness of strangers to finance a burgeoning budget deficit, one that requires the sale of $1 trillion in U.S. bonds this year alone.
Annual budget deficits are expected to hit, and remain, at $1 trillion each and every year for the foreseeable future. This comes at a precarious time with respect to how deficits will be financed in the future.
The Federal Reserve, now shrinking the size of its balance sheet, will no longer be a major buyer of U.S. bonds.
If Congress rolls back banking regulations, reducing capital adequacy and liquidity standards for U.S. banks, they may be net sellers, rather than net buyers, of U.S. Treasurys, too.
That leaves foreign countries among the most important buyers of U.S. government bonds.
Those countries with large trade surpluses have historically recycled the surplus dollars back into the U.S. Treasury market, helping to finance budget deficits that were considerably smaller just a few short years ago.
China, which owns $1.1 trillion of U.S. debt, could retaliate by ceasing its bond purchases, long considered to be the economic equivalent of the mutually assured destruction doctrine that kept nuclear powers from annihilating the Earth.
However unlikely, China could also dump U.S. Treasurys to further retaliate against U.S. sanctions.
China, always taking the long view, has the reserves to outlast the U.S. in a full-blown trade war, something the president, with short-term and oversimplified answers to complex problems, has yet to take into account.
Similarly, Mexico has levers to punish the U.S. on the trade front: shutting access to its markets, reigning in oil exports and letting its currency plunge against the dollar.
This is a very risky game the president is playing.
He is willfully and dangerously ignoring the lessons of history.
Whether the defeat happened at Waterloo or Stalingrad, fighting a two-front war has always proved disastrous.
