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Trump Is Winning the Trade War
Make no mistake about it; Trump is winning the trade war with China. First of all, with the chaos that Trump has wrought in the trans-Pacific relationship, investment capital is exiting China and entering the US. The Chinese stock market is way down, while ours is approaching the pre-correction high. The dollar is appreciating, while the Chinese yuan is dropping like a rock. US growth is brisk, whereas Chinese growth is slowing. All of this means that China is hurting right now far more than the US, and financial markets are betting on the US winning this trade war. Seeking Alpha notes:
Along with a slowing economy, China has also had to deal with a weakening of its yuan currency. After an impressive rise in the yuan in 2017 and the early part of 2018, the yuan has been in decline since April. China’s loss has been America’s gain, however, as the U.S. dollar index (DXY) has strengthened since April. The graph below shows the inverse correlation between the two currencies.
And the Chinese government is keenly aware of the political problems posed by being perceived to be losing a trade war with the US. That’s why they’re doing what they do best: censoring the press. From the South China Morning Post:
Four separate sources working for Chinese media, who were briefed on these internal instructions, told the South China Morning Post that they were told not to “over-report” the trade war with US and be extremely careful about linking the trade war to stock market falls, the depreciation of the yuan or economic weakness to avoid spreading panic.
Furthermore, as annoying financial show host Jim Cramer pointed out recently, since Trump announced a 10 percent tariff on another $200B of Chinese imports, Beijing has not yet announced retaliatory tariffs. Of course, Beijing seems to have run out of tariff ammunition, as one cannot impose tariffs on imports that do not exist. New York magazine admitted such:
To this point, Xi Jinping’s government has been able to respond to Trump’s tariffs tit-for-tat by slapping tariffs on $50 billion worth of U.S. exports. But China can’t put duties on $250 billion worth of U.S. products — because it only imports about $130 billion of such goods each year.
NY Magazine also reported that the Chinese Commerce Secretary was “shocked by Trump’s escalation.” I, for one, am shocked that the Chinese Commerce Secretary is shocked. He must have done some background research on Trump. Trump’s been talking about doing something about unfair Chinese trade and business practices for decades. He’s serious about winning this trade war, and he’s doing what it takes to win.
So what does “winning” look like? It’s not that complicated. Trump, first and foremost, wants China to stop stealing our intellectual property and pirating our movies, music, and software. He wants lower Chinese tariffs on American exports to China. He wants the same market access that we give to Chinese goods. America should settle for nothing less.
Published in General
Trump agrees. That’s why he offered to cut all tariffs to 0 within the G7 countries. That offer was met with crickets.
We shouldn’t make good economic policy in the US contingent on good economic policy being implement in the EU.
We should get our taxes as low as possible. If the EU wants to shoot itself in the foot, let them. Instead, Trump is shooting our economy in the foot. It’s pointless.
An American.
When the State negates the property rights of some American citizens to benefit itself and its clients, the people against whom it militates don’t get to choose not to be victims. I can’t choose not to obey restrictions on trade. They are mandatory and backed by overwhelming military force.
Not whining. I have been blessed, and I can afford higher prices. A lot of Americans I know can’t.
No, it is a “tax increase” balanced by a tax cut. The net is zero but it improves jobs and brings back some manufacturing. We need to make things in this country. One year, maybe in the next 20, the world economy will take a huge hit. Then we will need to be self sufficient in manufacturing as we are finally in energy.,
You mean the “Paul Ryan tax cut” that Trump campaigned on? That tax cut ?
Mohamed El-Erian, the former No.2 at Pimco, the world’s largest bond fund agrees in:
El-Erian: Why the US is ‘Winning ” the Trade War
El-Erian: “When people realize that at the end of the day, the US will prevail, because [China] is a less open economy, because [the US] is a more dynamic economy, that ultimately you may end up in a situation where the US’ position in global economic terms is better off,” he said.”
“Still, the former one-time heir to Gross may have gone too far in describing Trump’s nontraditional negotiating tactics. El-Erian said as long as the risks are managed, everything will be fine as far as the US is concerned. “
“El-Erian is perhaps the most well-respected figure in the US financial community to come out in favor of Trump’s aggressive tactics on trade. His remarks recall one of Trump’s most infamous trade-related tweets: “When you’re almost 800 Billion Dollars a year down on Trade, you can’t lose a Trade War! The U.S. has been ripped off by other countries for years on Trade, time to get smart!”
I don’t agree with @blood thirsty neocon that Trump is winning anything on trade. As @HeavyWater said “tariffs are just a tax on our own people.”
A tariff is a sort of economic sanction like the ones they put on Iran. A punishment. It discourages people from buying things because their prices rise, hence it lowers our standard of living. It benefits a few hundred to a few thousand people whose jobs are in competition with the foreign businesses whose products are tariffed, but it hurts the other 320 million people in our country. How is that a win? Because China will suffer more than we will??
China’s (and other country’s) tariffs create a sense of revenge in many Americans who feel like “we have to do something.” But simply repeating what China does will not work. It just hurts ourselves. The answer in all this is to do what Wal-Mart and every other retailer in the World does. When your supplier ups the price of their goods on you, you just shop around for more reasonable suppliers. India is a giant source of untapped labor, and a much friendlier government.
Intellectual Property isn’t part of a “trade war” – it’s just theft, and China doesn’t prosecute it much. Linking it to trade is ridiculous, considering lost IP runs from copied movies to engineering plans. Is there a tariff we can reduce or increase on stolen IP? How would one classify it in the harmonized tariff schedule? Would one tax it?
In general, we should always be careful about causation and correlation. The US economy is doing better after 8 years of chowderhead. China’s got long-standing demographic and economic issues that are coming home to roost.
There’s no one easy answer to point to, or take credit for. Hell, cutting taxes, which increases disposable income, could increase Chinese imports (increased aggregate demand), worsening the “trade war”. Should we then raise taxes?
I think there is a huge misconception in this country, even among many Conservatives, that we have a shrinking manufacturing base. The reality is that we have doubled our manufacturing output since the 1980’s. When you look at any graph of the top manufacturing countries output year by year, you will see that the upward curve on the graph by the U.S. has left everybody else in the dust, with the exception of China. China has gradually caught up with our total output only because they have more than four times the amount of people than we do.
The misperception comes from the fact that most manufacturing jobs have been replaced by machines and robots. The jobs have not fled to other countries. They have simply disappeared. This is the same story that has been happening since our founding, and I suspect that the same complaints about it have been registered since the 1700’s.
You are right about intellectual property. As far as I know, Trump did not impose tariffs as a retaliation for China’s theft, nor am I aware that he brought it up in negotiations. He is certainly not making it a condition for the ending of our tariffs. This is definitely something worth fighting for, but not by imposing sanctions on our own people by making it harder for us to buy stuff.
First, it was monetary policy rather than Smoot-Hawley that caused the Great Depression. This idea that tariffs on foreign trade did is nonsense since foreign trade is such a small portion of American GDP then and now. And because it is a small portion of GDP relative to China’s, China is very vulnerable.
Agreed that tariffs are a tax increase – on consumption. And that is a good thing. There is overconsumption and too little savings and investment. Tax policy which makes this shift – as Trump has done – is a good thing.
I don’t think that China’s slowing economy by any means has everything to do with the trade war. I think Xi is doing a lot of damage himself. This only piles on to his problem and that is an entirely good thing.
That’s the entire point of the tariff. Don’t you get it? China isn’t doing anything special and they are a geopolitical adversary. You and the policies you advocate would continue to reward them.
I don’t quite get your meaning here. The point of the tariff is because China isn’t doing anything special and they are a geopolitical adversary? Please explain.
My policy was to stop trading with China. How is that rewarding them?
I don’t disagree that there’s too much focus on consumption, but tariffs and trade ain’t got jack to do with individual behavior. It’s a much bigger social type of phenomenon, one a policy will have little effect on.
If the idea was to encourage savings and investment, why not a national sales tax on consumption to encourage saving? People will just buy fewer things, and therefore save more? Why not have the companies that sell stuff just jack prices by 10%, instead? That’ll reduce consumption, too.
What else might people buy that the government incentivizes, like, say, housing? Should the gov’t encourage more housing consumption, or no? Should I buy a second house, since there are incentives to do so?
In other words, it’s just not that simple. Complex systems rarely have one or two levers to manipulate to reach a desired outcome, and guaranteed, you will have unanticipated outcomes, too.
If the goal is to encourage savings and investment over consumption, cut income taxes, cut taxes in interest income, cut taxes on capital gains and on dividends.
But raising taxes on consumption just makes life more expensive. In other words, it makes us poorer.
This argument that a tariff is tax on consumption is only a theoretical argument that in the end is not applicable to the China case.
In the case of China, when China has cornered the market it will raise prices, and that will really hit our consumption hard, far more than your alleged “consumption tax”.
China has used it’s whomping $50 trillion version of QE to allow Chinese businesses to operate at a loss to dramatically undercut American competition to drive that competition out of business. It has also used other means of underhanded practices to do the same thing – drive American competition out of business. We have been in a trade war for many years; it just that many here don’t want to recognize the fact.
The alleged ‘Free Traders” here want American to continue to play by their purist Queensbury set of “Free Trade” rules so they can tell their friends there is still free trade while other countries like China and Germany eat our lunch. Such an approach is a denial of reality and an almost suicidal approach for American Manufacturing.
I have yet to see China raising its prices on anything. They manufacture mainly low tech or no tech stuff for which nobody will pay high prices. It is hard to corner the market on stuff that almost any other country can make.
Are you sure about this “operating at a loss?” The only product I have heard about China doing that with was the dumping of steel. And I’ve never understood why “dumping” (selling their products at a loss) is a bad thing for us.
Japan used to use this tactic on things like television sets in order to drive the competition out of business. The theory goes that Japanese companies would take a loss in the short run and try to make up for it by overcharging their own citizens. Then in the long run, the foreign competition would disappear and they would reap long term profits. To see the fruits of this strategy, just look at the decades-long recession the Japanese have had ever since then. I’m not so sure the Chinese are trying the same tactic.
We’ll see.
“Are you sure about this “operating at a loss?” The only product I have heard about China doing that with was the dumping of steel.”
From the WSJ:
“China is doubling down on efforts to keep unprofitable factories afloat despite for years pledging to curb excess capacity, adding to a glut of basic materials flooding the global economy.
The country’s overproduction of steel, aluminum, diesel and other industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere.
China’s continuing aid for unneeded factories is triggering a sharp rise in trade disputes and protectionist sentiment, especially in the U.S., where trade has emerged as one of the pivotal issues in the U.S. presidential election.
According to a Wall Street Journal analysis of Chinese public companies, Chinese government support includes billions of dollars in cash assistance, subsidized electricity and other benefits to companies. Recipients include steelmakers, coal miners, solar-panel manufacturers, and other producers of other goods including copper and chemicals.”
There are literally thousands of Chinese companies operating at a loss, and they are being supported by their government. Economist Charles Hugh Smith has done an analysis of the China/ US Trade deficit against the expansion of the Chinese version of QE, and guess what? the surplus ballooned with each new expansion of Chinese QE, which in total amounted to over 14 times that of the US QE. Fourteen times! That allows for a huge amount of payola to prop up industries that want to undercut the US.
One of the many other ways China also has taken advantage of our managed economy/trade relationship is the Yuan/dollar peg that doesn’t allow the free market in currencies to adjust for trade deficits. Chinese is at economic war with the rest of the world, aiming at world domination. It is also arming itself to the teeth, with hundreds of new ships and new technologies like hypersonic missiles. We should be asking ourselves why we are enriching an enemy that is preparing to make war with us? We have to wake up.
Thank you for the info, I don’t follow China’s economics very much.
That being said, this sounds like a golden opportunity for U.S. consumers and businesses. If I’ve got this right, millions of Chinese workers are getting up early every morning to go to work to make products that they will sell to us so cheaply that they are taking a loss. Their stuff was cheap to begin with, but now they will do work for even less pay. How is this bad for us? How is this bad for our businesses who buy steel and parts from them and employ them to assemble parts?
We have a flexible economic system. When certain jobs dry up through foreign competition, our workers can re-train or simply switch to other jobs that have opened up. China, being Communist, is not very flexible. Their workers are mostly unskilled. The government can simply order them to do what they want, including working for a loss. This will have the unsurprising effect of hurting their own economy and enhancing ours. I refer back to the Japanese example. Based on our standard of living, we seem to have won that “trade war.”
Now if China suddenly raised the cost of doing business with them, I would be worried. That would mean that they finally figured out how to do this Capitalism thing right.
Exactly right.
China has essentially decided that they will do the work and we will get the “stuff.”
What if someone you knew told you that he would sell you food, clothes, cars, washing machines, television sets . . . . . . . below cost?
Would you accuse him of “dumping?” Or would you take advantage of these bargains?
Bargains galore! A fire sale in China! Or is it a China sale in the Firelands? Or is it a Chinese fire drill? Wait…. I think I’m mixing up metaphors….. Is this racist talk?….. On a college campus I wouldn’t have a Chinaman’s chance in H*ll!