US-China trade war escalates

President Donald trump has escalated the US-China trade war in while negotiations continue. Playing hardball may be necessary to make decent progress, but it’s risky, not just for the US and Chinese economies, but for all those who trade with them as well, which is most of the world.

.Washington Times: No cheating on friends

A president who talks and acts tough on trade has been a long time coming. Donald Trump made getting fair dealing on trade a major plank in his campaign platform and has followed through. China can’t say it wasn’t warned about the imposition this week of additional tariffs on selected goods coming into the United States.

Bad trade deals have cost the United States billions of dollars and cost millions of American workers their jobs over the last several decades. Supporters of free trade find tariffs against China, Europe, Mexico and Canada hard to take. Tariffs are taxes hiding under another name and lead to higher prices for U.S. consumers. The stock market dropped 500 points after the new China tariffs were announced. Tariffs provide a safe harbor for inefficiencies, and protect markets and manufacturers from the need to innovate and increase productivity.

But as a short-term strategy to get the Chinese to the table to make agreements to protect American intellectual property, for example, it might be that rare occasion on which to do something bad so that good may come.

If it works.

RealClear Politics:  A Don Corleone Offer to China on Trade

You don’t have to like tariffs to like President Trump’s strategy of imposing harsh ones on China. Those he imposed overnight are punishing, not only to China but to American consumers. The longer they last, the more they will cost. Yet serious trade sanctions are the only hope of getting Beijing to roll back its abusive economic practices and open its markets to U.S. exporters and investors.

Half measures and paper promises won’t do. The U.S. wants a big deal, and it wants teeth in it to prevent cheating. To get it, Trump is willing to threaten a trade war. We don’t know if it will work.

We do know that Trump’s threats are credible. He began saying how much he loved tariffs long before he ran for office. The irony is that his protectionist stance could pave the way for freer trade, first with China and then with the European Union.

The problems may be clear, but the solutions are not. No previous administration has figured out how to move China away from its discriminatory policies. Sweet talk and generous gestures don’t work. If they did, President Obama would have succeeded, not only with China but with Iran, Russia, and other hostile powers. Empty threats don’t work either. If they did, several administrations would have gotten China to change its trade and investment practices long ago.

These failed policies don’t leave Washington with many options. The U.S. can either accept Chinese protectionism, as Europeans and previous U.S. administrations have, or it can make them an offer they can’t refuse. The terms are obvious:

  • Threaten China’s export-driven economy
  • Make that threat believable and sustainable
  • Offer China a reasonable deal
  • Make it costly for China to delay, and
  • Buttress the deal with tough enforcement mechanisms

Trump is taking the Don Corleone option. He acted swiftly and ruthlessly when Chinese trade negotiators withdrew concessions they had already made in writing. On Friday, he more than doubled tariffs to 25% on some $200 billion worth of Chinese exports, with promises of more to come.

Trump’s decisive move is directed at China’s economy, but it also sends a sobering message to North Korea’s nuclear negotiators. They are bound to see how costly it is to make empty promises to the Trump administration, as Kim Jong Un has done on denuclearization.

President Trump is forcing Xi to choose between two unhappy alternatives. That’s why he has thrown a severed horse head into the bed. Trump wants to force the issue and make it hard to resist the American offer. If he succeeds, he will present the deal as a huge win for both sides.

But dealing like this can have it’s risks, and it’s down sides.

Washington Post – Another View: Multi-front trade wars hurting U.S

News reports identify the Trump administration’s specific complaint as China’s alleged going back on its promises to put U.S.-requested policy changes into law. For their part, Chinese sources have told Western media that Beijing interpreted Trump’s complaints about purportedly tight Federal Reserve monetary policy as a sign of economic weakness that China could exploit.

It’s anyone guess what will come of the current meetings in Washington between China’s trade delegation and Trump’s team. What should not be in doubt, however, is that throughout the entire bargaining process with Beijing, the administration has undercut its position by attempting to wage simultaneous tariff battles with other countries.

As Chad Bown of the Peterson Institute for International Economics has shown, Trump’s tariffs now cover 50.5% of Chinese imports — but also 7.3% of imports from Canada, 2.5% of imports from the European Union, 9.6% of imports from South Korea and 3.8% of imports from Japan.

By bracketing old friends with Beijing, even justifying some levies against them (on steel and aluminum) on “national security” grounds, Trump has made it politically difficult for them to rally to the U.S. side in the dispute with China. They were, in fact, obliged to retaliate.

This unforced error is doubly regrettable because Trump arguably had the upper hand going into his talks with China.

In a world where Trump is deeply unpopular, his complaints — shared by previous U.S. presidents — against China represented a rare case in which other nations conceded him the moral high ground. A savvier president would take advantage of that.

The negotiations with China might yet reach a mutually beneficial conclusion, or they might collapse. Either way, Trump will have defied a lesson of history: Multiple-front wars are the hardest to win, whether they are of the military kind or trade wars.

Fighting without allies is harder still.

But for now the big battle is with China, and much will depend on how they react.

Reuters: Trump says no hurry to reach deal with China as trade war escalates

In a series of morning tweets, Trump defended the tariff hike and said he was in “absolutely no rush” to finalize a deal, adding that the U.S. economy would gain more from the levies than any agreement.

“Tariffs will bring in FAR MORE wealth to our country than even a phenomenal deal of the traditional kind,” Trump said in one of the tweets.

Despite Trump’s insistence that China will absorb the cost of the tariffs, U.S. businesses will pay them and likely pass them on to consumers. Consumer spending accounts for more than two-thirds of U.S. economic activity.

Global stocks, which have fallen this week on the increased U.S.-China tensions, came under renewed pressure on Friday.

Following the U.S. tariff hike, China’s Commerce Ministry said it would take countermeasures but did not elaborate.

China’s central bank said it was fully able to cope with any external uncertainty.

China responded to Trump’s tariffs last year with levies on a range of U.S. goods including soybeans and pork, which has hurt U.S. farmers at a time when their debt has spiked to the highest level in decades.

Trump escalated the one way war of words. Much now depends on whether China responds by escalating the war of tariffs.

And how markets deal with the war. CNN: Dow Tanks After Trump’s Ballistic Twitter Rant Shellshocks Wall Street

The Dow’s weeklong catastrophe shows no signs of letting up, as the US stock market endured another shellacking at the hands of Donald Trump and his tariff regime on Friday.

The immediate trigger for Friday’s sell-off was the never-ending trade war teeter-totter, which continues to viciously seesaw between dizzying optimism and utter despair.

Less than a day after hinting that Thursday would be a “very strong day” for US-China trade negotiations, President Trump unleashed a ballistic Twitter rant in which he downplayed the need to “rush” into a trade deal.

Time will tell. Trump has a reputation for overstating his abilities and his tactics. Tweeting may be a useful tool for Trump, but like imposing tariffs it has risks.

What is not well known is how China will be approaching the current situation, as they operate far less publicly.

And a number of US businesses will be nervous about how all this will affect them.

Previous Post
Leave a comment

34 Comments

  1. Corky

     /  11th May 2019

    Pain for all involved. But China has thieved off the West for ages. They tried thieving plant cuttings from our fledgling Kiwifruit industry. This situation should have been dealt with by preceding presidents long ago.

    As Trumpy says:

    This is not the Obama Administration, or the Administration of Sleepy Joe, who let China get away with “murder!”

    Let’s hope China decides to bend on these issues. We must always remember though, China will never break. Their influence in many countries infrastructure shows they have a plan B.

    Reply
    • Gezza

       /  11th May 2019

      Might not be what you’re referring to, but I spotted this article a couple of days ago & found it interesting.

      Accusations of “debt trap diplomacy” levelled at China’s Belt and Road plan to offer billions in loans to poor nations for infrastructure have been questioned by new research which shows asset seizures by Beijing are rare.

      An analysis by New York’s Rhodium Group of 40 debt renegotiations made by China across 24 countries found “asset seizures are a very rare occurrence”. Instead, the report found “debt renegotiations usually involve a more balanced outcome between lender and borrower, ranging from extensions of loan terms and repayment deadlines to explicit refinancing, or partial or even total debt forgiveness.”

      Where there was a change of government leadership in a country, Beijing was “often compelled to agree to term renegotiations, usually to borrowing countries’ advantage”, the report found.

      Australian National University senior lecturer Darren Lim said the “debt trap diplomacy” claim was never credible, and had been pushed by the Trump Administration. It beggared belief that Beijing was deliberately setting up recipient countries to fail, he said.

      He said the strength of BRI was its recognition that developing countries need infrastructure investment.

      The article mentions Vanuatu (debt write off ) & Tonga (loan deferred), but goes on to say that the Chinese have now suddenly realised the economic folly of rash lending for major projects where it can cause corruption, wastage, & repayment distress because projects are poorly vetted and fail to generate positive returns.

      It notes that China is using BRI to build political capital and this won’t be achieved via asset seizures.
      https://www.stuff.co.nz/business/world/112429181/chinas-belt-and-road-is-no-debt-trap-for-developing-nations-research-shows

      Reply
      • Blazer

         /  11th May 2019

        this is the U.S way of doing it.Too simple…according to resident neo con..

        Reply
      • Corky

         /  11th May 2019

        I would say that’s a genuine article as to Chinese loans and repayments. However, not having researched the issue, I am fairly ignorant in that regard.

        My view of China in others countries is more global. Having a foot in the door, and service sectors of foreign countries relying on Chinese technology and input is where the gold lies in my opinion.

        For example some countries are going to give Huawei limited access to their 5G networks. They believe they are being prudent by compartmentalising their important software and processes away from Huawei’s control.

        But straight away China knows two things in a time of crisis: what not to target in the 5G network…and the weakness of any components they have supplied to that network. Components that may have built in fail mechanism that could be triggered.

        It must also be remembered China expects all its citizens who have immigrated overseas to be loyal to the motherland. If only 10% heed that call, that’s a lot of spies, saboteurs and liars who can be called upon if needed.

        Reply
        • Gezza

           /  11th May 2019

          Yes I know that’s a major bogeyman the US has been very shrill about, but has anyone found any evidence of back doors or deliberate vulnerabilities yet? You can bet they’ve looking for them. Because the other possibility is that China simply wants out-compete the US & make $$$.

          Reply
          • Corky

             /  11th May 2019

            There will be no common back doors, and even if there were, they wouldn’t be able to reach important infrastructure. The things I am thinking about is specially made metals that react to certain frequencies and either start to disintegrate, or they start producing destructive harmonics that may fry circuitry.

            But as I said above..the ,most important thing is China will know what is vulnerable to attack, and what isn’t, should they have components in any given infrastructure. There is no need for back doors.

            For example, if you have to attack a vehicle, you are in the dark as long as you don’t know what vehicle it is. If you know it’s a light personal carrier, you will leave the guns at home and use anti tank ordinances. Given these light carriers can move at speed, you may wish to deploy an air attack. Whatever happens, you have saved yourself a lot of time and effort. And you have tailored your attack to the situation.

            Reply
          • NOEL

             /  11th May 2019

            I think you will find that it is more about the inability to shut the system down in the event of a terrorist attack if Huawei equipment is used in the core.

            Reply
            • Kitty Catkin

               /  11th May 2019

              I thought that the Huawei equipment was the nuts and bolts, so to speak, and had nothing to do with what was transmitted, as a television set is just a vehicle for what’s broadcast on it. They’d be idiots to build in components that were meant to fail; how to make sure that people don’t buy your products. That’s not how businesses work. People would soon find this out and refuse to buy their products again.

              I think that the conspiracy theories are just that. Scaremongering with no evidence to back them up. The idea that China expects its citizens abroad to be prepared to be spies, saboteurs and liars on call is just absurd. It’s like thinking that Kiwis abroad would be expected to do this.

              It’s far more likely that China just wants to make money, as all countries do. If Trump persuades his government to put Chinese goods out of reach of people, it is highly likely to be an own goal. It won’t be done solely because he wants it to be.

            • Corky

               /  11th May 2019

              Yeah, that could be another angle, Noel. But remember Huawei is in reality small potatoes compared with other investments China has across the spectrum of Industries.

              Keep your fingers crossed they don’t build a cell tower near your residence. 5G will need many more towers to operate effectively. That will make for an unappealing landscape and possible hike in illness and cancer from radiation.

            • Corky

               /  12th May 2019

              Not the article I wanted, but near enough. While Kitty talks of conspiracies in her secluded world of naivety.. the real world is a different place with a different pace.

              ”The Cold War never ended,” says Chen. “This is the second phase of the Cold War, and the whole world will be very different if the Western countries lose.”

              No need to tell me, Chen. However, there may be a few Round Eyes that need a wake up call..not so much for them, but for their grandchildren.

              https://www.stuff.co.nz/auckland/104827509/no-place-to-hide-political-dissidents-fear-chinas-influence

  2. NOEL

     /  11th May 2019

    If tariffs increase revenue for the Gummit it comes from consumers paying raised prices as importers transfer costs. The only way to measure true success is to compare sales of imported goods to domestically manufactured comparable products.
    Anyone seen any reporting on that?

    Reply
    • Duker

       /  11th May 2019

      The aim insnt ‘more revenue’ for US government. Its to get US manufacturers to return production to US or buy more US made parts and employ more people there

      Reply
      • NOEL

         /  11th May 2019

        Maybe we should go back to those days. Manufacturing left emass claiming high wages when really it was tax breaks etc in China. The manufacturers changed to importers and the workers to service industries.

        Nah won’t happen.

        Reply
    • David

       /  11th May 2019

      Inflation rate has not moved, looks like China and business are absorbing the tariffs, there is capacity elsewhere in Asia to fill many gaps. Growth rates are still spectacular and the job creating has accelerated recently in the US so great time to be getting something reasonable out of China.
      The EU is next and I wish him luck cracking that protectionist racket.

      Reply
  3. Griff.

     /  11th May 2019

    “Tariffs will bring in FAR MORE wealth to our country than even a phenomenal deal of the traditional kind,” Trump said in one of the tweets.

    Anyone who supports this tool is a gibbering idiot.
    Paying more for consumer goods is not going to make anyone wealthy.
    Industry’s paying more for raw material will not make them more competitive.

    Reply
    • Duker

       /  11th May 2019

      The theory is correct, where US manufacturers compete with Chinese imports they can increase production if customers switch.
      If inflation is low you can gamble on China not being able to raise its prices to cover the tariffs ( some tariffs are 25% more)
      Often the target is US manufacturing companies who are thinking of switching production to China- the big automakers for example would love to import more cars made by their factories in China. of course there would be hundreds of other companies in same situation- “Do I shift production to China or import more from existing China factories”.

      Reply
      • Griff.

         /  11th May 2019

        ROFL
        Yess duks except almost all economists would disagree with you.
        Because you are increasing costs and protecting uneconomic industry.

        THE MACROECONOMY AFTER TARIFFS Davide Furceri, Swarnali A. Hannan, Jonathan D. Ostry and Andrew K. Rose* May 2019 Abstract

        What does the macroeconomy look like in the aftermath of tariff changes? We estimate impulse response functions from local projections using a panel of annual data that spans 151 countries over 1963‐2014. Tariffs increases are associated with persistent economically and statistically significant declines in domestic output and productivity, as well as higher unemployment and inequality, real exchange rate appreciation and insignificant changes to the trade balance. Output and productivity impacts are magnified when tariffs rise during expansions and when they are imposed by advanced (as opposed to developing) economies; effects are asymmetric, being larger when tariffs go up than when they fall. Results are robust to a large number of perturbations to our methodology, and hold using both macroeconomic and industry‐level data.

        http://faculty.haas.berkeley.edu/arose/Tariffs.pdf

        If inflation is low you can gamble on China not being able to raise its prices to cover the tariffs ( some tariffs are 25% more)

        This is incoherent babbling.
        Do you even know who pays the Tariff?
        Give you a hint .
        It is not China.
        To compensate for the tariffs china would have to drop prices on the goods it sells.
        Much more likely they will just stop selling into the USA as the Chinese economy is run in very tight margins . This will effect their growth by a few percent but not as much as adding 25% to the price all goods formally brought from china will effect the USA’s economy.

        Reply
        • Duker

           /  11th May 2019

          Tariifs have been around for centuries – because it worked. The Free trade mantra is a new thing which was supposed to bring benefits to both sides. In some cases it does so but not all- which is what Trump is saying.
          Economists view on ‘inefficient’ is relative as its not a level playing field in China regarding factory safety, pollution , environment waste and legal protections for workers that are more or less standard in the west.
          Huawei may be ‘more efficent’ and have lower prices for telecoms equipment ( with vendor finance) but its an ‘state supported industry’
          Huawei office workers

          Reply
      • Gezza

         /  11th May 2019

        “The primary purpose of the Trump tariffs isn’t necessarily to raise tax revenue, as in centuries past, but to make something more expensive to US consumers so that they will buy less of that item and buy more from domestic manufacturers, who, incidentally, typically raise their domestic prices.”

        I recall complaints that US steel companies were doing precisely that.

        Reply
        • Blazer

           /  11th May 2019

          U.S overarching policy=’do as we say,not as we…do’.

          Reply
        • Kitty Catkin

           /  11th May 2019

          As incomes won’t suddenly go up to match higher prices, people won’t want to pay more for locally made things. I can’t see anyone wanting to go back to days when a small, basic television cost quite a few weeks wages. In the early days in the US, a television cost more than 5 weeks of an average wage.

          Reply
      • duker

         /  11th May 2019

        real world is different. manufacturers are very aware of what the consumer price will be and adjust their selling price accordingly -where they can
        eg Apples go for high prices and if there was a tariff they could probably absorb the tariff by lowering the price declared to US customs. something low price probably couldnt, like the stuff sold in $2 shops.
        Global clothes manufacturers dont supply the same article at the same price to different countries they are very well aware of what the ‘going price ‘ is and adjust their supply accordingly, often they may only allow a gradual rise in price and cut profit margins for a few years to cushion consumer impact.
        of course in some cases where manufacturers have market power they do allow prices to rise anyway. ie NZ wouldnt win in a China -NZ trade war

        You would think the media would be full of stories of actual chinese made goods which are significantly dearer – yet to find any . Instead its all ‘economic theory’ so far.
        Maybe after a few years ‘economic theory’ may have to be rewritten, just like the theory dogma that said ‘low unemployment rates would lead to higher wages’ or the other one that really was economic bull dust, ‘more government borrowing pushes up interest rates’ …hahahaha

        Reply
        • Griff.

           /  11th May 2019

          ,Global clothes manufacturers dont supply the same article at the same price to different under a countries they are very well aware of what the ‘going price ‘ is and adjust their supply accordingly, often they may only allow a gradual rise in price and cut profit margins for a few years to cushion consumer impact.

          I can not believe someone would even write duh fuckin dribble.
          Let me take that back
          There are some real idiots on line who gibber the most crazy shite .
          Dukes think thousands business owners from Bangladesh to Poland get together in a big meeting in secret lair under a volcano and decide what they are going to sell T shirts for in every market.
          And some twat even agreed with him.
          https://www.alibaba.com/showroom/t-shirts.html
          Even if they did for a few hundred extra dollars you can order stock from almost any country and after it is shipped arrange to redirect the box To anywhere .

          Reply
          • Blazer

             /  11th May 2019

            tDuker is talking about multi national companies and their specific regional pricing..IKEA a good example…goods made in Indonesia neigHbouring Oz cost more in Oz than the U.S and Europe.

            The market volume is an influence but pricing reflects ‘what the market will bear’.

            Reply
            • Duker

               /  11th May 2019

              Yep. Sure the bottom of the clothing market – T shirts may work like that but the rest of the clothes would be rely on quality and specific designs and quantity. Good luck with supplying Farmers let alone Walmart for mid range clothes by playing them all off against each other. Fast fashion is even more demanding.
              Cars in US , comparing imported European models, are cheaper than NZ even when currencies differences and taxes are taken out. Us is more competitive and profits are slimmer.
              Lexus NX300 starts at US$40k while NZ price for similar car would be above $80k.
              Used imports evens out the deal for cars over 5 years old in NZ as we all know
              Griff’s always in his ivory tower slavering over the pontifications of ‘experts’ and their reserach based numbers

  4. peddiebill

     /  11th May 2019

    I thought international trade is always complicated because what happens in one economy has down stream effects on other economies. The law of unintended consequences means that when funds and/or goods and/or services are transferred from one pot to another it is very hard to be certain what will happen down stream. Some international companies operate in China AND the US but only because it helps their supply chains.

    You can indeed punish producers in China but not guarantee they will continue to want to be part of your supply chain, or buy your stuff. Arbitrarily punishing a major trading partner will make others who deal with you nervous. This is why the WTO has been so helpful in the past —and perhaps why the EU, Canada and even New Zealand are now concerned about long term relationships with the US led by a President who trashes settled treaties with no apparent concern for other major partners. Producers in one area are also consumers for other goods and services including yours, so upsetting them with economic sanctions will not necessarily contribute to your economic wellbeing. (When China -and Japan own part of your debt deliberately pressurizing either wont necessarily end well

    Reply
    • Duker

       /  11th May 2019

      Us can do that because it such a big attractive market with Rich consumers, and for it’s own economy it’s exports are a relatively small portion of the total economy.
      Plus China US trade im balance in goods is so heavily in China’s favour, that anything that Trump does to China, they can only do 1/5 in return.
      This is one thing I hope Trump wins on and break the nonsense about free trade -in it’s purest forms

      Reply
      • Duker

         /  11th May 2019

        This is an example of one Griff’s “experts”

        “Dr Larch Maxey was left red faced after trying to superglue himself to the main doors of Bristol City Council to raise awareness about climate change, unaware they were automatic”

        Reply
        • Kitty Catkin

           /  11th May 2019

          Didn’t some protestors glue themselves together recently ?

          I wonder what would have happened if they had just been left there like that. Sooner or later someone would need to go to the dunny urgently.

          Reply
          • Duker

             /  11th May 2019

            Like prisoners who protest living conditions and climb onto the prison roof?

            We are lucky the asinine climate activist didnt glue himself to a revolving door

            Reply
  5. Blazer

     /  11th May 2019

    the interesting thing imo is the revised TPPA without the U.S.
    No way can I see the U.S walking away from this shitty,crappy deal which is sold as a trade deal.

    The opportunity for corporations to sue Govts will prove irresistible to the U.S.

    As will the IP aspects of this b/s construct.

    Reply
  6. Duker

     /  11th May 2019

    TPPA is dead as dead as far as US goes. Even Democrats won’t touch it now…Chuck Schumer was tweeting Go Trump Go regarding the tariff war with China

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s