When 2016 election was in full swing I wrote that Hillary will be a good manager for the decline of U.S. while I fear Trump was unpredictable and fear war with Iran and North Korea. Instead now we have possible war with Iran and trade war with China. As most Chinese can predict that Liu He will not surrender to Trump demands and the full effect of tariff rise will be in effect tomorrow unless Trump has one of his unpredictable Tweet storms.
Most observers agree the trade war will hurt both U.S. and China but it will hurt China more and U.S. can withstand the effects easily. I beg to differ here and suggest possible retaliation China can take. I do not take lightly the effects will have on Chinese economy, but I think China will be able to overcome the adversity and come out stronger. The 200 billion tariffs will go up from 10 to 25%. It will mostly affect those high tech intermediate machine parts that firm like Cummin Engine use to assemble diesel engines. Those company will not be able to re-source their supplies to alternative supplies in U.S. or Europe and have to pay the tariffs and raise prices. Of course long term they can close their factories in China and try to move them to places like Vietnam, but that will force them to lose their investments in China and initial investments will be huge. If Trump raise tariffs for the remaining 300 billion, he will cause problems for Apple phones and Walmarts and affect consumers and inflation in U.S..
As for China the worry about labor shortage and population aging will be alleviated by the closing of those supplying U.S. productions and transition to a service economy. Although China doesn’t have as much imports from U.S. as exports for tariff retaliation, China can be creative in semiconductors like memory chips forcing manufacturers using make in China and shut out those from U.S.. China can impose surcharges like 50% ticket price for Hollywood films to reduce the soft power influences of Western values. This may violate WTO rules but if it’s retaliation probably will be allowed. As for financial and insurance China can shut out Wall street and allow European firms in reciprocal equal dealings. As for the 2 trillion holdings in dollars, China can gradually allow the bonds to expire and redeem them rather than sell them but convert them to resource assets from around the globe. China still has plenty of infrastructure works that can mobilize excess capacities of labor, for example the diversion of water from the Himalayas toward Xinjiang and North China for agriculture. With the coming climate crisis China can prepare well ahead of the curve.
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N.M.Cheung says
Now the trade war is joined, the article in NYT on whether China will double down or fold shows a total ignorance of China or “the Art of War”. China will chart her own path and ignore the provocation by the neocons and Trump. U.S. consumers will pay the tariffs while China will selectively force substitution of those imports from U.S.. Of course some factories will be hurt and layoff, but China is facing a shortage of labor and aging, so it will not be that much of a problem. The dollars in reserve should be gradually liquified by waiting for the bonds to expire and refuse to purchase any additional bonds.
N.M.Cheung says
When ZTE was under total embargo and face extinction I was worried the Huawei will face similar fate. The open letter by HiSilicon, 华为海思总裁深夜发文：科技自立，保密柜里的备胎芯片“全部转正” a Huawei subsidiary on the fact they were prepared for that eventuality and the support by Chinese for “China 2025” are very encouraging. I do hope most Chinese will rally by opening their wallet for import substitution and boycott Iphones and Ipads. The NYT and Washington Post have not reported on this letter and were still reporting the Trump restriction on Huawei and Chinese high tech. It will be exciting for the challenges facing with new operating system and software and best wishes to them.
pug_ster says
@N.M.Cheung
I wrote up a post about it. My guess is that the if Huawei’s situation is not resolved with the US government, the Chinese government could very well force to create alternative standards. We might see Chinese government’s reduce on its dependence on Windows OS, Android OS, Intel and qualcomm processors. The Chinese government has done this when the Chinese government blocked many of US Internet companies doing business in China like facebook, google, twitter, and etc 10 years ago. It will hurt China and US in the short term but in the long term, US will further lose its dominance over technology.
pug_ster says
Trump’s sudden escalation of China’s trade wars is really a distraction towards his impeachment. This incident and sending warships near Iran is a distraction much like when Clinton bombed Yugoslavia in 1999 during the height of his impeachment.
da5id403 says
US citizens and corporate and governmental institutions live from paycheck to paycheck and quarterly report to quarterly report. China takes a longer view. Trouble won’t be around for 1 1/2 more years, 5 1/2 at a longshot maximum. In terms of time this is a tiny blip in Chinese reckoning.
Regarding US treasuries, they are bought by institutions and countries abroad because it is in their financial interest to do so. Even when they were paying negative interest during the Great Recession, China and other players loaded up. That will continue to be the case in spite of any trade turmoil. Indeed, in uncertain times US treasuries are refuge investments.
sattaking786don says
Now the trade war is joined, the article in NYT on whether China will double down or fold shows a total ignorance of China or “the Art of War”. China will chart her own path and ignore the provocation by the neocons and Trump. U.S. consumers will pay the tariffs while China will selectively force substitution of those imports from U.S.. Of course some factories will be hurt and layoff, but China is facing a shortage of labor and aging, so it will not be that much of a problem. The dollars in reserve should be gradually liquified by waiting for the bonds to expire and refuse to purchase any additional bonds.
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