Yesterday, Donald Trump named China hawk, Peter Navarro, to head up the White House National Trade Council. Navarro is author of the book ‘Death by China’.
Today China fired back with a “Trade Cooperation Warning” at Trump.
Mr Trump has chosen Peter Navarro, a Harvard-trained economist, to head the NTC, his transition team announced on Wednesday in news reported first by the Financial Times. The author of books such as Death by China and Crouching Tiger: What China’s Militarism Means for the World has for years warned that the US is engaged in an economic war with China and should adopt a more aggressive stance — a message that the president-elect sold to voters across the US during his campaign.
“I read one of Peter’s books on America’s trade problems years ago and was impressed by the clarity of his arguments and thoroughness of his research,” Mr Trump said. “He has presciently documented the harms inflicted by globalism on American workers, and laid out a path forward to restore our middle class.”
The Trump transition team described Mr Navarro as a “visionary economist” who would “develop trade policies that shrink our trade deficit, expand our growth, and help stop the exodus of jobs from our shores”. His appointment is the second restructuring of trade policy that will see Mr Trump attempt to follow through on his focus to resurrect manufacturing, and create more industrial jobs, in the American economy.
Trade Visionary Blind
Peter Navarro may be considered a “trade visionary” but in reality he is blind.
The economic reality is simple: No one wins trade wars.
Today, China responded.
China has warned Donald Trump that “co-operation is the only correct choice” after the US president-elect tapped a China hawk to run a new White House trade policy office.
“Chinese officials had hoped that, as a businessman, Trump would be open to negotiating deals,” said Zhu Ning, a finance professor at Tsinghua University in Beijing. “But they have been surprised by his decision to appoint such a hawk to a key post.”
Adding to rising tensions between the two countries, the US Office of the Trade Representative yesterday put Alibaba, China’s biggest e-commerce platform, back on its “notorious markets” blacklist of companies accused of being involved in peddling fake goods.
China has been scrambling to assess Mr Trump’s stance since he took a congratulatory phone call from Taiwan president Tsai Ing-wen in early December, defying almost four decades of precedent. Under the “One China” policy, Washington has abstained from official interactions with the island, which Beijing regards as a “rogue province”.
Mr Trump’s recent rhetoric about China has given Beijing even more cause for concern. Since the call with Ms Tsai, he has publicly criticised China’s currency policies and island fortifications in the South China Sea. He has questioned Washington’s commitment to the One China policy, and also angered Beijing by alleging at the weekend that a Chinese warship had “stolen” a US navy submarine drone, which was later returned.
Global Trade Wars
I have been warning about the increasing likelihood of a collapse in global trade for some time.
We have taken another step down that road today with Trump’s appointment of Peter Navarro, to head up the White House National Trade Council.
It’s impossible to over-emphasize one simple point: No one wins global trade wars. Trump believes he can.
He won’t.
Related Articles
- December 12, 2016: Global Trade War Baked in the Cake: Boeing Faces China’s Wrath.
- November 21, 2016: EU Retaliates Against US Banks, London: Global Trade War Tit-For-Tat
- September 22, 2016: US-EU Trade War Looms (Don’t Just Blame Trump); Spotlight on Hillary’s Global “Trade Prosecutor”
- September 26, 2016: Draghi Increases Risk of Global Trade Collapse With Brexit Tough Talk
Mike “Mish” Shedlock
Equity in trade policy is far removed from trade protectionism…..please don’t conflate the two.
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Trump has been campaigning on the premise that China is a currency manipulator. Yes, they have pegged the Yuan to the dollar for years to keep their currency low compared to ours. Sure they have benefited from it, but their currency is dropping on its own. Trump is 20 years late with his rhetoric. With China in trouble with itself, i doubt very much whether they are going to cooperate with the equity in trade issues… Really, it’s just where they are at right now.
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Dear Mish
How exactly do you deal with China then???
Seems like just rolling over for them as we have been doing is insane. So are these American companies that think they can do business in China. China lets them run their string out until they are no longer needed and then a Chinese indigenous solution comes on line.
Seems to me from simple game theory undiluted cooperation is not the way to go here.
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The Chinese have ZERO respect for intellectual property and this is CULTURAL:
To Steal a Book is an Elegant Offense: Intellectual Property Law in Chinese Civilization – Stanford University Press
http://digitalcommons.law.yale.edu/yjlh/vol8/iss2/10/
“Capitalists will sell you the rope you use to hang them.”
That describes exactly our multinational corporation morons idiotically drooling over the Chinese market they will NEVER fully own. In most cases the Chinese will simply steal the IP and make their own.
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“No-one wins global trade wars”? That assertion needs a lot of support, Mish.
Looking at the hollowed out US economy, the pernicious effects of low labor market participation, the unsustainable trade deficit, the US Budget deficit in part caused by the loss of tax revenue as industry & jobs have been off-shored — one could reasonably argue that the US is currently losing a global trade war … and China is winning it.
The theory of free international trade is attractive. But the theory also says that no country can run a trade deficit for long. Clearly, the economic theory behind free trade is in the same league as the theory behind Anthropogenic Global Warming.
Even if dubious economic theories point in another direction, common sense says that import substitution could create jobs & tax revenues which would go a long way to fix the twin unsustainable deficits — trade & budget.
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China lets companies pollute water, air and nature with actual toxins.
China lets companies keep workers living on site and working 12 hour days for 6 days a week.
There should be IMMEADIATE tariffs for all China made goods in USA and Europe until China reaches environmental equivalency in its envirenment protection with USA and with the even stricter Europe.
There should be IMMEADIATE tariffs for all China made goods in USA and Europe until China reaches labor protection parity with USA and with the even stricter Europe.
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China has tied yuan to a currency basket so it has a small trading range and previously it was tied to US dollar meaning that for the last 15 years China has been ROBBING USA and Europe through mercantilistic policies thereby getting the factories and the jobs with the goal being to sell products to USA and Europe so cheaply that they can destroy US manufacturing sector and european manufacturing sector and reap massive benefits as the factory of the world once the destruction is completed.
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USA and Europe should have DEMANDED 10 years ago that Yuan must float freely so the competitive advantage for China would have been less.
The irony is that now with unbelievable banking bubble, black money bubble, real estate bubble and absolutely massive communist style malinvestments in ghost cities etc.chinese Yuan would crash NOW if it was allowed to float freely.
USA should have demanded that Yuan MUST float freely already in George W. Bush’s term and at the latest at the start of Obamas term in 2009 but buth Bush and Obama were just puppets of large corporations who benefited from Chinese currency manipulation because they could get their products manufactured even cheaper in China and the home market demand (false demand) was still being kept up in USA by cashout refinances and real estate bubble during Bush and with doubling the government debt in 8 years by Obama and both Bush and Obama have NOT funded the future liabilities that USA faces when people on average get older AT ALL.
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Chinas policy in regards to manufacturing is similar kind of policy as Saudi Arabia just tried with oil to dump oil prices so low that US production becomes uncompetitive, goes bankrupt and is stopped so Saudis again control US policies by being INDISPENSABLE for US economy through oil exports to USA which position was threatened by USA oil production.
Saudi Arabia is deathly afraid of losing its GRIP on USA politicians and that is why Saudi Arabia and Qatar tried to buy the next president of USA by MASSIVELY funding Clinton Foundation and by funding Hillary Clinton’s campaign.
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Amen
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“No one wins global trade wars”, except Chuck Norris
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Leveling the playing field sounds wise to me.
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If I wanted to change Trump’s mind the very last thing I would do is ‘fire a warning’ at him.
At the very least it would provoke him to dig his heels further into the ground. But more than likely – it would provoke him to double down and go for the jugular.
Trump is not the sort of guy you should engage in a ‘game of chicken’.
Chinese generally aren’t stupid people. Proceed with caution.
Btw, I like Navarro. One of the few politically incorrect university economists who has his finger on the nation’s pulse.
Bravo to Trump for the selection.
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If I wanted to change Trump’s mind the very last thing I would do is ‘fire a warning’ at him.
True enough
But equally true:Trump does not know Jack Doogie about Asian face saving.
Please add 2+2 and tell me the result
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If there was a cheater sitting at the poker table to the financial disadvantage of the other players it would be silly to overlook his trickery so that he could ‘save face’.
Don’t you agree?
Trump has no doubt traveled the world and negotiated business transactions with a large majority of the global cultures. What gives you the impression that Trump is ignorant of cultural differences?
Cheating is frowned upon in any culture. A cheater forfeits automatic rights to cultural respect until he acknowledges his cheating ways and then demonstrates his willingness to reform his ways with measurable performance.
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I remember a primer class I had on dealing with Chinese companies. Here contracts are cast in stone as much as possible. Sign on the dotted line with a Chinese company and that contract becomes a guideline, and after they screw with you and you are at your whits end, how do you sue them? Hell, the United Nations decided the case against them in the island building in the South China Sea, and they snubbed the decision. They cheated on the WTO rules for years and were called out by everybody under the sun… where did that get us? Back to square 1.
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Chinese are more ruthless than other asians and in many cases smaller companies who have moved production to China have been robbed blind when it comes to designs and intellectual property and with partners robbing the western partner financially also to bleed them out and then launch a competitor.
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In china dealing with a person who has a good track record is even more important than in the west.
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If a company is robbed in China the chinese communists just laugh at you.
Other asians like japanese, thais and vietnamese are much easier to deal with than the chinese.
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Ivanka and his husband Jarod Kushner were sitting at the meeting Trump had with the japanese prime minister BECAUSE Ivanka has been doing the Asian deals of the Trump organization and dealing with millionaire and billionaire asian buyers.
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Trump is not clueless but his instintcs which made him a presidential contender who could not be knocked down despite massive mainstream media campaign against Trump also make it more likely he will offend people from asian cultures.
Hence the need for Ivanka in business dealings at Trump organization with asian customers and asian partners.
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I am not worried because Ivanka and Jarod are said to be moving to Washington so I imagine that Trump will get her counsel unofficially at least by virtue of her just being the daughter who just happens to be around when Trump meets asian leaders.
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“Cheating is frowned upon in any country”. LIKE HELL IT IS. Getting caught cheating your own MAY be frowned upon. Tried doing business in India? Contract enforcement takes years (often many) in the courts, especially if you are an outsider, and then you may recoup an incomplete settlement in devalued rupees, and the locals are bribe masters, so good luck even getting a fair hearing or arbitration. Their motto might as well be, ‘we have a deal, now you do your part and I might do mine, but only if I sense more money later if I play by the rules’.
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China does not see self as cheater citing prior precedence. Japan has been doing the same ever since at least Reagan with the benign negligence of all administrations. I am confident, South Korea has a similar scheme going. Nobody cared because they were under US protection while devastating US manufacturing.
Almost everybody is a soft cheater because of national VATs which shifts cost from corporations to consumers. The US is the consumer of last resort.
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Trump should not be aiming at China. The Chinese were offered an opportunity by US manufacturers to produce goods at low prices for the US market. Why blame them for taking up the offer?
The quality issue is related to this. Cheap means cheap to make and sell. China is good at that since it’s free of US local constraints. But again, whose fault is that? The Chinese can build quality stuff, but their orders are for crap so they produce crap. Again, whose at fault? It’s all coming from the West, the US in particular. That where the blame lies.
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@Mish — Asian face saving, like free trade, must go both ways.
Why would anyone in China respect a sissy who doesn’t stand up for himself (Obama/Bush)? They don’t.
If a street vendor in China selling vegetables hands a Chinese customer a piece with bruises or rotted flesh — the customer will be insulted (and rightfully so).
The vendor just caused the customer to lose face, and other customers would avoid that vendor to avoid the same fate.
China knows this. They just have no respect for Obama/Bush or their trade representatives. They hope they can force the next administration to kneel meekly as well.
The vendor who insulted his customer with bad vegetables will now have to make amends.
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The Art of the Deal is to trade from strength so don’t worry too much about the retoric, it will all come out fine (and fair) in the end
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Mish, you are right about Asian face saving. They will cut off their foot to make a point. Sometimes we are idiots to deal with them, a classic example was the Paris peace talks during the Vietnam War.
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Face saving is a game, nothing more. Asian people pretend to be insulted by every little thing as a negotiating tactic. Once you start back peddling and apologizing you’ve lost. There are many books on this subject if you care to inform yourself.
Trump brings in some hard men who finally understand this. The Chinese are grown adults who can go to their safe spaces if they don’t like it. My guess is once their BS is called, the Chinese will make more equitable deals.
The same people who underestimated Trump are now making silly future predictions before he’s even started. People don’t know what they’ll have for dinner tomorrow, but they think they know what will happen years down the road. Psychologists need to explain this idiosyncrasy.
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China’s premier slobbered over Fidel Castro in commemoration of his death. The love was undoubtedly because Castro created a prison island. The premier of China wants to create a prison state of Taiwan. China is a police state. Let the trade war begin.
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” China’s premier slobbered over Fidel Castro in commemoration of his death.”
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So did both the Pope and Russian Patriarch. It was disturbing but not surprising considering the Pope and Patriarch had an historic 1000 year unity meeting in Cuba last February hosted by Castro’s heir.
https://www.theguardian.com/world/2016/feb/12/pope-francis-russian-orthodox-patriarch-kirill-make-history-cuba-first-meeting-in-1000-years
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This is the way I see it.
If someone at the poker table was using a marked deck to his financial advantage and you sniffed it out, which action would you take:
1. Remain quiet to keep the peace and just play along to your own financial disadvantage.
2. Raise hell, demand a clean deck and throw the cheater out of the card room.
The US has been played for fools by China for long enough. Time to push back and demand equity at the international trade table. And if a demand for equity leads to a trade war – then bring it on.
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@LFOldtimer — please go back and read my reply to you about Germany etc (several Mish posts ago). I too was not trying to fight or to put words in your mouth, I was trying to make a completely different point. Evidently I didn’t explain myself very well. Happy holidays
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US trade with China is not free or fair. China has higher tariffs on imports.
Here is an interesting history lesson… the main cause of the American war between the states was unfair tariffs.
” As early as the Revolutionary War, the South primarily produced cotton, rice, sugar, indigo and tobacco. The North purchased these raw materials and turned them into manufactured goods. By 1828, foreign manufactured goods faced high import taxes. Foreign raw materials, however, were free of tariffs.
Thus the domestic manufacturing industries of the North benefited twice, once as the producers enjoying the protection of high manufacturing tariffs and once as consumers with a free raw materials market. The raw materials industries of the South were left to struggle against foreign competition.
Because manufactured goods were not produced in the South, they had to either be imported or shipped down from the North. Either way, a large expense, be it shipping fees or the federal tariff, was added to the price of manufactured goods only for Southerners. Because importation was often cheaper than shipping from the North, the South paid most of the federal tariffs.
Much of the tariff revenue collected from Southern consumers was used to build railroads and canals in the North. Between 1830 and 1850, 30,000 miles of track was laid. At its best, these tracks benefited the North. Much of it had no economic effect at all. Many of the schemes to lay track were simply a way to get government subsidies. Fraud and corruption were rampant.
With most of the tariff revenue collected in the South and then spent in the North, the South rightly felt exploited. At the time, 90% of the federal government’s annual revenue came from these taxes on imports. ”
See more info at link
http://www.emarotta.com/protective-tariffs-the-primary-cause-of-the-civil-war/
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Anyone arguing about “fair trade” on this blog (or anywhere else) is fill of shi*t
Please search my blog for “fair trade” for a badly needed education.
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Mish, you wrote: ” I have been warning about the increasing likelihood of a collapse in global trade for some time.”
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St John wrote about it almost 2000 years ago – Revelation 18
” And the merchants of the earth shall weep and mourn over her; for no man buys their merchandise any more…[…]..The merchants of these things, which were made rich by her, shall stand afar off for the fear of her torment, weeping and wailing, And saying, Alas, alas that great city, that was clothed in fine linen, and purple, and scarlet, and decked with gold, and precious stones, and pearls! For in one hour so great riches is come to nothing. And every shipmaster, and all the company in ships, and sailors, and as many as trade by sea, stood afar off and cried when they saw the smoke of her burning, saying, What city is like to this great city! And they cast dust on their heads, and cried, weeping and wailing, saying, Alas, alas that great city, wherein were made rich all that had ships in the sea by reason of her costliness! for in one hour is she made desolate. “
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Here is another history lesson…
Leading up to the fall of ancient Rome, much of what was consumed by Romans was imported. Roman citizens lived in luxury and reveled in degeneracy while the Roman government entertained them with bread and circuses.
As J V Nash wrote in Henry Ford’s “Dearborn Independent” magazine in 1921:
” So agriculture, industry and trade were abandoned. The products of the whole known world streamed daily along the great Roman roads into the Imperial City, which sent back nothing in return but carts loaded with dung. ”
Exporting “dung” reminds me of UK PM Cameron advocating the UK export same-sex marriage around the world.
http://www.telegraph.co.uk/news/politics/10200636/I-want-to-export-gay-marriage-around-the-world-says-David-Cameron.html
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Been to Dearborn lately?
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Quite ironic.
Henry Ford would be spinning in his grave.
Also ironic… in 1942 auto factories were retooled to make tanks, trucks, jeeps, even airplanes and weapons… for WW2.
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Atossa – very interesting. Thanks for posting it.
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Thanks !
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China, having become used to 16 years of sissies in the White House, is upset that the US isn’t going to meekly take it anymore. Some guy with a giant tupee is re-teaching the US how to stand up for itself.
Maybe the sissy academics at UMichigan can supply China with some coloring books and therapy bunnies.
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Mish — while I understand your point about no one winning a trade war… I think you need to separate the pursuit of “free trade” (which is supposed to go both ways), and the absurd tilted playing field that currently exists.
If China wanted free trade (both directions), Trump’s argument would have been shut down long ago. China has been in a trade war against the US for years — the US had two (arguably three) sissy presidents that wouldn’t make sure US workers had a fair chance.
China started this trade war years ago, and as you pointed out, they are not going to win via mercantilism, protectionism or silly threats.
China wanted to expand their mercantile policy to other “customer” countries, knowing full well that the US would not remain consumer of last resort forever. Unfortunately for China, their “One Road, One Belt” initiative has been very, very slow in implementation.
If I can’t buy plastic counterfeit cr-p made in China, sold by Amazon, subsizing WaPo, that breaks after a few uses — well, I guess I’ll have to pay a couple bucks more for something made in USA that will last longer. If US workers can’t or won’t, maybe I’ll buy a higher quality German product… But I will expect the Germans to buy some US products too.
Free trade is a two way street Mish. Everything else is a trade war already.
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There is the libertarian ideology of free trade, then there is the practice. Today’s free trade ideology was started under Reagan, with the goal of hollowing out manufacturing and thus destroying labor unions and the power of the Democratic Party. It worked well. The last election was the culmination of a fight that started in the 1930’s.
But today it is only sustainable with huge budget deficits. The US exports treasury debt in exchange for manufactured goods. When you understand the goal is to weaken the American working classes bargaining power for wages, you understand why so-called conservatives are always ramping up deficits, despite what they say. Trump is fully included in this list. Watch what he does, not what he says.
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Nothing you wrote is accurate. Nor is it related to Mish’s post or my comment. Its just your misinformed political opinion.
You, Jon Sellers, do not add anything to any of the discussions on Mishtalk.
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It directly responds to your idea that we had 3 sissy presidents. None of them were sissies. They were just doing their job. And it is not an opinion. It is fact. But your not going to believe it unless you do the research yourself. There won’t be a trade war. Trump already walking back his 45% tariffs on China to 10%. It will be 0% soon enough.
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You still haven’t written anything intelligent much less relating to Mish’s post or my comment.
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F*uck “Fair Trade ” bullsheet
Anyone arguing about “fair trade” on this blog (or anywhere else) is fill of shi*t
Please search my blog for “fair trade” for a badly needed education.
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@Mish — Asian face saving, like free trade, is a two way street.
Why would anyone in China respect a sissy who doesn’t stand up for himself (Obama/Bush)? They don’t.
If a street vendor in China selling vegetables hands a Chinese customer a piece with bruises or rotted flesh — the customer will be insulted (and rightfully so). Accepting a bad piece of produce causes you (the customer) to lose face.
The vendor just caused the customer to lose face, and seeing this — other customers would avoid that vendor to avoid the same fate.
China knows this. They just have zero respect for Obama/Bush or their trade representatives. They hope they can force the next administration to kneel meekly as well.
The vendor who insulted his customer with bad vegetables will now have to make amends.
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Mish u r right about a developing trade war here with China.But we can’t go on like this forever. Like what is our deficit with China 25-30 billion a month? They have almost 3 trillion dollars. So ok you r our president. What do u do to solve this huge imbalance of our 50 billion trade deficit each month with the rest of the world?
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These rogue nations have been playing us like fiddles for decades and Trump is the very first President to publicly communicate our discontent and intention to level the playing field.
When people, organizations or nations are allowed to get away with malfeasance for extended periods of time – and finally get called out – they regard their malfeasance as an entitlement and take offense at the one who points it out.
Unfair international trade is only one example. Illegal immigration is another. Reverse discrimination is another. Corporate crime is another. Government pensions is another. Elite immunity from the laws is another. It goes on and on and on…….
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“They only call it trade war when we fight back.”
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If some Chinese guy wants to sell me steel (or anything else) cheap, subsidized, at a loss, etc. fine with me. I’ll buy it and use in some project.
What I don’t like is my government trying to protect me from someone foolish enough to sell me any product at a good price….
And I especially don’t like my government deciding what the correct price is for me to buy something ( like they the fed has some idea what the correct interest rate is).
And I really really don’t like crony capitalism where the government decides what businesses deserve to be protected by them,,,,,, because if you protect steel companies by deciding a high price for steel is the proper thing,,, then you are hurting my company which uses steel…
I’ll take the free market over all the idiots on this site that think they know how to force China to do (in their opinion of course) the right thing..
Amen Mish
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You know what? If you want to buy Chinese steel without any constraints from US trade laws, go live in China.
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China selling steel below manufacturing costs is NOT free trade!
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That is chinese government supported communist takeover attempt of world steel manufacturing by BANKRUPTING western steel makers.
China has steel mills that should have been bankrupted years ago churning out steel with monetary supports from government lending programs and even ownership by Chinese government.
Furthermore when you are buying western steel you know that water, air and land was NOT poisoned.
When you are buying chinese steel you know that water, air and land WAS poisoned. because one can sell products cheaper when one poisons air, water and land.
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China is a b*stard child of communist central planning and free market ideology taken to the extreme that DESTROYING air, water and land and nature is OK to chinese because you can sell chinese made cr*p a little cheaper to USA and Europe.
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China should be in a complete BOYCOTT for what they do to the air, water and nature.
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If you as a business or as a private individual purchase chinese made products you are GUILTY for destruction of air, water and nature!
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And this is actual harmful environmental pollutants were are talking about not some global warming mumbo-jumbo USA and EU have also kneecapped their industries with in addition to giving China complete FREE PASS to actually put toxic shit into air, water and nature.
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Yes, because you see China is a “developing country” and we wouldn’t want to harm any country’s “development”. The thing the Chinese commies are developing is total control of the South and East China seas. This is not going to end well for them.
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@Richard — you can buy all the cheap subsidized steel from China you want. Just to be clear, when the products you build with that steel fall apart and kill your family, do not expect another US taxpayer bailout.
Subsidized steel is one thing, if that is all it was.
But if you knew the first thing about metal (you obviously are clueless), you would know to ask about the impurities in any metal. Chinese products have a lot more “filler” — sometimes impurities, sometimes air gaps / bubbles, sometimes its just not worth figuring out what cr-p is included.
Lets not talk about the quality of their welding. Perhaps China reserves the welders with actual ability to work on domestic Chinese products. Perhaps after several apartment buildings in China collapsed because their steel frames gave way — the Chinese government was forced to divert better welders to domestic projects. Perhaps the Chinese realized that customers in other parts of the world (not the G7) are more knowledgable and discerning about quality. Or perhaps the Chinese realized Obama’s free sh-t army is made up of morons who wouldn’t know a weld from a wart.
Whatever the cause, the quality of welds in Chinese products in the past 7-8 years should be a source of embarrassment to anyone who takes pride in their work.
Getting a cheap price on garbage is not a bargain. You clearly don’t understand the product you are buying, particularly the quality grades in steel and welds.
You are getting a low price in Chinese steel, but you still aren’t getting what you paid for.
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I would agree except where the shared environment is used as a low cost input. Common regulations on waste, water, ait, help level the field and everyone benefits.
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Richard — it may make sense in the short run to buy the cheapest product you can find, even if you know that it is cheap only because some foreign government subsidizes it (eg Airbus). But in the long run, do you gain by helping that foreign government establish a monopoly with life & death power over your business?
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Mish,
Many people voted for Trump because they wanted a trade war with China. They have no understanding of the ramifications of said war. They don’t understand that all that cheap crap they have been buying at Walmart (and everywhere else) either won’t be available or won’t be so cheap. They don’t understand that the 1950s “smokestack” economy will never come back regardless of how expensive tariffs make Chinese imports.
But the thing I find most disconcerting is that the world economy is set to collapse the way it was in 2005. Anything could trigger it, and a trade war with China definitely will.
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To continue as has been done by Clinton, Bush and Obama presidencies would mean that all the rest manufacturing jobs in USA would be destroyed and USA would be left with latte-pulling college-educated debt-prisoners and government paid equality bureaucrats and debt-upon-debt financialization until USA would completely collapse.
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Country can NOT survive with just financialization and without a manufacturing base.
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Tariffs on China must first STOP the further destruction of manufacturing jobs and then return of manufacturing jobs to USA amd EU can begin when China stops polluting air, water and nature as a competitive advantage and starts enforcing labor protections similar to USA and EU in China removing the almost-slave-labor advantage China currently has and lets Yuan float freely so it can’t be mercantilistically pushed lower to win production like China has been doing the last 15 years.
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The symptoms haven’t shown yet but the scene is already set. What Jenga piece gets pulled to cause a collapse? There are so many potentials.
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I dunno know about anyone winning in a trade war and I do not claim to be even slightly knowledgeable about trade and our insane trade imbalance but I do know this: Trump has been doing exactly what everyone says he could not do since the start of all this. Mish doubted once and was proven wrong terribly wrong.
Eventually Trump’s luck will run dry on something, but if anyone can win at anything with insurmountable odds, it is clearly this guy.
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The Chinese used to effectively put tariffs on US goods via sterilizing their trade surpluses, but they stopped doing this years ago. China US debt holdings have sort of flat lined over the past 6 or so years. It seems like it’s too late to accuse them of doing this.
Exports to the US are about 18% of their total exports, so putting tariffs on goods may harm them, but it would’t be crippling to them. And there are ways to work around tariffs targeted at specific countries. China can export to Korea and then Korea can export to the US to get around it. Plus, we’ll be at a competitive disadvantage with countries that can get Chinese components at a cheaper price than we can. All things being equal, their finished products will cost less to produce.
My hunch is Trump is just trying to collect chips he can then use for negotiations and isn’t dumb enough to launch an all out trade war with China.
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Under WTO, can’t tariffs be made reciprocal?
We are all so interconnected now it’s very hard to predict an outcome on changing wide ranging trade arrangements. Small disruptions to supply chains have very far reaching impacts.
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China has “Trump card”, and it’s called rare earth elements. All sophisticated electronics and defense systems need them, and China controls almost 90% of the world’s production.
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China has those rare earth elements almost as a MONOPOLY because in the 1990’s china chose a policy of DUMPING those rare earth elements so cheaply to rest of the world that exploration of rare earth elements was forgotten and the existing production outside of China was almost completely shut down.
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China used the same DUMPING strategy on rare earth elements to get control of rare earths market as they later have used to almost get a control of the steel industry and to get control of manufacturing in several product categories almost completely.
China has also used the rare earths monopoly as a way to BLACKMAIL factories into China because getting rare earths to a factory in China is easier than to a factory outside of China.
To further make sure others can not compete in rare earths China does NOT give a damn how much environment the chinese rare earths production destroys.
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Selling below cost or at cost until they have control of the market is the chinese playbook and of course western companies with need to show profits can not compete in this strategy for long when their government gives China a free pass like both Bush and Obama have done.
George W. Bush was the drooling idi*t who pressured other WTO member countries that China must be accepted into WTO (World Trade Organization) and thereby boosted the destruction of American manufacturing started by Bill Clinton with NAFTA (North American Free Trade Area).
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Japanese have been loozing to vacuum seat floor where they have found various for magnetics etc. Others have been working to replace in electric vehicles ia switched reluctance.motor developments.
Rare earth critical but there is some alternatives and Greenland supposedly richeck in them and wasn’t there a place in the US desert somewhere? Closed down as cheaper to source from.China?
Not the end of the world.
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Does anyone understand Donald Trump. The press don’t understand him. Many Foreign leaders don’t understand him. He is a tactician and a leader. He is to be taken seriously. Egypt understands and wants his goodwill. Above all he is not an ideologue. His pragmatism will accomplish much if he is allowed to govern
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Perhaps this is a way to kick start inflation into the US economy. Watch prices rise when the tariffs start flying around.
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Chinese have stolen countless untold amounts of money from American investors through the equity markets over the last ten years, creating and selling shell companies that either do fraudulent business and go to zero, or, create successful companies and then steal all the equity and just disappear. Most Chinese products are utter garbage that your lucky if they last a year before you have to replace, they basically use slave labor while polluting the environment which does effect the United States and oceans. I would much rather pay 2x for some products than they are currently priced if I could actually get quality and know they would not break in a year, or pay more knowing it is supporting jobs in the USA. Not to mention all the dumping of products to destroy and gut other nations, it’s great getting sort of cheaper prices for a while, until you realize that much of the dumping is created by the Chinese government subsidizing the industries so they can produce so much that it destroys none Chinese government industry, leaving swaths of economies in ruin that if it was to normalize would take years if ever to rebuild.
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My experience in 35 years of dealing in Asia is that “face” is a creation of oxydentals to explain their confusion at negotiating there. The reality is that the Chinese are every bit as confrontive in negotiation as we are. The differences are in preparation (Asians are generally better prepared in negotiation), willingness to take risks (we are very risk averse and the Chinese, as others have said, do not believe that the contract constrains their positions), toughness on costs (the Chinese are very hard dealers), and in the massive subsidy of the managed Yuan. Those who think that there’s not already a trade war (and has been since 1994) with China are out of touch with the facts. There has been a war; but the US government has looked the other way at the insistence of Walmart, GE and the other importers, for whom the Chinese peg is a direct subsidy.
That trade war has destroyed our manufacturing and continues to do so. One of our clients just put out a request for bid on some electronic components in which the Chinese were able to undercut US suppliers by 25%….roughly the benefit from the Chinese currency manipulation. In commerce, that’s fatal to the higher priced competition.
The idea that the Yuan will collapse in a trade war is ridiculous. The Yuan represents a massive industrial state. By comparison, the US Dollar represents a diminished industrial state which is choked by government corruption and reliance on a financial sector which produces nothing.
The Chinese managed “trading range” is nothing more than a camouflaged peg….which the government resets when it wishes. That, at the end of the day, is the destructive engine we mush change. If there’s an open “trade war,” China stands to lose 4 x what we lose, and the Chinese know that.
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Selling to our hollowed out middle class is played out for China. Growing their own middle class is inevitable now. Unfortunately China has blundered into a classic Minsky instability which is popping now. Trade policy will take a back burner to the banking crisis soon to hit China. Short term this will dominate dealings with China.
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Even if it is true that trade wars are silly as proven by every principle of economics under the sun, the reality is that sometimes the benefits of conflict NOT measured by academics and their likes outweigh everything else.
You’d have to think outside of the prescribed box of acceptable thoughts to even see this, and some people don’t do that.
Right or wrong, Trump does see benefits to conflict and believes that they outweigh the costs as predicted by everybody else. His opponents don’t even see the benefits and think he’s an idiot that will destroy everything.
I cannot know what Trump is thinking, but I personally wouldn’t mind spending an extra quarter on each pair of underpants (come on now, how many do you really need?) so that a hundred Americans could have a job they otherwise wouldn’t have. At least that way I wouldn’t be subsidizing their welfare.
And China could suck a ****, who cares.
Maybe if they cared about their own environment the world would be more sympathetic to their economic welfare.
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Just because the FT thinks Trump and China are having a trade war doesn’t make it so.
Let’s all take a moment to acknowledge that the FT has been anti-Trump from the start of campaigning. The FT is clearly not giving us correct information.
Let’s also admit that the current trade policies are not two way streets — China has all sorts of tariffs and customs obstacles on everything. Chinese consumers go shopping “overseas” because high quality US / European goods in China cost 10-20x what they do elsewhere.
Let’s further admit that China has disrespected its trading partners by shipping low quality cr-p to its customers. Just because Obama’s free sh-t army doesn’t understand the low quality they are buying does not mean middle class Americans aren’t seeing the problem.
I hope Mish will think this through and talk about the real underlying trade issues, instead of just parroting what the FT thinks. “journalists” (if we can even call them that) have shown zero ability to understand what they are supposed to be reporting on, instead they resort to yellow journalism and stupid “trade war” headlines that are little more than click bait.
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Very true. Commenting on a number of publications and journos is time wasted and helps maintain a ping-pong giving their opinions some credence hardly deserved.
If they were unbiased it might be worth it.
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Quite true. Stopped paying attention to FT after getting sick of their know-it-all style.
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The fact that China can threaten the US if the latter responds to mercantilism is a sign how deep the US has sunk thank to the previous men in charge. This would not have registered even ten years ago, but more precisely fifteen.
The US must also fix it`s education system which is more concerned with social engineering than engineering.
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What about the British Imperial preference trading bloc which insulated the U.K. from most of the pain of the Great Depression? It may not be “winning” a trade war but it beats losing a trade war by playing in a rigged system by the rules with countries such as China who do everything to win – “by hook or by crook”.
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The terms for dealing with china have not been set yet. Those negotiations are yet to take place. What we’re seeing and hearing is the pregame posturing coming from both sides. But to assume this means a trade war is a leap.
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