Miscalculations of trade dispute between the USA and China will have consequences
Chinese COSCO Freighter (Fletcher6)
The Wall Street Journal reported that there seems to be bipartisan acceptance in the USA for Donald Trump’s stance against China on trade:
May 12, 2019
WASHINGTON—President Trump has enjoyed rare bipartisan cheering for his brass-knuckle trade fight with China, but that support will now be tested as U.S. businesses and consumers shoulder higher tariffs on Chinese imports.
The yearlong conflict has barely dented the U.S. economy so far, but new 25% tariffs imposed Friday, along with the administration’s steps to expand levies to virtually everything from China, are raising concerns even among some Republicans.
“The tariffs that are currently in place have had a very detrimental impact on agriculture, and the economy is in the tank already, so we don’t need more bad news piling on,” said Senate Majority Whip John Thune (R., S.D.).
The conservative National Taxpayers Union on Friday estimated the Trump administration’s major tariff programs have reversed about 25% of the tax relief expected from the 2017 tax law between the years 2019 and 2023.
The U.S.-China trade dispute appeared on the verge of settlement until about a week ago, when Beijing balked at U.S. demands that it detail laws it would change to implement the deal, seeing that as impinging on its sovereignty.
The impasse triggered Mr. Trump’s decision to impose 25% tariffs on $200 billion in Chinese goods, up from 10%. Two days of trade talks in Washington ended Friday with no resolution.
In the Senate, Democrats from trade-dependent states said the higher tariffs were needlessly escalating the conflict.
“Being tough on China is one thing, but a reckless trade war that negatively impacts American producers is not the way to go,“ said Sen. Tom Carper (D., Del.). “Retaliation from our trading partners has made exports from Delaware $14.8 million more expensive for foreign buyers.”
For now, however, that is a minority sentiment as Democrats and Republicans alike have largely opted to give Mr. Trump wide leeway on China, even as they criticize his tariffs on other countries that have led to retaliation against U.S. exports. https://www.wsj.com/articles/broad-support-for-trumps-china-fight-faces-test-as-tariffs-escalate-11557658801
US President Trump told China that it should accept his deal/proposals now as it will be worse for China if it waits:
WASHINGTON —
President Donald Trump warned China Saturday that it should strike a trade deal with the United States now, otherwise an agreement would be “far worse for them if it has to be negotiated in my second term.”
Washington and Beijing are locked in a trade battle that has seen mounting tariffs, sparking fears the dispute will damage the global economy.
Two days of talks ended Friday with no deal. China’s top negotiator said the two sides would meet again in Beijing at an unspecified date, but warned that China would make no concessions on “important principles.”
Accusations and higher tariffs
Trump had accused Beijing of reneging on its commitments in trade talks and ordered new punitive duties, which took effect Friday, on $200 billion worth of Chinese imports, raising them to 25 percent from 10 percent.
He then cranked up the heat further, ordering a tariff hike on almost all remaining imports — $300 billion worth, according to US Trade Representative Robert Lighthizer — from the world’s second-biggest economy.
Those tariffs would not take effect for months, after a period of public comment.
Trump also said Saturday that firms could easily avoid additional costs by producing goods in the United States.
“Such an easy way to avoid Tariffs? Make or produce your goods and products in the good old USA. It’s very simple!” he tweeted, echoing a similar message he sent Friday, and even retweeted. 05/11/19 https://www.voanews.com/a/trump-to-china-trade-deal-now-or-far-worse-after-2020/4913870.html
Now, while it is true that some US firms may be able to better compete against Chinese imports if a 25% tariff is implemented on more goods, but there are some other issues at play.
The first being that there is uncertainty as to whether those tariffs will be put in place.
The second being that firms that import from China may well decide to shift to purchasing from other countries in Asia that do not face these tariffs.
While the USA should gain some manufacturing jobs with increased tariffs, it would be unwise to overly calculate the number.
The USA will likely face some inflation because of the tariffs.
Now, here is a report about China’s view:
12 May 2019
Beijing has remained optimistic about resolving the trade war, while Washington has doubled down on tariffs. China’s chief negotiator warned, however, that there were some lines the country wouldn’t cross. …
Chinese analysts warned that the US was perhaps not prepared for what their country was willing to withstand.
An editorial in the nationalist Global Times tabloid added that now, Washington had almost no leverage left.
“The US has misunderstood the interests of both sides, and seriously underestimated China’s endurance,” the newspaper wrote.
“China’s confidence and core concerns will by no means be weakened by tariff hikes.” https://www.dw.com/en/china-us-give-conflicting-reports-on-trade-talks/a-48704363
China has been making statements that it will retaliate and will not cross certain lines.
But China may have made several of its own miscalculations. Karl Denniger has some negative comments about China and how it may be damaged by this trade dispute with the USA:
China tries to do what they always do — cheat.
There’s a basic principle of negotiation that unless you are willing to risk the other guy turning over the table and walking off once you have a bargain on a specific area of negotiation you don’t take it back without it being a function of some other compromise. To do so is to mark your negotiation as bad faith or worse, mendacious. …
Can you get a “deal” under these conditions? I tend to doubt it — nothing is impossible, but it’s highly unlikely. We should have never let things go this far; the problem was apparent at least as far back as 2000, but nobody wanted to take it on from either side of the aisle. But the siren song of corporations offshoring and getting lower costs (even though they were screwing Americans blind with job cuts and lower wages) was just too much for CONgres and past Presidents to resist — so here we are.
As far as “who has more to lose” that one’s easy: They do.
China is a nation that has so-ridiculously overheated its markets and economy with printed money that if demand contracts and thus so does GDP the results will be catastrophic, perhaps even leading to the destruction of their government. A military option, whether through threat or otherwise, is exceedingly dangerous for them as well; there’s no free lunch available to them in that regard either.
The US will not enjoy a trade embargo with China but we’ll survive it and on the other side of the adjustment we’ll benefit mightily from it. China, on the other hand, likely will not survive at all with their present form of government. They simply don’t have the margin to absorb that kind of disruption given their “centrally planned” view of how things were going to turn out — and which now, are not. Their best case scenario is an economic/banking system collapse. Their worst case is a civil collapse.
China may be miscalculating the amount of damage from a trade dispute with the USA. China is NOT prophesied to be the economic leader in the 21st century. China is subject to having civil unrest and other problems. Problems that this trade dispute could lead to that could be more than the governmental authorities will be able to prevent.
Companies in the USA that import from China will find other suppliers for some materials. That will hurt China.
Of course, China could hurt the USA by stopping the export of rare earth metals. This is one area where the USA could be miscalculating. And there are others.
Yet, what Donald Trump is doing is consistent with what was at his official presidential candidacy website:
DONALD J. TRUMP’S VISION
- Negotiate fair trade deals that create American jobs, increase American wages, and reduce America’s trade deficit.
Donald J. Trump’s 7 Point Plan To Rebuild the American Economy by Fighting for Free Trade
1. Withdraw from the Trans-Pacific Partnership, which has not yet been ratified.
2. Appoint tough and smart trade negotiators to fight on behalf of American workers.
3. Direct the Secretary of Commerce to identify every violation of trade agreements a foreign country is currently using to harm our workers, and also direct all appropriate agencies to use every tool under American and international law to end these abuses.
4. Tell NAFTA partners that we intend to immediately renegotiate the terms of that agreement to get a better deal for our workers. If they don’t agree to a renegotiation, we will submit notice that the U.S. intends to withdraw from the deal. Eliminate Mexico’s one-side backdoor tariff through the VAT and end sweatshops in Mexico that undercut U.S. workers.
5. Instruct the Treasury Secretary to label China a currency manipulator.
6. Instruct the U.S. Trade Representative to bring trade cases against China, both in this country and at the WTO. China’s unfair subsidy behavior is prohibited by the terms of its entrance to the WTO.
7. Use every lawful presidential power to remedy trade disputes if China does not stop its illegal activities, including its theft of American trade secrets – including the application of tariffs consistent with Section 201 and 301 of the Trade Act of 1974 and Section 232 of the Trade Expansion Act of 1962. https://www.donaldjtrump.com/policies/trade/ accessed 12/21/16
One major miscalculation of Donald Trump’s trade policies has been, and will be, pushing China to work more closely with Europe on trade matters.
Already, China is willing to work with Europe related to the World Trade Organization, as the USA is upset with it.
Because of miscalculations with trade statements and policies from the USA, Europe is ending up with more leverage.
This is consistent with biblical prophecies that show Europe will dominate trade:
2 … Babylon … 3 For all the nations have drunk of the wine of the wrath of her fornication, the kings of the earth have committed fornication with her, and the merchants of the earth have become rich through the abundance of her luxury. (Revelation 18:2,3)
Both the USA and China are making miscalculations in this trade dispute and will face costs that they did not really expect.
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