Implications of a China-US trade war

[md2000]

The thought is - OK, Madden and others can’t make whatever they need in the USA - labour is too expensive. But… given the animosity, perhaps they’d consider alternative low-cost locations. the logical one would be Mexico … but wait! Someone wants to make a mess of trade with Mexico too, and slap tariffs on them. And the administration is adding tariffs to Europe and threatening India and… and destabilizing Korea…

The instability basically tells corporations either keep doing what you’re doing, or hold off all further investment until things shake out. Neither action helps the US economy.

As for deficits - there’s nothing wrong with deficits, if they are an investment in the future. But borrowing money to buy groceries is not a long term solution, and that is essentially what the US government is doing. The government spends about $1.25 for each $1 it takes in. as the saying goes, if things can’t go on this way… they won’t. They either need to cut spending drastically - military or social programs (or both?) or raise taxes, or do both. None of that is going to be acceptable, and will only happen during a big crash. Argentina and Greece have shown us the way. OTOH, cutting spending during an economic slowdown is its own recipe for disaster.

[XT]

Why have US markets done so well despite this volatility. If there is going to be a correction, when might this occur?

It’s a good question. My WAG on it is that we were already in a period of economic growth coming off of the Obama administration. In addition, globally we are the most stable and safest place to put your money into, despite Trump’s chaos. What else would you sink your money into right now? The EU has all sorts of internal issues that they haven’t worked out, and their economy while not in terrible shape is still not exactly robust. No one knows what the effects will be, long or medium term, of things like Greece, issues with Eastern European members, Brexit, Spain, Italy and the like. Even Germany is questionable as they are going through some issues with their energy policy decisions that are hurting them in the short term. So, who else? Japan is still fairly stagnant, China is really having major issues and there are a ton of trust issues there wrt sinking a lot of investment in the company (better bring your patents if and IP if you want to do that), and trust issues with even their official numbers. The US is really it, unfortunately.

Imagine, however, where we would be if Trump hadn’t been elected. :smack:

Is it possible to have a weak dollar, strong economy and significant trade war?

Sure, why not? It’s possible to have a lot of different conditions. It would actually help the US, in some ways, to have a weak dollar (it would hurt in a lot of other ways of course). It’s kind of why China weakened it’s RMB against the dollar…it helps them, somewhat, in export while hurting them a lot on in a bunch of other ways.

Are there any limitations on Trump’s brinksmanship to reduce the repercussions of a trade war?

Certainly, though you also have to understand that this trade war with China isn’t something Trump just made up or is all alone in wanting to pursue. He actually does have bi-partisan support for doing SOMETHING about China. My guess is, even when he’s gone (hopefully in the next election), whoever wins will still be pursuing a trade war with China until and unless they actually make meaningful concessions. Hopefully whoever it is will be less chaotic and actually have some sort of rational goals, but I think we’ll still be pushing the Chinese to fix some of the issues they created.

As for repercussions of the trade war, you are seeing them…basically, the US has a healthy economy that has a lot of good things going for it, yet we are showing signs of an early recession. A lot of that has to do with how chaotic Trump et al are, shifting stance constantly, talking shit on Twitter and generally making the market VERY nervous as to what the hell we are doing, where we are going and how this will play out.

Finally, what might be the major repercussions of a trade war? Might there be benefits and opportunities? Will this help correct perceived corporate malfeasance at all?

It depends…will Trump stay the course? Will whoever succeeds him stay the course and keep the pressure on China? If so, then some of the benefits would be more open markets for our own products in China without our companies being forced to give up patents and intellectual property to Chinese companies and cut their own throats as Chinese companies reverse engineer the products then bring them to market to out compete us using state subsidies to lower costs artificially along with the other benefits. Hopefully China will also stop using state assets to basically steal our IP and give it to their companies to do similar things. Then there are all the WTO policies they constantly violate…hopefully that will also be brought under control.

You seem to be assuming this is ‘corporate malfeasance’, but this is systemic issues that stems from the CCP and their control over their ‘private’ companies as well as the state companies. This isn’t even just corruption…this is deliberate by the CCP, not just some guys trying to make a buck, but a systemic attack on the US (and the rest of the world, but we are the only ones who seem to really care very much at this point) and our companies and IP. I think that this COULD stem this, to a degree, and mitigate some of the more egregious issues the CCP is causing, IF we actually stay the course (and have someone at the helm who knows what he’s doing and isn’t such an idiot).

[Dr_Paprika]

When I used the phrase “corporate malfeasance” I was not thinking of American corporations, but more along the line of what you suggest. I wondered if tariffs were the best way to approach the problem of stolen patents but it is doing something. It seems to me to be a solution that causes self-harm without solving much, but time will tell. Trump’s inconsistency does not help anyone make decisions, even if the approach worked in the Manhattan real estate market with very limited supply. International negotiations might not benefit from the same approach.

[XT]

@Dr_Paprika

When I used the phrase “corporate malfeasance” I was not thinking of American corporations, but more along the line of what you suggest. I wondered if tariffs were the best way to approach the problem of stolen patents but it is doing something. It seems to me to be a solution that causes self-harm without solving much, but time will tell. Trump’s inconsistency does not help anyone make decisions, even if the approach worked in the Manhattan real estate market with very limited supply. International negotiations might not benefit from the same approach.

I don’t know if tariffs were the best way…I suspect they weren’t, actually. But if we were going to do them, the chaotic way Trump has done all of this would be bad no matter what tools he used. The only caveat to this is it did need doing, IMHO, whether it was tariffs or other means at the US’s disposal, something needed to be done. I hope that, no matter who wins (on the Democrat side) that they follow through and don’t just knee jerk back to status quo ante.

[puddleglum]

@septimus

I hope you explain what you mean about Jimmy Carter and the Central Bank. I thought he appointed the inflation-fighting Paul Volcker and then kept hands off even though he knew that Volcker’s high interest rates would lead to lay-offs and was likely to cost Carter his re-election.

Carter appointed Volker to the Fed in August of 1979 but inflation kept rising and peaked in April 1980. By election day it was still higher than at any point during the 70s. I have read that it was because Volker did not like Carter’s public criticism and did not act as decisively as he did in 1981-1982 when Reagan backed him.

[Musicat]

This is probably the least significant fallout of Trump’s economic policies, but for very small areas like mine, it hurts.

Door County, Wisconsin (pop. 28k), is a “sister city” with Jingdezhen (pop 1.5 million), the “porcelain capitol of the world.” We have exchanged students and J1 workers over the last few years, and IMHO, it has been a wonderful cultural and humanitarian exchange that benefits all.

Jingdezhen has treated us, a magnitude down in size, most royalty. They built a “town square” in one of their shopping centers devoted to USA’s Door County alone. With direction from us, they built (and paid for!) a very elaborate display and made provision for retail shops to sell our USA products. They offered to subsidize a handful of art students if they wished to learn ceramic and porcelain art production, with no strings attached.

We had 3 delegation exchanges between countries. The Chinese were extremely friendly to us, and I hope, we to them. Everyone longed for further cooperation between the countries and cultures.

But now I understand that retail sales in the Chinese shopping square are quite unlikely to happen, due to Trump’s latest policies. Any future cultural exchange is going to be difficult or impossible. There’s very little hope remaining.

[Fiddle_Peghead]

@Dr_Paprika

Classical conservatism would seem to emphasize stable institutions, small government, balanced budgets and encouraging international trade. Obviously, ***Trump ***is offering something different, and has recently doubled down on criticizing China. ***Trump ***has accused China (and Europe) of manipulating the yuan (Euro) after rate cuts, and has criticized the Fed for not cutting interest rates. He seems to want a weak US dollar, strong US economy and tariffs to strongarm other countries in to buying more US goods and “balancing trade deficits”.

Unsurprisingly, this doesn’t make a lot of sense to me.

Why would it? Trump is an economic Neanderthal.

[wguy123]

Today’s NYT “The Daily” podcast talks about this very topic, mainly related to the global impact of the trade war. Interesting listen.

[Dr_Paprika]

Although the US has labelled China (and the EU) as a “currency manipulator”, they probably are not guilty of this since a lower value would be a natural consequence of tariffs and volatility.

With regards to Chinese companies copying other items then making very similar products, I understand the concern of innovative businesses. However, many companies and countries do this. China is singled out due to the power of its government, the influence of the government in its legal system, its computer savvy and its success in getting access to business, government and university research.

If this is so, it would make more sense to lobby for countries doing business in China to have access to alternate legal dispute resolution, a digital Geneva convention (as proposed by Microsoft but with enforcement issues), alternate conditions for doing business with China and a review of conditions for educational exchange and penalties for corporate malfeasance. Again, China is hardly the only company which looks to competitors for inspiration. It is just more successful than most, and has both influence (due to its population and economic clout) as well as many of the best students and researchers.

Companies are not forced to do business with China, and most are aware that access can be challenging. Trump’s threats to use an archaic law to prevent business seems like a non-starter and it is hard for anyone to know how seriously to take Trump’s policies. Trump is not the US, of course. I am sure Americans who travel abroad tire of having to make this distinction. If the president is in a sense, in loco parentis for a country, what do do when the parent is loco?

[XT]

@Dr_Paprika

Although the US has labelled China (and the EU) as a “currency manipulator”, they probably are not guilty of this since a lower value would be a natural consequence of tariffs and volatility.

Kind of. They certainly HAVE manipulated their currency in the past to their advantage. This particular time is most likely not an example of them being a ‘currency manipulator’ in the way Trump is using that term, but that doesn’t mean they never do this.

With regards to Chinese companies copying other items then making very similar products, I understand the concern of innovative businesses. However, many companies and countries do this. China is singled out due to the power of its government, the influence of the government in its legal system, its computer savvy and its success in getting access to business, government and university research.

China is singled out because of the systemic way they do this. No other country does this kind of thing in the way they do it because no other country has the ability to do what they do so pervasively. You seem to be making excuses for them here and trying to make a case for ‘everyone does it’, but that is really not true when you look at the scope of what China does. I love how you use that last sentence to excuse them especially…I mean, they are so computer savvy (their military and government of course), that stealing IP is just natural for them!

If this is so, it would make more sense to lobby for countries doing business in China to have access to alternate legal dispute resolution, a digital Geneva convention (as proposed by Microsoft but with enforcement issues), alternate conditions for doing business with China and a review of conditions for educational exchange and penalties for corporate malfeasance. Again, China is hardly the only company which looks to competitors for inspiration. It is just more successful than most, and has both influence (due to its population and economic clout) as well as many of the best students and researchers.

It has more power than most, and can get away with more, especially since the US and Europe REALLY want access to those markets and really feel, deep down, that if only the Chinese get more prosperous they will throw off the CCP and emerge as a democracy. It’s a false hope, but it’s one the CCP has and continues to use to their advantage.

Companies are not forced to do business with China, and most are aware that access can be challenging. Trump’s threats to use an archaic law to prevent business seems like a non-starter and it is hard for anyone to know how seriously to take Trump’s policies. Trump is not the US, of course. I am sure Americans who travel abroad tire of having to make this distinction. If the president is in a sense, in loco parentis for a country, what do do when the parent is loco?

Nope, companies aren’t forced to do business in China. They are lured by the size of their market, and by mainly false promises of Chinese partnerships which, generally, turn into Chinese companies gaining access to a foreign companies IP, reverse engineering it and then having the CCP back them up in any sort of legal dispute wrt patents or IP ownership, and said foreign company basically being cut out of the China market by being undercut by Chinese companies making knock offs of their own product (while be subsidized to do so by the CCP). And this is the most above board way the CCP and Chinese companies screw our companies. This doesn’t even get into the CCP using state assets to hack US and other foreign companies, outright steal IP, then help Chinese companies (all of who have ties to the CCP) to reverse engineer the products or services AND subsidize that as well as the products themselves, while using their internal legal system to prevent any foreign company from any sort of legal recourse in China.

It makes you wonder why our companies are so stupid. But then you look at the potential markets and you can see why it’s so tempting. But, really, considering how China manipulates their own domestic market, making it VERY difficult if not impossible for foreign companies to really compete (usually because the price of the Chinese knockoffs are so much less than the foreign companies, only the rich in China will buy foreign brands), there is a good case to be made that China already is using backdoor tariffs, in a way, to stifle foreign competition. So, what the US is doing in retaliation, is doing this openly by directly putting real tariffs on Chinese products. Is it the best way we could do this? I’m not sure. But your post here seems to be making a case that we don’t need and shouldn’t be doing anything at all. It sounds an awful lot like a CCP or Chinese apologist to me. There are REAL issues that need to be addressed in what China and the CCP does wrt trade. This isn’t all made up stuff, and ‘everyone does it’ is just wrong and disingenuous.

[Dr_Paprika]

No, this post was intended to help me understand the implications of a trade war. This wasn’t intended to be just about China which has often been accused of using egregious methods. I don’t agree with cutthroat ways of doing business. I think business can be broadly ethical and bring advantages to many. Tariffs are, indeed, doing something. Might there have been any advantage to getting other countries on board, which also have these concerns? Would it make sense to concentrate on one issue, or accuse the EU and long-term Allies in surprising terms? Would a consistent approach be helpful?

One possible outcome is Americans pay more for many goods, people buy fewer of certain American products, and other countries target specific US exports that hurt industries in areas with political clout. Perhaps no one will mind making these sacrifices in light of the bigger issue. Possibly unrest eventually increases in affected countries. I don’t see how this helps the issues of law and technology that arise.

And I am prepared to believe tariffs can sometimes be helpful and give it certain advantages. Free trade seems to offer benefits, but there are good deals and there are bad deals. Disputes can be handled reasonably, with minimal red tape, codified procedures and reasonably good faith, or otherwise.

[Bookkeeper]

@XT

You seem to be assuming this is ‘corporate malfeasance’, but this is systemic issues that stems from the CCP and their control over their ‘private’ companies as well as the state companies. This isn’t even just corruption…this is deliberate by the CCP, not just some guys trying to make a buck, but a systemic attack on the US (and the rest of the world, but we are the only ones who seem to really care very much at this point) and our companies and IP. I think that this COULD stem this, to a degree, and mitigate some of the more egregious issues the CCP is causing, IF we actually stay the course (and have someone at the helm who knows what he’s doing and isn’t such an idiot).

I doubt that this is a deliberate attack by the CCP on the rest of the world as much as a deliberate policy of doing whatever they see as best for China with little or no concern about the impact on other countries.