There is an interesting post at Bloomberg by Christopher Balding which considers the incipient “trade war” between China and the United States from a somewhat different perspective. China and the United States are in the midst of an ugly divorce. Divorce proceedings weren’t initiated by Trump. They were initiated long before Trump became president in 2015 when the Chinese announced their “Made in China 2025” initiative, the summary of which is that China actually wants to reduce its imports, particularly imports of high margin manufactured goods or services in favor of producing them internally.
Seen from this perspective the tit for tat tariffs are just steps along the path to the breakup.
So how will they decouple? There’s little historical precedent to consider how this might look. Two major powers have never been so closely intertwined. However, there are some patterns emerging. First, alliances are slowly evolving into more cohesive forms. Just as the new U.S.-Mexico agreement (likely to include Canada) seeks to divert more trade into Nafta, other countries have started reconsidering their reliance on Chinese telecom-equipment makers for the rollout of 5G wireless networks.
Second, there’s a reassessment of where key products should be made. The second batch of Trump’s tariffs focuses on low-end intermediate exports with the intention of reducing China’s role in the global value chain and pushing reshoring to the U.S. and other locations, as a recent Natixis report noted.
Since I think that the intertwining of the Chinese and U. S. economies was grossly premature, injurious to the United States and, in the long term, injurious to the Chinese as well, I’m not opposed to the retrenchment. I wish this way of looking at things were being considered more seriously by those dedicated to free trade. We’re not the aggressors here.
Reorganizing the relationship between China and the United States is going to be complicated and two countries and economies as large as ours take a lot of time to change course. There will be many difficult steps along the way.
“I wish this way of looking at things were being considered more seriously by those dedicated to free trade. We’re not the aggressors here.â€
I think you choose the word “dedicated†wisely. Most, here anyway, I think would prefer free trade. But to be dedicated in the face of its bastardization/weaponization is a mistake. I’ve seen first hand the effects because of my business. We currently have businesses harmed by tariff related supply chain issues. We have businesses benefitting. It is, and will continue to be, messy. But it’s necessary, and in the long term interests of the country. Those in opposition on purely ideological, narrow self interest or just I Hate Trump grounds really need to step back and gather some broader perspective.
If this is a divorce who gets the house and pays alimony?
Who gets the kids, Mexico and Canada?
Steve
Free Trade requires a hard money.
The trade deficit, like the government debt, does not reset at the end of the year. With hard money, the trade deficit ends when the gold supply runs out.