At The National Interest Salvatore Babones argues that, while the United States may not be winning the present “trade war”, the Chinese are definitely losing:
Trump’s aggressive push on tariffs has thrown the country’s expert class into a tizzy, with pundits predicting a severe shock to the American economy, blaming the trade war for every blip in stock prices, and warning of the potential for runaway inflation as consumers pay the price for Trump’s tariffs.
Meanwhile the economy is employing record numbers of people, inflation is running well below the Fed’s target rate, and stock markets are slightly up since the beginning of the “trade war†in April. The data simply refuses to satisfy the pundits’ appetite for economic carnage.
With the economy refusing to cooperate with their “gloom and doom†narrative, America’s pundits are now arguing that economic pressure is no way to get a trade deal from China. When a Chinese Communist Party newspaper tells them that “China will never give in to pressure,†they believe it.
And who knows? Maybe they’re right. But if China doesn’t give in to pressure, then its manufacturing base will continue moving to Vietnam and India. Less labor-intensive assembly work will move to Mexico, which has now displaced China as America’s top trade partner. China will lose its unique position at the center of global production networks, and with it much of its leverage over global politics.
Read the whole thing. Some of which you should be aware is that Dr. Babones’s field of study is the frequently counter-productive if not self-destructive role of experts nowadays.
All other things being equal I’m an enthusiastic supporter of free trade but all other things have not been equal. The Chinese leadership has been very successful at using a combination of subsidies, trade policy, currency manipulation, and espionage to undermine the United States. The U. S. has been a big loser under the neoliberal policies that have led to China’s rapid rise.
But it hasn’t been the biggest loser. I would give that laurel to Mexico which prior to China’s rise was poised to play a major role in global manufacturing. Since I’m completely in favor of improving economies in Mexico, Vietnam, and India, I applaud present developments.
“But it hasn’t been the biggest loser. I would give that laurel to Mexico which prior to China’s rise was poised to play a major role in global manufacturing.”
You are one of the few who understands this. I became aware of it in the early 2000’s as one of our companies, which sold to the ruthless, price buying big boxes, was fighting for its life. Operations were first moved to Mexico and all seemed well. Then China happened. We had to move operations to China, and ultimately (because of well known issues with operating in China) to Viet Nam.
Imagine the debate the country would be having today had China been dealt with back then, and not starting in 2016. Immigration would not be nearly the issue it is today. Mexicans and Central Americans seeking economic opportunity, or the few actually seeking asylum, would largely have stopped or stayed in Mexico.
But of course, Trump is a racist white nationalist, so there’s that………..………
Even if Trump loses 2020, what administration could reverse his China policy now? “China Joe” will be ringing in Biden’s ears forever. China’s unfair trade policies have been exposed and manufacturers are relocating strategically. Plus, Hong Cong could even bring the threat of China sanctions if they do what they need to to put down what is now an open rebellion.
Things that can be done via executive action can be undone via executive action.
Its been an interesting few days, with the currency manipulation label (and the powers it gives to the administration), the Chinese are learning the US also has a few non-tariff barriers up its sleeve as well…
There will be more twists to go on US / China trade.
“Imagine the debate the country would be having today had China been dealt with back then, and not starting in 2016.”
If we are going to re-imagine history, lets at least try to make it believable. Big businesses were dying to go to China and enjoy even lower labor costs (and even fewer regulations) than in Mexico. Once that door was opened any attempt to make China play by WTO rules would have cut into profit margins. Cries of socialism would have popped up. Our actual history is that we let business, especially our banks, run wild until they screw up too badly, then things need to be fixed. Yup, some government policies abetted the moves to China so this was not just big businesses, but then we need to remember who lobbies to have those rules written and who pays the lobbyists. Certainly not anyone in the lower 99%. Always, always follow the money trail to see who benefits. (It is business interests that also benefit from the low cost labor coming across the border btw.)
Steve
How well I know! That’s a battle I’ve been fighting since 1979. Management simply didn’t want to be informed of the realities of doing business in China.
I think you mean “anyone in the lower 99.9%”. Relatively few in the top 1% of income earners have benefited materially from our perverse relationship with China. What is the top 1% now? A family income of $400K?
China is losing, and it will most likely get a lot worse. China needs dollars and euros to a lesser degree. China trades in dollars because there are not enough yuans held by foreign banks. Devaluing yuans means that anybody holding them just lost money.
China needs dollars or dollar denominated financial securities to use internally as leverage to create more renminbis for their domestic economy.
Also, the dollar cannot stop being used as a reserve currency because there is no reserve currency. A reserve currency must be convertible, and that stopped when Nixon defaulted on the dollar.
The closest thing to a reserve currency are euro-dollars, petro-dollars, or trade deficit-dollars, and there is little chance that something is going to upend this system.
$422,000 to be in the top 1%.
Steve
“Big businesses were dying to go to China and enjoy even lower labor costs (and even fewer regulations) than in Mexico.â€
As always, we have to bifurcate BIG business and the rest. Further, I think “dying to†is overstated. Only a fool would take on the execution risks and logistics issues unless they had to. Only BIG businesses with enough firepower behind them can do that with margin for error. And let’s not forget, the US regulatory posture was a self inflicted wound.
In any event, we now have someone locked in battle battle with the Chinese. And who is reflexively opposing? The Democrats because, well, Trump. And BIG business, increasingly dominated by Democrat leanings, out of naked self interest. And they wonder why Trump got elected…….
Some nice data on China and our trade deficit. I for one did not know that they have almost no trade surplus.
http://conversableeconomist.blogspot.com/2019/08/china-and-currency-manipulation.html
“And BIG business, increasingly dominated by Democrat leanings,”
Wanna guess to which party CEOs donate?
Steve
Oil
It’s roughly equivalent between the two parties:
https://www.campaignmoney.com/ceo.asp