The West has had a rather successful history of waging “trade wars” in Asia.
When China had built up a huge trade surplus exporting silk, tea, and porcelain to England, the British retaliated by growing opium in its colony of present day Bangladesh, and smuggled it into China. Within a few years, China’s trade surplus became a deficit and the economy was drained of silver.
The Daoguang Emperor counter-retaliated by trying to stop the opium trade and seized the British East India Co. warehouses where the drug was stored. The British sent in the Royal Navy and Marines to “escalate the trade war” by invading China. The British won the war, gaining unlimited access for its opium imports and got Hong Kong as a bonus in 1842.
Rejecting the idea that Japan should continue its 250-year policy of restricting foreign investment and trade, US President Millard Fillmore sent Commodore Matthew Perry and a squadron of navy warships to Japan. Perry reached Uraga at the entrance to Edo Bay in Japan in July 1853.
Perry presented a letter to Japanese officials, which told them that in case they chose to fight, the Americans would destroy them and their white flag in case they wanted to surrender. He also fired blank shots from his 73 cannons, which he claimed was in celebration of the American Independence Day. However, it was hardly a trade war by modern definition. It was more like an “Art of the Deal” negotiation that led to the “Treaty of Peace and Amity” between the US and Japan.
The 21st century Chinese made the same mistake as nearly 200 years earlier. Then the Chinese made a ton of money selling goods to its big customer England, as the modern Chinese did selling to the US.
Relying on a major single customer for your business works both ways. Wild blueberry growing is big business in the northeastern United States and across the border in Canada. The US was shipping about £2 million of blueberries to China every year. Now, that business has been taken over by the Canadians. However, the US growers were dependant on their Chinese customers and Canadian growers had the majority of the US market. The US growers never developed their US market infrastructure, which they are now scrambling to do.
Therefore, it is ironic to hear all the whining about the US trade policies against China hurting the global economy. If you live by the sword, you die by the sword, or, in this case, dependence on the US consumer for your economic growth.
There are those that say that no one wins a trade war. Try telling that to the 19th century Chinese and Japanese. While it is true that this current trade conflict is a war of attrition, the numbers do not bode well for China. Manufacturing production in China increased 4.50 percent in July of 2019 over 2018 and this is a record low. As recently as April 2018, that growth was over 7 percent. The gross domestic product annual growth rate in China is now at the slowest pace since the depth of the global financial crisis in 2009 and—apart from 2009—the slowest growth since 1992.
What will happen in the next months is anybody’s guess since this is as much a domestic political affair as a global economic event. But with Hong Kong’s political and economic condition in collapse, China being forced to devalue its currency, and its banking system currently fragile, there is only one question that matters: Which economy—the US or China—needs the other economy more?
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.