There’s a saying that if you owe the bank $1 million, that is your problem. If you owe the bank $100 million, it is the bank’s problem. That is the core of the so-called trade war that US President Donald J. Trump has been talking about implementing. Increased duties on steel imports at 25 percent and imported aluminum at 10 percent have started.
The ignorance masquerading as analysis and misinformation you hear in the press and media could bring tears to a dead man’s eyes. Let’s begin with some facts. You know what facts are; information backed with verifiable data.
Trump is proposing increasing the tariffs on goods the United States imports from China, that would cover about $150 billion worth of trade. China responded, saying that it would also increase its duties on the imports from the US. That makes sense.
The problem is that China is already starting the “war” from a position of weakness. It cannot even counter the $150 billion, as it only imports about $130 billion in goods from the United States. In 2017 China exported $505 billion. While far from happening, if all trade between the two countries was stopped, China would lose $375 billion in net trade
with the US.
Countries have expressed outrage and fear—mainly fear—with the potential of the United States increasing tariffs, and with good reason. In 2017 the US imported $2.3 trillion worth of goods; the United States exported $1.6 trillion in goods. Therefore, the US ran a $797 billion global trade deficit.
While China, the European Union and countries like South Korea and Taiwan are going nuts, they have put themselves in the shoes of the banker that is owed $100 million by a borrower who is not interested in paying. Along with being on the short end of a trade war with the United States in terms of firepower, these “banks” depend on US trade for some of their economic prosperity.
Global trade as a percentage of global GDP peaked in 2011 and has been going down. For China the peak came in 2006 as trade accounted for over 60 percent of GDP and is down to 38 percent last year.
However, 16 percent of Canada’s GDP is based on trade with the US. Mexico is at 25 percent, with others as follows: Taiwan, 8.5 percent; Thailand, 7.5 percent; and China and South Korea, 5.5 percent.
The arguments that China has effective retaliation options are highly optimistic. China may stop importing soybeans from the United States. The problem is that other suppliers—primarily from South America—cannot take up the slack .Bean prices from Brazil are already going higher and virtually all of the beans China imports is used as pig feed, which will raise food costs (read: inflation), which is the last thing the Chinese government needs.
China can devalue their currency to offset the price increases. That worked so well in 2015 that the Shanghai stock market fell 46 percent, and GDP growth dropped 7 percent.
China can sell its US Treasury debt and stop buying more. This would damage the US financial markets, to be sure. But the moment the thought that China is selling hits the markets, the response will be “Sure China, we will buy your US debt. How does 10 percent of the face value sound?”
One expert has concluded that China’s “nuclear option” is to stop all exports of rare Earth minerals, vital to today’s technology. It produces more than 92 percent of them.
The problem is that stopping these exports to the world would be like the psycho that kills his ex-girl with “If I can’t have her, nobody can.” The fun has just begun.
1 comment
Walang magawa ang China.Kong ipagbili nila treasuries nila, U.S. financial markets will go down,pero kasama ang investments nila.Sira rin sila.