
China Once Looked Tough on Trade. Now Its Options Are Dwindling - enitihas
https://www.nytimes.com/2018/09/18/business/china-trade-war-retaliate.html
======
gonvaled
Extremely one sided comments, with a US centric view. The world is not the US,
and HN readers are not only US citizens, so let me express a different point
of view.

Assumption: Trump wants fair trade. HN readers want fair trade.

What is needed: fair trading rules, fair IP rules, fair capital structures,
and a fair currency.

Tackling some of the unfair trade practices does not address all those issues.
In particular it does not address the services trade imbalances, the favouring
of US IP holders (as incumbents and head starters), and the massive advantage
that the dollar gives to the US economy.

And we have not yet started talking about the weaponizing of the dollar, which
can be recently seen in the conflict with Iran.

All this to say that the US demands are not fair.

You can obviously pursue your interests, but you will not sell it as being a
"fair" policy.

The Chinese, the Europeans, all countries have equally fair, if not fairer,
demands, which must be respected.

The core of the problem is obviously that the initial assumption is false:
Trump and HN do not want fairer trade, but trade one-sidedly beneffiting the
US.

We will fight this policies, if needed at the personal level, by selectively
consuming products according to country of manufacture.

~~~
pathseeker
>the favouring of US IP holders (as incumbents and head starters)

You mean favoring the people that actually invented these things? I understand
there isn't much of a notion of IP in China, but are you suggesting that it's
unfair to not be able to copy IP and just manufacture without paying?

~~~
gonvaled
The IP laws have been written by the US, for the US, and its terms keep on
changing to continue protecting US interests.

The IP laws should be a trade-off: temporary protection of inventors /
creators, so that progress happens and consumers get a good deal. Instead, HN
is already aware how IP laws get abused. The effects of those abuses are felt
largely outside the US: it allows the US to foster its economic and cultural
dominance.

All thanks to founding and controlling the international bodies in charge of
ruling on IP matters.

~~~
yonkshi
I advise you to reflect on the bias of your own view points.

China has been pulling the same bullying tactics towards EU and S.Korea/Japan
as well. IP transfer, forced partnership, etc. Notice how EU, South Korea and
Japan haven't really been opposing this ordeal between China and US? They
would also like to see China start playing fair, unfortunately there is very
few economies can standup to China right now.

China has been quite the bully towards EU nations (though not EU as whole
yet). Here in Sweden, China went on full on propaganda mode over some Chinese
tourists being kicked out of a hostel, and this made it to the Chinese
national news yesterday.

~~~
Isofarro
The US did initially include the European Union in this trade war, but when
the EU threatened to respond with a import levies that affected Harley
Davidson motorbikes manufactured in a Republican-voting state, the US backed
down [1].

Chinese media (and social media particularly) does regularly cover stories
about Chinese people outside of China involved in situations such as these,
whether it's a high-profile business figure [2], or ordinary Chinese people
involved in non-ordinary conflicts. Including the narrative that Chinese
people don't get justice or support from local police when they are victims to
criminal activity, that's regularly reported in Chinese media.

UK media does the same thing, any disaster always has a mention of how many
British citizens are involved, sometimes who they are. And a regular diet of
outrage of British tourists coming face-to-face with the legal consequences of
their behaviour across the world.

Brexit revelations shows me that China trades using WTO rules with Europe.
There does seem to be movement on that front too. [3], [4]

Though, with trade arrangement with WTO rule, it's worth asking why US aren't
resolving their dispute within the WTO. We shouldn't glorify bullies, even if
they are bullying other bullies.

[1]
[https://www.bbc.co.uk/news/business-43926092](https://www.bbc.co.uk/news/business-43926092)
[2] [https://www.reuters.com/article/us-hna-chairman/chinas-
hna-c...](https://www.reuters.com/article/us-hna-chairman/chinas-hna-chairman-
wang-dies-in-france-after-falling-from-a-wall-idUSKBN1JU0SQ) [3]
[https://uk.reuters.com/article/uk-china-eu/eu-pushes-
china-o...](https://uk.reuters.com/article/uk-china-eu/eu-pushes-china-on-
trade-saying-it-could-open-up-if-it-wanted-idUKKBN1K515F) [4]
[https://www.politico.eu/article/donald-trump-china-eu-
trade-...](https://www.politico.eu/article/donald-trump-china-eu-trade-sees-
method-in-trumps-trade-madness-china/)

~~~
pathseeker
>The US did initially include the European Union in this trade war, but when
the EU threatened to respond with a import levies that affected Harley
Davidson motorbikes manufactured in a Republican-voting state, the US backed
down [1].

I suggest you read your own article. The "backed down" part is referring to a
previous trade war under Bush.

------
joefranklinsrs
This actually looks like the start of the disentanglement between the US
economy and the Chinese economy. What will likely happens next (my best guess)
is

1.) 40-60 percent of a company’s supply chain moves out of China

2.) China restricting the movement of capital/equipments out of China (similar
to what happened with Korean companies last year)

3.) China growing homebrew competitors to the foreign companies leaving, part
of the ‘made in 2025 in China’ strategy, via state enterprises or state
spendings in startups. China will also make US companies’ operation in China
very hard, either with license restrictions, or increased local ownership.

4.) China will disincentivize Chinese consumers from purchasing US (or
foreign) products, via propaganda, taxes, or control (similar to what happened
with Japanese and Korean products last few years). This would be hard, as
Chinese consumers prefer higher quality, higher brand value, and higher
perceived value foreign products.

5.) China will have to target US farmers with tariffs, as there isn’t much US
imports to tax otherwise. Plus, there is also face saving.

6.) US will increase the tariff coverage to all Chinese imports, either
triggered by tariffs on US farmers, or threats to US companies.

7.) China local governments will try to seize US owned corporate assets, or
prevent factories from shutting down by its owners. This will escalate the
urgency for US companies to move out of China.

8.) 70-100% of company’s supply line will be out of China

9.) Eventually, most direct trades between both countries shrink down to less
than $50B. Down to a significant level where it starts to effect GDP for both
countries (China way more than US)

10.) China will have no choice but to embrace its lost decade, ala Japan. It
will tighten controls on its citizens. It will try to contain high inflation
and high unemployment rate. It will try to unwind its debt for the next 10-20
years. Its gdp growth will go towards 0 or negative. Its GDP will shrink
20-30%.

(posted this in another thread but didn't get any discussion)

~~~
chmod775
Even though the US are China's biggest trading partner, US trade "only"
accounts for about ~18% of China's total trade.

China is still trading with other countries. While it may take a hit from US
companies pulling some manufacturing out of China, some of those will be
replaced by other - both Chinese and foreign - companies. Especially other
foreign companies operating in China will profit from reduced competition for
Chinese labor / manufacturing, encouraging them to move more manufacturing
there. This will blunt the impact of manufacturing for the US market
disappearing.

Also US companies will only withdraw in part from from China, since they can
still manufacture goods intended for anywhere else in the world there - just
not for the US.

In the end China will take a hit, but nothing close to requiring those
measures you're picturing.

The US will have to bootstrap a lot of manufacturing to replace Chinese labor.
This will sound good on paper and look good on some economic metrics, because
it requires domestic investment. But since the American lifestyle won't be
"subsidized" by cheap and exploitative Chinese labor anymore, the average
American may actually find himself to have less than before.

And the rest of the world will profit from having two major players
intentionally cripple each other.

~~~
joefranklinsrs
"The US will have to bootstrap a lot of manufacturing to replace Chinese
labor."

They just have to move to cheaper countries to replace Chinese labor. One time
upfront asset cost, but lower expense over time.

"US trade "only" accounts for about ~18% China's total trade"

Once China is not part of the trade flow between US and X country (Taiwan,
South Korea, Japan, etc), the total trade for China will fall even more than
18%.

"they can still manufacture goods intended for anywhere else in the world
there - just not for the US"

US is the largest consumer market in the world. Japan is second at 1/3 of the
size of US. EU consumer market is mostly fragmented. There is just not that
much singular consumer demand outside of US. Plus other countries are enacting
tariffs on China as well - India for example.

"Especially other foreign companies operating in China will profit from
reduced competition for Chinese labor / manufacturing, encouraging them to
move more manufacturing there."

There are lots of countries that have way cheaper labor costs than China,
there's no reason for the foreign companies to go there in the face of
increasing tariffs. Nike is 30% in Vietnam. Samsung is producing more of its
phones in Vietnam. Uniqlo increased its presence in Vietnam by 40%.

"US companies will only withdraw in part from from China, since they can still
manufacture goods intended for anywhere else in the world there "

Again, tariffs and cheaper labor costs elsewhere will entice companies to move
out of China entirely. Not to mention the threat of Chinese government
takeover of assets, or capital outflow restriction.

~~~
chmod775
> Once China is not part of the trade flow between US and X country (Taiwan,
> South Korea, Japan, etc), the total trade for China will fall even more than
> 18%.

If those are actually further up the value chain leading to exports to the US
(as you seem to suggest), those would largely be imported goods.

 _Edit:_ Moot point really. Those would just be a consequence of manufacturing
happening in China. It's better to have a direct look at the amount of
manufacturing happening in China, instead of guessing at parameters directly
which are actually a dependent on it. That would be like trying to guess
whether a taxi company will buy less fuel if you're no longer a customer
(maybe they'll have other customers instead), and on top of that wondering
whether that's a bad thing. It's just the wrong aspect to focus on.

> US is the largest consumer market in the world. Japan is second at 1/3 of
> the size of US. EU consumer market is mostly fragmented. There is just not
> that much singular consumer demand outside of US.

Which apparently doesn't seem to mean much - as proven by the fact that plenty
of brands have no trouble selling basically everywhere despite "fragmented"
markets. Also what do you mean when you say the EU consumer market is
fragmented? The main selling point of the EU is that it is _literally_ a
single market.

> Plus other countries are enacting tariffs on China as well - India for
> example.

India already appears to be backpedaling on their earlier posturing.

> There are lots of countries that have way cheaper labor costs than China,
> there's no reason for the foreign companies to go there in the face of
> increasing tariffs.

The most noteworthy tariffs are China <-> US right now. There's little reason
for non-US companies to go elsewhere, especially now that Chinese labor and
manufacturing is going to become cheaper again - emphasis on manufacturing,
not labor, since the infrastructure and know-how already exist in China.

~~~
joefranklinsrs
"If those are actually further up the value chain leading to exports to the US
(as you seem to suggest), those would largely be imported goods."

The Chinese factories that produce goods destined for US, also produce goods
for other countries, leading to trade between China and those countries. When
factories move to Malaysia or Vietnam, those trades disappear.

"as proven by the fact that plenty of brands have no trouble selling basically
everywhere despite "fragmented" markets" . I was addressing your point "they
can still manufacture goods intended for anywhere else in the world there -
just not for the US" . You're basically losing 30%-40% of your sales. That's
not something that can just be brushed off.

"India already appears to be backpedaling on their earlier posturing."
Citation? a cursory search shows otherwise [https://www.power-
technology.com/comment/india-levies-safegu...](https://www.power-
technology.com/comment/india-levies-safeguard-duty-chinese-malaysian-solar-
tech/) [https://economictimes.indiatimes.com/industry/indl-
goods/svs...](https://economictimes.indiatimes.com/industry/indl-
goods/svs/steel/india-may-impose-anti-dumping-on-certain-type-of-chinese-
steel/articleshow/65740070.cms)

"especially now that Chinese labor and manufacturing is going to become
cheaper again"

Why? Wage and rent inflation is skyrocketing in China. Yuan will drop
dramatically, which means energy/resource imports will skyrocket.

~~~
rgbrenner
"30-40%" is literally all exports from China. You're saying that if the US
doesn't trade with them, there won't be a single buyer of Chinese goods
anywhere in the world? That's pretty far fetched.

------
lacker
One of the things that seems the most unfair to me about global trade is that
for many American internet companies, China just totally bans them. Everything
from Facebook and Google to smaller players gets hit by the great firewall.
That is way more impactful than a tariff of 5% or 25%. With all of the talk of
how China is or is not playing fair, I feel like their internet bans get taken
for granted, and I wish there was more pressure to play fairly there.

~~~
dis-sys
> With all of the talk of how China is or is not playing fair, I feel like
> their internet bans get taken for granted, and I wish there was more
> pressure to play fairly there.

In a fair environment, you'd be seeing Facebook/Google/Twitter used by
hundreds of millions Chinese when most Americans paying their bills using
Alipay and talk to their friends using WeChat. US dominance in tech is _NOT_
something called fair.

~~~
teknologist
This is an amusing point of view. WeChat is really the worst messenger out
there from a technical standpoint. No attempt encryption at all (who knows if
they even use SSL?) and the stickers and social networking features still
resemble 1st gen. messenger apps

~~~
iforgotpassword
uh, what? it has many more features than any western messenger. what makes it
appeal less to western audiences is that it is precisely tailored to chinese
taste/lifestyle, which is distinctively different.

~~~
teknologist
Which derails the parent's vision that it would be a popular messenger in the
US. Uh, what?

~~~
chillacy
Your post said it’s the worst from a technical standpoint, but I’d argue it
failed from a feature standpoint: half assed localization, features tailored
for the Chinese market (for instance push to talk is huge there), and
regarding the stickers thing, non-western friendly UI (east Asia is used to
higher density designs, see any webpage in Chinese or Japanese)..

Even things like lack of encryption are missing features that we care about
but Chinese users don’t, not a technical evaluation.

One feature that WeChat nailed is performance in low bandwidth connections
common in China in 2010, but it’s not like that’s something we in the west
care about on 3G+ connections.

------
apo
_Some hard-liners want a more aggressive stance. Lou Jiwei, who retired as
finance minister in 2016 but is still the head of the country’s social
security fund, suggested on Sunday that China could deliberately disrupt
American companies’ supply chains by halting the export of crucial components
mostly made in China. But Chinese trade experts dismiss that idea as
impractical and not the government’s position._

If anything would play into the administration's hands, it would be that move.
By taking themselves offline, the Chinese would be ceding market share to
upstart competitors and encouraging further reshoring of mission-critical
supply chain components.

~~~
adventured
It would no doubt be disruptive, temporarily. And it would also prompt a multi
hundred billion dollar redirection of investment into moving those supply
lines to other countries. Vietnam would love to get some more of China's tech
manufacturing action, as would a dozen other developing countries. Others
would welcome gains to be had in apparel or autos by moves like that by China.

One of the biggest problems China has in this trade war: they're entirely
replaceable. They offer nothing strictly unique that can't be replaced by
another country, even though there may be a serious cost involved. The mistake
of not being a large technology originator.

~~~
tambourine_man
I’m not sure. Tim Cook seemed to suggest the iPhone couldn’t be manufactured
anywhere else.

~~~
acomjean
Tim Cool spoke to that: " "There's a confusion about China. The popular
conception is that companies come to China because of low labor cost. I'm not
sure what part of China they go to but the truth is China stopped being the
low labor cost country many years ago. And that is not the reason to come to
China from a supply point of view. The reason is because of the skill, and the
quantity of skill in one location and the type of skill it is."

And China has an abundance of skilled labor unseen elsewhere, says Cook:

"The products we do require really advanced tooling, and the precision that
you have to have, the tooling and working with the materials that we do are
state of the art. And the tooling skill is very deep here. In the US you could
have a meeting of tooling engineers and I'm not sure we could fill the room.
In China you could fill multiple football fields." "

[https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-
this-...](https://www.inc.com/glenn-leibowitz/apple-ceo-tim-cook-this-is-
number-1-reason-we-make-iphones-in-china-its-not-what-you-think.html)

~~~
int_19h
If it's truly a skill question alone, US could trivially resolve it by opening
the borders to qualified Chinese engineers, until it gets a large enough
quantity.

~~~
lmpostor
The difference is circumstances aren't forcing the Chinese educated elite to
come elsewhere, like my parents, as opportunity exists in China. Even if the
probability of success is worse, the question is if the disparity is great
enough to outweigh leaving family, friends, and cultural ties behind? Plenty
of grad and undergrads are coming to the USA, pit-stopping in the
international student community for a few years before heading right back to
China. The major bottleneck in China right now is higher level education as
many are still compiling resources after getting totally fucked by the
government in the Cultural Revolution only 2 generations ago. This is being
rapidly solved as the initial generations post Cultural Revolution reach
maturity and we will see this differential close in this next generation. My
observation is concurrent with the fact that Asian immigration has been
significantly slowing both in raw numbers and % wise within the last 10 years,
China doesn't have to beat the West, it just has to get close enough.

Trivially asserts that it will be done immediately/soon, which will never
happen.

------
lgleason
As much as some people here may hate Trump, the fact is that he was right when
we said that it is difficult for us to lose a trade war with China since we
import more from them than we export. Is there going to be some short term
pain? Absolutely! But, long term it is likely to create more jobs in the US.
As an extra bonus, there won't be as much of a carbon footprint for shipping
things half way around the world and we might begin to focus on quality
instead of quantity which what we consume if the labor is now a larger part of
the price...

~~~
SubiculumCode
His trade war with China (and only China) is one of the few administration's
positions I whole wholeheartedly support (as a economics dilettante, no
expert).

~~~
debacle
Our "trade war" with Canada is a proxy trade war with China. Our "trade war"
with Europe is, to a much more limited degree, a proxy trade war with China.

A big part of the rationale with all of these little trade wars is to make
China stand alone on the global stage, so that they are more easily negotiated
with. A secondary effect is to eliminate "Made in $country" goods that are 90%
manufactured in China and finished in e.g. Italy or Canada.

~~~
pergadad
That doesn't make much sense at all. Ruining goodwill and relationships (and
of course trade) with YOUR MOST IMPORTANT ALLIES is certainly not just proxy
economic warfare. The EU economy as a whole is bigger than either China or the
US.

Don't try to find a logic when there clearly is none. Trade war with EU and
Canada might be the most unhelpful thing Trump has done.

~~~
pathseeker
>Ruining goodwill and relationships (and of course trade) with YOUR MOST
IMPORTANT ALLIES

That's not how this works. A trade tariff dispute doesn't mean anything about
the relationships in other matters unless they are brought up as part of the
negotiations. Each country isn't a single person being directed by their
feelings being hurt.

So we can certainly negotiate with Canada to get them to lift dairy tariffs or
whatever and still count on them not to allow Russia to setup air force bases
there.

~~~
NikolaNovak
>>Each country isn't a single person being directed by their feelings being
hurt.

Umm, sorry for being flippant, but are we reading the same news about US
foreign policy last 18 months...? :-/

~~~
pathseeker
>Umm, sorry for being flippant, but are we reading the same news about US
foreign policy last 18 months...? :-/

Not sure. I don't recall any news about the US going to war or halting trade
with any of its previous allies. I don't remember reading anything about the
five eyes agreements changing. Do you have other news sources?

The phrase being used is "ruining relationships". Maybe you have a different
definition of "ruined" if you think Trump has ruined any relationships with
allies.

------
enitihas
I initially used to think China might have more leverage against any potential
trade war agains the US, as:

1\. The Chinese had option of imposing high tariffs on politically significant
US agricultural products, like soyabean, which are not very large in $ value,
but affect a lot of areas.

2\. Since some swing states are highly influential in US elections, the
Chinese always had the option of imposing tariffs which impact the swing
states mostly.

Both of these thoughts arose from the fact that as a democratic country, the
US would have to take into account both short and long term trade prospects.
Now reading this article, it seems being a predominantly export driven economy
and having a huge trade surplus with the US, the Chinese don't really have
that much leverage.

~~~
MarkMc
Trump has countered the soybean attack by handing out subsidies to soybean
farmers.

~~~
cuboidGoat
Meantime, other soybean manufacturers will dial up production, so when the
tariffs are dropped by China, the US soybean manufacturers will be selling to
an oversupplied market, dropping the price. And given the US subsidies will
almost certainly go when the Chinese tariffs do, the risk to the US soybean
industry has only been postponed, rather than countered.

~~~
394549
> Meantime, other soybean manufacturers will dial up production, so when the
> tariffs are dropped by China, the US soybean manufacturers will be selling
> to an oversupplied market, dropping the price.

I don't think so. Doing some Googling, it looks like China's soybean imports
(100 million tons) could be more than satisfied by the production of Brazil
and Argentina (139 million tons). US production is 108 million tons.

Soybeans are fungible, so instead of other producers ramping up soybean
production, I think we'll see production stay constant while trading
relationships reconfigure around the tariffs. For instance: China can replace
American soybeans with Brazilian ones, and American soybeans will then go to
wherever the Brazilian soybeans were going to previously.

[https://www.worldatlas.com/articles/world-leaders-in-soya-
so...](https://www.worldatlas.com/articles/world-leaders-in-soya-soybean-
production-by-country.html)

[https://www.world-grain.com/articles/10955-china-soybean-
imp...](https://www.world-grain.com/articles/10955-china-soybean-imports-
forecast-to-fall)

~~~
cuboidGoat
China, according to those links, purchases 60% of all global soybean exports.

Looking up the figures, about another 30% is the EU, with 10% for everybody
else.

Now, the EU is increasing their US soybean imports, but they cannot make up
the shortfall even if they wanted to, and are only really increasing their
imports from the US because US soybeans are currently cheaper than South
American ones.

Also, the EU are not really that interested in helping the US on this one
without first getting concessions in the ongoing EU vs US trade war.

Out of this, the EU have so far managed to get Trump to promise to drop much
of the EU trade war in return for the EU buying more US soybeans, which is
something the EU were going to do anyway and as I said before, will only cover
a fraction of the reduction in US exports to China.

Also, the EU continuing not to target US soybeans exports is all rather
dependent on Trump keeping to his word on not continuing the EU part of his
trade war, if he restarts it, those reassurances are going to leave the table.

------
euroclydon
Are tariffs just straight up revenue for the US government, like income taxes?

~~~
riphay
Yes, but they are paid by the importer and (usually) passed on to the
consumer. In effect they become a subsidy for local industry paid by
consumers.

~~~
adventured
It's equivalent to the US implementing a VAT, except superior as it directly
encourages replacement domestic manufacturing rather than merely acting as a
tax on goods (as in the case of steel and aluminum, which are seeing US steel
companies boom again with vast profit growth).

It doesn't merely redistribute wealth from one company to another. It reclaims
critical domestic industrial investment and blue collar jobs as well.

Nucor's profit for all of 2016 was $796m, and $679m for 2014 (2015 was a bad
year). For just the second quarter it was $683m and they've yet to see the
full benefit of the tariffs. Alcoa, which has been a disaster the last several
years, produced a billion dollars in operating income in the first two
quarters, equal to a full year's operating income previously. US Steel which
has been bleeding to death for years, looks capable of producing a billion
dollars in annual profit again in the near future ($214m in profit in the
second quarter on a large bump in sales).

Yes, we'll pay slightly higher steel & aluminum prices than we would have
otherwise if we were getting artificially low dumping-level prices set by the
Chinese impact on the global markets. It's worth it to regenerate major US
industry back to health and the blue collar jobs that go with that. We can
afford the slightly higher prices, we can't afford a hollowed-out industrial
base.

~~~
kasey_junk
It’s not at all like a VAT as it doesn’t impact everyone equally. It’s
redistributing wealth to specific market participants from others.

In this case almost all profits that come to the domestic producers of steel
come from the domestic consumers (and those impacted by tit for tat tariffs).

There might be very good reasons to prefer some industries to others but as a
revenue source tariffs are not at all like a neutral VAT.

------
ksec
I don't mind this trade wars to continue, after all there will always be
dispute between two largest nation.

What I am worried is that this may turn into an actual war. And from what I
can tell, China is not ruling out this possibility, it may not happen within
next 2 - 3 years, but they are investing heavily into their military.

And if you look into the reporting from US media and Chinese media, they are
both extremely one sided. ( But I guess that is... how it suppose to work ? )
Most US citizen do not realise how the USD works, and how currency works
today. Most Chinese do not realise how closed their market are and their
nation's unfair tactics. If tension continues.....

~~~
enitihas
Well this certainly looks to set start another cold war. The US was not going
be the only power for too long. And I think China is in a much better position
than the USSR, at least economically. Let's see how this goes.

~~~
Judgmentality
I'd have to go digging for the article, but one of the more interesting
arguments I've heard for why the US won the Cold War is because of our
superior manufacturing in-house. Similarly, think of China's advantage today
in producing electronics and goods, and how they're so entrenched it's
difficult for high security government projects to find parts that are
considered safe. I think our slow decline in manufacturing over the previous
decades would be what would cause the US to lose.

~~~
ksec
I am not entirely convinced. At first I thought robotics were still a little
far off in all industry ( Apart from Cars ), for many task, they are not as
fast as a human worker, at least those in Foxconn who are now trained
themselves to muscle memory speed. But now I believe Apple's Dasiy, the
disassemble machine, are basically the testing phase of how to do iPhone
assembly all by machines, and doing so quickly. Dasiy is already 4x faster
than the original Liam, and I believe the threshold os robotics replacing
manufacturing may reach a critical point where it makes sense to move back to
US, and with ease.

I don't know when will we reach that critical points, as with everything in
life, the last 20% always takes the same amount of time as the first 80%. But
once it does, China is looking at a potential job lost of 5 - 50M or more.

~~~
Judgmentality
You're thinking at the assembly plant level (which I do not completely agree
with), but think about it at the chip level. How often do you hear stories of
Chinese spyware being discovered in electronics? The real question is how much
more widespread is it than we realize because of all the spyware we haven't
found yet.

Apart from that, I'd argue supply chain logistics for raw materials is better
for China after years of investing in Africa.

Although honestly as I type this, I'm realizing just how little I know, so I
could be persuaded otherwise. But to me it just feels like America's time in
the sunlight is coming to an end.

------
spectrum1234
The value of imports and exports seems like the wrong thinking.

What does matter is the utility for each country. Considering Chinas much
lower PPP/capita all tariffs hurt them more.

------
tabtab
It's a game of chicken. T is okay with the unpredictability of that game, for
he thrives on, well, let's say "activity". China's gov't is, on the other
hand, more conservative and cautious by nature. They must feel really rattled.
(I'm not picking a winner yet.)

~~~
piyh
In game theory chicken the unpredictable one wins more often, as long as they
don't self destruct.

~~~
tabtab
Then T definitely has the edge, and doesn't seem to worry about the "self
destruct" path in the probability tree.

------
ElBarto
Time is on China's side. The US can throw a tantrum all they want.

They should play a long game. There is no benefit for them in retaliating to
hurt the US as long as it does not cause issues in domestic politics. They
should focus on not getting hurt too much and let time do the rest.

~~~
gscott
The US would need to implement tarrifs of several hundred percent to make a
difference. A 20% tariff China can just make a small change to the price of
their currency and ride it out. An article today has a quote from Jack Ma that
he thinks this trade war will last 20 years.

[https://markets.businessinsider.com/news/stocks/alibaba-
stoc...](https://markets.businessinsider.com/news/stocks/alibaba-stock-price-
jack-ma-trade-war-could-last-20-years-2018-9-1027543478)

~~~
wahern
It can't last that long. Eventually the disputes will reach a WTO tribunal, at
which point both sides will either need to acquiesce, or risk going it alone
outside the WTO system, or perhaps destroy the WTO altogether.

U.S. conservatives love bilateral trade deals, but that's only because most
trade occurs through the WTO system, making bilateral negotiations tractable.
If either the U.S. or China lost the benefit of the WTO system, they would be
indisputably worse off. So would everybody else. But in any event the end game
will be resolved, for better or worse, long before 20 years is up. If there's
still a dispute raging in 20 years then the next 20 years will be filled with
economic and political strife much like those of the 20th century.

~~~
nl
Trump wants an excuse to pull out of the WTO.

~~~
wahern
What Trump wants is "a win", which is an extremely subjective assessment on
his part and doesn't even necessarily require any material change in position.
Everything else is a means to that end, including the endless posturing and
1980s Wall Street-style hardball tactics.

~~~
nl
This is true.

But additionally his inclination is against any kind of treaty or
multinational body which doesn't involve immediate tribute paid to the US.

------
cromwellian
What would happen if say, Foxconn no longer assembled phones? How would Apple,
for example, recover their supply in any reasonable time? You can't just spin
up that capability overnight.

Seemed to me that if China wanted to amp this up and play hardball, they could
just give Tim Cook a phone call and tell him they won't be making iPhones
anymore. Estimates I've seen is that about 40% of Foxconn is Apple products.
They could probably replace this demand with more Japanese/Korean/Domestic
IHVs, combined with banning domestic sale of iPhones and accelerating the
marketshare loss that's been ongoing.

~~~
sidstling
In what world would you close a billion dollar income stream to “win”?

~~~
cromwellian
A billion is small potatoes to the tariffs being thrown around, and Foxconn
could probably fill much of that demand from other IHVs as one of Apples
common strategies is fighting competitors by locking down parts of the
manufacturing and supply chain.

------
cthalupa
>Proponents of the plan say letting Washington impose more tariffs than
Beijing would actually hurt the United States more because tariffs are
ultimately paid by consumers and businesses in the countries that levy them.

Well, this is actually the fundamental problem, isn't it? There's no way
actual trade evens out, so tariffs are the only real outcome here. Even if we
"win", it's not actually winning.

~~~
JackFr
Additionally when we import from China, we pay with dollars. China can either
buy US goods with the dollars, or buy US assets (typically Treasury bonds)
with the dollars. If you end the trade surplus with China, you end a cheap
source of funding for the US government.

Not clear if this is a feature or a bug.

~~~
adventured
China hasn't net added much to its treasury holdings in 15 years (it hit
around $1 trillion back in 2003, it's now at ~$1.2 trillion). In that time
they've probably run a $4 trillion trade surplus. Clearly that isn't how it
works at this point, they're intentionally avoiding buying more US paper.

In that time US debt has gone from $6.7t to $21t. Their share has gone from
15% or so, to 5.7%. They're no longer a funding source for new US debt, and
are no longer a critical funding source of existing debt (although hey, it's
nice to have them squatting on that trillion dollars and not liquidating it).

~~~
rsj_hn
The Rest of the World has never been a funding source for the U.S. It's
impossible, because to purchase a treasury, the Rest of the World must first
obtain dollar from an American, which decreases our income. Then, they
purchase the treasury instead of the american. If someone grabs your wallet
and then buys a share of stock with the money inside, they aren't funding the
stock market and you don't need to be grateful to them.

~~~
gonvaled
_You_ are giving the dollars to foreigners, in exchange of goods. Nobody is
forcing you to do that. If you feel those products are not worth your dollars,
do not buy them.

~~~
rsj_hn
Nobody is forcing you, but the forex rate adjusts so that the appropriate
amount of goods is bought voluntarily.

If country A bans foreign capital inflows and purchases $10 of foreign assets,
then that forces a trade surplus of $10. Yes, that $10 transaction will be
voluntary because it's currency will adjust so that the transaction is made.
But from the macro point of view, the foreign capital flows drive the
"voluntary" transactions.

~~~
gonvaled
Well, that is how much the dollars are worth then.

~~~
rsj_hn
The dollars are worth whatever the relative foreign policies set. If China has
a policy to depreciate against the dollar, by printing Yuan and buying dollars
with them (what happens now) then the dollars end up being "worth" more, but
the underlying capacity to produce of the U.S. hasn't increased, indeed it
starts to decrease as people start to buy cheaper foreign output.

So it's a bit disingenuous to say "well, people like these cheap goods" \-- I
mean, of course they do, but the story here is the foreign capital inflows
which create an excessively expensive currency leading to a preference for
certain types of goods. The whole ground is moving underneath you as a result
of international policies and you don't see it, you just see people "choosing"
to act.

~~~
gonvaled
The US manipulates the currency market in other, more powerful and more
fundamental ways, by controlling the global currency.

You do not _need_ to hold foreign reserves, you do not need to pay exchange
commissions, you are not blocked to do business with third parties by having
capital flows stopped ...

~~~
rsj_hn
I don't think you understand what you are saying here. Yes, the U.S. has the
world's reserve currency _because_ it allows unrestricted foreign capital
inflows and has a long respect for property rights and rule of law. Try, as a
foreigner, buying a house in China. It's illegal. Try, as a foreigner, to buy
a house in the U.S. -- no problem. The U.S. opens it's markets to the rest of
the world to purchase American assets while the rest of the world closes its
markets. If you are a foreigner, you can buy all the corporate and government
bonds you want. You can repatriate money out of the U.S. in unlimited amounts.
In China, this is illegal. They don't even allow their own citizens to move
more than a small amount of money out of their country. There is a great black
market of people smuggling money into and out of china because the government
restricts cross border capital flows -- like hiding money in your socks or
trick suitcases, bribing border guards to let you through stuff.

This is why the U.S. is the reserve currency, and it is _also_ why we have a
trade deficit, because as the rest of the world's capital pours into the U.S.,
that forces our currency to be overvalued enough to have an equal sized trade
deficit on the way out.

Whereas you seem to think that that the U.S. "manipulating" it's currency by
making U.S. currency more attractive to hold for foreigners -- is somehow a
counter or offsets what China is doing, which is making its currency less
attractive to hold.

But it's not, these two work together to cause the same distortion and large
trade deficits.

~~~
gonvaled
Your whole argument comes down to "the dollar is overvalued". What does this
mean? Bad things and good things for the US. You are not going to mention the
good things, so I will.

For starters, you are using worthless (overvalued) papers to acquire real
goods. The American consumer is getting a bargain.

You are also able to buy foreign assets at firesale prices (yes, for all your
grandstanding, the US is not the only economy allowing direct foreign
investment)

Having the world reserve currency (something the US has allowed / promoted to
happen, out of interest) gives the US unfair operative advantages, already
mentioned above.

The appetite for the dollar allows the US to be largely independent from the
financial markets. It also allows the US to get favourable credit ratings, and
financing terms which are unthinkable for other economies. This has been
happening for decades, and is continuing until we reach a certain breaking
point Incidentally, it is possible that this trade conflict is motivated by
that breaking point getting closer.

To summarize: the US has enjoyed unfair, enourmous trade advantages for
decades. It has been indulgent with its finances because the market has
allowed it to be overspend. And now it wants the world to _increase_ its
already existing advantages, by claiming for "fair trade".

It is not going to happen.

~~~
rsj_hn
> To summarize: the US has enjoyed unfair, enourmous trade advantages for
> decades. It has been indulgent with its finances because the market has
> allowed it to be overspend. And now it wants the world to increase its
> already existing advantages, by claiming for "fair trade".

No, so this is where you are getting signs confused. An overvalued dollar is
the same as having a trade deficit. Arguing to reduce that trade deficit is
the same as arguing for a weaker dollar. The argument goes "the dollar is too
strong and it should be weaker", not "you are saying the dollar is too strong
and then you want it weaker also?? How dare you ask for both!" When you make
these types of arguments, it worries me because it makes it sound like you
aren't groking that I am advocating for a cure to a disease.

> Your whole argument comes down to "the dollar is overvalued".

Well, I think my argument is explaining _why_ we have a stronger dollar --
because we have open capital markets while our trading partners do not. This
creates an asset demand for dollars that increases total demand for dollars
beyond that which would be consistent with balanced trade.

> You are not going to mention the good things, so I will.

I guess I'm old school in thinking that any systemic distortion is a net harm.
For example, you may not realize this, but the strong dollar doesn't actually
allow us to consume more, because it reduces our income and forces government
benefit spending to bridge the gap. If you look at patterns of household
consumption, they have not gone up -- the big gain in consumption was higher
healthcare costs, but that's a price inflation thing. Basically those areas
that lose out to globalization end up receiving social security disability
dollar for dollar.

Next, the trade deficit is primarily offshoring, so instead of buying a wrench
made in the U.S., we are buying an american _branded_ wrench made in China.
How many chinese brands can you name? You are buying the same american
products, except they are no longer made here.

But, it's the same wrench, and in real terms it costs the same. We are not
getting an extra wrench, there is no "extra consumption" \-- there is just
loss of domestic production followed up with increased foreign purchases as
large numbers of formerly productive people drop out of the labor force and
rely on government assistance. We just stopped producing something
domestically and bought it overseas. It's not extra consumption.

How can we afford to buy it? Well, it's those extra government benefit
expenditures to make up for all the income lost, together with lower interest
rates from foreign demand for our assets and then we get asset bubbles as a
side effect. China, more than anyone else, was responsible for the great
recession.

That extra government debt also crowds out public spending on public goods --
take a look at our hollowed out cities. So, on net, we are not enjoying any
more consumption, rather the ability of our nation to produce is slowly being
dismantled and shipped overseas. That's an unmitigated bad.

It is also destabilizing, politically, as we have large swaths of the country
that are being written off and this breeds radicalism. Also, it's sad to turn
our backs on our fellow americans who worked in factories that have been
shutdown and are now living on food stamps and meager benefit payments in
broken down cities.

------
En_gr_Student
Irony: In trying to win, the Chinese leaders are enforcing a death spiral.
History judges with brutal honesty, and not on intentions.

Play it through: \- they can't back down \--> means they can't not lose half a
trillion per year in current revenue \--> means they don't get to spend that
money on "Chinese advancement", but they might foolishly think they look
"tough".

I can think of five ways out of this where they win. If they are too stupid to
do so, then they don't really deserve to be in power, do they. One of the big
arguments for the authoritarian structure is that they get fewer pretty faces,
and 3/4 the way up the chain of command they should get higher levels of
actual capability.

------
sct202
China still hasn't pulled out the boycott card like they have recently done to
both Korean and Japanese companies for perceived slights. A lot of F500
companies are reliant on China's consumer market to meet their quarterly
goals, and would be vulnerable.

~~~
adventured
That's because China would be largely punching itself in the face at the same
time.

One of the unexpected benefits of China having forced everyone to partner up
with local companies. They'd be considerably harming their own companies and
economy in the process.

When your country owns the majority of the popular Shanghai Disney park, do
you call a boycott on it (via boycotting all things Disney)? When your country
owns the majority of all value derived from local McDonald's franchises, do
you call a boycott on that American brand? When your companies have
partnership deals on manufacturing with GM, such that most Chinese-purchased
GM vehicles are made domestically in China, do you call a boycott on those
cars? And so on.

China feels a lot more free to play the boycott card in dealing with Japan and
South Korea because there's a vast difference in the scale of the benefit in
question. China only has a small trade surplus with Japan, of about ~$20b. But
China is a very large export market for Japan, equal to 2.5% of Japan's
economy in scale, so they can hammer Japan there (by contrast China's imports
from the US are merely equivalent to 0.5% of the US economy). With the US,
China has a $400b trade surplus that is at risk, the damage is overwhelmingly
tilted at themselves in any boycott.

~~~
seanmcdirmid
That didn't stop protestors from smashing up Japanese branded cars, which were
all built in 51-49 JVs.

------
peter303
I have been asking around if anyone has seen tariff effects yet. So far very
little. I have noticed that can soda pop prices have increased about ten cents
a can after being stable most of this century. An acquaintance who owns a
family farm said the bottom fell out of soybeans- one of the Big Three crops
in the US. No one is buying so farmers are putting into storage.

My guess is the traditional Black Friday bargains wont look that good this
year due to the tax-everything-from-China policy. Then maybe the US consumer
could wake up. The rightwing fake news will blame it on Democrats of course.

------
browsercoin
My opinion is not a popular one but I'll reiterate-China will not overtake US
at least for the next 100 years.

I think this trade war has been very telling, it showed the underlying
fragility of China's boasting as a superpower.

All in all, I see USA recovering from the Trump blunder, and I believe that it
will come out stronger than ever.

If anti-fragile by Taleb holds true, the US Gov is relatively anti-fragile to
Russian or Chinese ones. Note that anti-fragility refers to the recoverability
when exposed to unforseen circumstances. We see the US democratic system
evolving and we will see a much stronger democratic process as a result.

On the other hand, things don't look good for Russia's economy along with
China now facing an exodus of foreign investors and corporations nervous with
China's new dictator.

~~~
rgbrenner
_China will not overtake US at least for the next 100 years._

On what metric? By GDP PPP, they've already passed us:
[https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)](https://en.wikipedia.org/wiki/List_of_countries_by_GDP_\(PPP\))

They are a much larger country. At about 15k gdp per capita, they'll match our
gdp... and that's just a solid middle-income country... not exceptional. As
they start to exceed that, certainly that economic power will start to show
itself globally.

For comparison, Taiwan and South Korea are at ~$30k. That would result in a
gdp 2x as large as the US (about 40T).

------
User23
China is in an extremely weak economic position. Their economy is large, but
fragile and extremely vulnerable to external disruption. If you doubt me,
realize that Chinese leadership also realizes this, which is why they created
the One Belt One Road initiative to shore up that vulnerability.

------
raws
That was a great piece, very insightful and enlightening!

------
phobosdeimos
We are running into a problem here: how do you kill a parasite without killing
the host? The US is not an export economy, it produces very little tangible
goods. Its a very insular economy that because of its superpower history has
deeply spread its cancer cells across the global economy. How do you fight it?

------
Bucephalus355
A couple of points I’d like to add to your post.

Japan was able to endure a lost decade(s) due to immense social solidarity
that few countries, perhaps even the US, possess.

China is known as an unusually fragile country in some ways due to its
tendency to break up or devolve into Afghanistan-like warlordism.

A collapse of their economy, which seems probable at some point after 40 years
of malinvestment, will crush any cohesion the CCP has built. To maintain it,
they will of course try more authoritarian measures as they are doing now.

The bigger picture though is that they will shift this internal “civil war”
outside the country in the form of a war against someone else. This solves the
lack of manufacturing demand issue, deals with population issues (perhaps
unloyal ethnic groups can be put on the front-lines), and would draw on a
reservoir of nationalistic fever not really touched since WWII.

Steve Bannon has been clear that he believes WWIII will be a global, non-
nuclear war between China and US. I used to think this would only be the case
if Trump remained president, but now no matter who is elected, it still seems
like a considerable chance.

~~~
statguy
> Japan was able to endure a lost decade(s) due to immense social solidarity
> that few countries, perhaps even the US, possess.

Your points make no sense. Civil war, countries breaking up etc. almost always
happen only when people's basic needs (food, water, clothing, heat,
electricity) are not being met. Even during its lost decade, Japan has been a
top 25 country by per-capita income.

------
bitxbit
I am not a big fan of what’s happening in China but what do you expect them to
do at this point? If they let the SV firms come and do business as usual,
China is not going to last. Sure, it really doesn’t help that the govt is
“investing” in questionable areas and aiding in tech “transfer”. But this
whole notion of opening its doors wide open is never going to happen. A
billion people effectively slaved through the past two decades and you expect
them to just give that away? I think China has all the advantages against
Trump. All that said, what this administration is doing to confront China is
amateurish at best.

------
Simulacra
I think a heavy hand with China is absolutely needed. Trade and manufacturing
from cheap, and some say abusive, labor practices have done nothing to improve
human rights for China, but it's done wonders to prop up the current regime.
It seems the only thing China will respond to is losing money. Who would've
thought communists would've made such great capitalists.

~~~
methodover
> Trade and manufacturing from cheap, and some say abusive, labor practices
> have done nothing to improve human rights for China

Your comments were narrow — you only cited “human rights”, which yes, China is
abysmal. But what about quality of life in general? My understanding is that
QOL has gone up dramatically in China.

------
spectrum1234
Seems like a more game theory correct response for China is to not copy Trump
dollar for dollar, but maybe 50% of that, dollar for 50 cents.

Game theory has much more merit for a country like China given the (lack of)
election cycle.

------
pastor_elm
Donald Trump was right about one crucial thing. The leaders of most other
nations just don't have any backbone.

~~~
debacle
I don't know if this is necessarily fair. The US is almost alone globally in
having such a strong economy (right now), and many/most resource and
manufacturing based economies are struggling.

The biggest problem with modern representative democracies is that they tend
to be myopic.

------
1024core
China should just levy heavy duties on goods from states Trump won big, and
the states where Republicans are in peril; while at the same time offering
concessions to goods from states where Trump lost and Democrats are doing
well.

Then it should start an advertising blitz to highlight how workers/farmers in
the former states are suffering.

~~~
jcriddle4
Advertising would be considered influencing elections, like Russia is claimed
to have done. Trying to split the American people that openly would almost
certainly backfire and push undecided voters to Trump. China is already, in
some ways, doing some targeting specific voters like the soy bean tariffs.
What are you proposing to get the middle class growing again?

