
China’s options for retaliating against tariffs are limited by its own economy - ycombonator
https://www.nytimes.com/2019/08/02/business/trump-tariffs-china-trade.html
======
hourislate
What I found dealing with Chinese Factories is that they will reduce the price
of goods as much as they can to reduce the impact of tariffs for the customer.
Most factories receive a Government subsidy for all goods that are exported
(BOL from shipping lines). In some industries it can be as high as 15% of the
price charged to the customer, which allows them to be more competitive or in
the event of tariffs allows for price adjustments. Eventually if the tariffs
get to a point where there is no profit left then any additional cost will be
passed on to the customer and could be passed on to the consumer.

I feel this is what is occurring now in the USA. The Chinese are eating the
tariffs and will continue until there is no more room to maneuver. At that
point US companies will probably eat some of the tariffs by reducing profit.
Eventually the consumer might have to pay a little more but that isn't a
guarantee. The consumer could luck out and pay what they were always paying.

During the 2008 melt down, all our factories agreed to work at cost as long as
we continued to buy so they could keep the work force employed. The Chinese
are very tough and very willing to do whatever it takes to stay in the game.

~~~
toasterlovin
The problem is that margins in manufacturing are usually in the single digits.
So you can’t really sustain eating a 10% tariff, to say nothing of a 25%
tariff, for that long. Money doesn’t grow on trees. You either have to borrow
to cover the tariff or pay out of savings. At some point you run out of money
or your creditors come to think that you will.

~~~
grizzles
It depends on the industry but margins in manufacturing are often enormous. I
once worked in a factory making action figures. We could make a few dozen for
under a penny in energy and material costs. Those sold for ~$19.99 each.

It turns out that all the cost is in marketing and distribution. And for asian
manufacturers the internet era has decreased those costs a ton. They can
outsource them to eg. western youtube price arbitragers and focus completely
on volume to maximize their government subsidy.

~~~
toasterlovin
But the action figure factory was not Mattel, right? They were a contract
manufacturer that companies like Mattel source from. If they try and reduce
their prices to Mattel by 10-25% to counteract tariffs then it’s going to hurt
bad, because they don’t have 25% margins. They have <10% margins.

------
andrekandre
> Officials are also taking concrete steps to shift China’s dependence on the
> United States for certain goods. They have focused efforts on new trade
> partnerships with countries like Japan and South Korea and lowered trade
> barriers for other countries. They have also struck deals to import
> agricultural goods from countries other than the United States. This week,
> China approved barley imports from Russia.

this is where i expect steve bannon’s idea of favoring bilateral deals instead
of large trade blocks (ASEAN, TPP etc) to backfire

in the end china will probably just find other ways to adjust and world
economy starts splintering

(personally, i was no fan of tpp because of the non-democratic arbitration
clauses, but i also think bringing the world together under harmonious and
consistent trade relations is extremely important for peace and stability)

~~~
Fjolsvith
Where will China get the money to buy their agricultural goods? Their food
prices jumped 7.7% in June, likely caused by the outbreak of the African swine
fever in the country’s pig herd [1]. China has some serious pressure being
applied to them, and no wiggle room.

1\. [https://www.counterpunch.org/2019/07/19/china-and-the-
swine-...](https://www.counterpunch.org/2019/07/19/china-and-the-swine-flu-
outbreak/)

~~~
tareqak
China can start selling their U.S. treasury bonds, no?

~~~
khuey
That would raise the value of their currency and make their exports less
competitive.

~~~
Fjolsvith
It would literally reduce the trade deficit between the US and China:

 _" But Trump’s obsession with interest rates stems from a larger concern —
boosting economic growth. He only wants the Fed to lower rates so U.S. banks
will put some of their $1.4 trillion in reserves to work in the economy. A
huge sale of U.S. Treasuries by China would have a similar effect: As interest
rates on Treasuries began to rise, banks would use some of their reserves to
buy more Treasuries. That spending would put more cash into the wider U.S.
economy and stimulate growth.

There is a second, somewhat related, effect of a sale of Chinese bonds: It
would drive down the value of the dollar. When China sells U.S. bonds, it
receives dollars in exchange. The Chinese could use those dollars to buy other
U.S. assets, but the whole point of selling Treasuries is for China to divest
from all U.S. assets.

That means the Chinese would need to exchange their dollars for some other
currency — euros, pounds or even the yuan. Putting so many dollars on the
foreign-exchange market would weaken the value of the dollar. The effect would
be to drive up the price of foreign imports for U.S. consumers and drive down
the price of U.S. exports."_ [1]

1\. [https://www.bloomberg.com/opinion/articles/2019-05-13/u-s-
ch...](https://www.bloomberg.com/opinion/articles/2019-05-13/u-s-china-trade-
war-how-a-china-bond-selloff-will-help-trump)

~~~
Fjolsvith
I've been thinking about this and I've come to the conclusion that Trump
doesn't really want to work out a trade deal with China at this time. What I
think he's trying to do is to prod China into dumping their Treasuries.

From above: _" The effect would be to drive up the price of foreign imports
for U.S. consumers and drive down the price of U.S. exports."_

What would this do? It would make Americans buy American products. It would
make the world buy American products. It would make American companies invest
in US manufacturing, rather than overseas.

What does massive economic growth do for the US? Pays down the national debt
fast.

------
xmly
Tariffs hurt US customers as well. We pay a higher price for sure.

It hurts China, but it does not mean China has to retaliate because it would
hurt China customers as well. If China's leaders are wise, they would focus on
the economy boost instead of playing this child game with another Child.

~~~
mc32
On the other hand, it's a great way to drive people away from disposable
consumption and guided into more expensive but better built and longer lasting
alternatives less damaging to the environment. But I'm afraid this skirmish
will not last long enough to shift behavior.

------
baybal2
> The question is how. China’s imports from the United States only a fraction
> of the trade going the other way, so it cannot match Washington tariff for
> tariff. Much of that trade consists of agriculture goods like soybeans, as
> well as specialized products like Boeing jetliners or the American-made
> chips for the smartphones China makes.

The question monetary value, but _where widgets are physically made made._
This simple realisation eludes so many "China Experts" in the West.

Were Beijing to pull an inverse Huawei ban on any company in the West, that
company would be dead in a few months no matter what it is. It can crash US
stock market, pension funds and assuredly secure the non-election of Trump for
the second term.

China is fully capable of economic retaliation against US and can genuinely
make it hurt, but it chooses not to because people in Zhongnanhai have no guts
for that.

What surprised me most in recent months is that out of all people, the
criticism of Xi's overly conciliatory tone with Washington is now coming from
people whom you can call Chinese industrialists class. This criticism is quite
strong worded, emotional. I never ever saw somebody so up on social ladder
here being so openly critical of Xi before.

~~~
nine_k
Google, not exactly a small company, did experience an effective ban in China,
and had to stop operations there.

I don't remember any major panic about it, and not even a spectacular NASDAQ
crash due to that.

I see that a trade war is a war of attrition, but I don't see US industry as
more vulnerable than Chinese in this regard.

~~~
pcr0
Apples and oranges. Banning Google in China meant that its product (user data)
couldn't be produced in China. That's unfortunate but they still have users
elsewhere in the world and on VPNs. On the other hand ad sales _to_ China have
continued growing ever since the ban.

Huawei (or any smartphone company) has no alternative to chips that license US
technology.

~~~
nine_k
Last time I checked, most chips for smartphones were made in China, Taiwan,
Korea, Japan.

US-made chips are necessary for high-performance computers; there is no China-
made Xeon or Power9. But this is not smartphone stuff.

Re Google: ad sales in China did not stop, but Google received no revenue from
that huge market then.

~~~
pcr0
Correction, I didn't just mean chips made in the US but also chips that
license US technology. This was the reason ARM, a British company had to
suspend their relationship with HiSilicon, Huawei's chip manufacturer. [0]

[0]: [https://www.theverge.com/2019/5/22/18635326/huawei-arm-
chip-...](https://www.theverge.com/2019/5/22/18635326/huawei-arm-chip-designs-
business-suspension)

~~~
lumost
There's no guarantee that the chinese government would respect US copyright
and patent law in a split up. It's just as likely the payments to US firms
would end, and manufacture would continue.

~~~
Canada
If China takes that action the US can cancel China's bonds.

I don't think either side wants to take such drastic action though.

~~~
sgift
If the US cancels Chinas bonds the US looses any trust, i.e. everyone has to
assume that their bonds are worthless. No sane person/company would lend the
US money in that scenario.

~~~
Canada
And if China nationalizes US technology nobody will trust it either. No sane
company would invest there in that scenario. I think whoever takes drastic
action first would lose trust of third parties. Anyway, I don't think it's
going to go that far, too much collateral damage.

------
m3kw9
Its all about huiwei and the technology, that’s the ultimate bottom line. They
are fighting for the long shot prize. Retaliation is only to show face. Unless
they can spin non retaliatory action as something better. Ultimately they seem
to be fixated at 5G deployment

------
baybal2
Quote from the article:

> “We don’t know how to deal with this either,” Tu Xinquan, the president of
> the China Institute for W.T.O. Studies at the University of International
> Business and Economics.

> “Is he a sane person at all?” Professor Tu said of the latest move by Mr.
> Trump. “It’s quite surprising. Didn’t the White House just announce that the
> trade talks were constructive?”

I'm afraid that Beijing still did not realise that all of the above is pretty
much planned. Trump will keep "nightmaring" them, keeping them tense,
showering them with unending negative publicity of them keeping failing the
trade talks time and time again, while propping up his profile.

Things like this keep showing just how inept and naive are the people making
the Chinese elite class.

In a sharp contrast, Chinese _business elites_ are the real sharks, all very
sharp people.

Sooner or later, this will end up in conflict in between the two.

~~~
Fjolsvith
> Sooner or later, this will end up in conflict in between the two.

Could it be that Trump knows this and is pushing for it?

~~~
AnimalMuppet
I think that Trump has a particular negotiating style, which is to be all over
the map. You're a wonderful person, and he's delighted to have the opportunity
to do something wonderful with you; then you're the dirt under his shoe and
there will never ever be a deal with someone as wretched as you; the terms of
the deal will be one thing, then something else much less favorable to you,
then the deal is off, then it's back on but the terms are different. I think
it's a schtick that he's used in real estate for a very long time, to get the
best deal he can out of people who get tired of being yanked around and just
want a deal to get done. I think it's very much improvisational and seat-of-
the-pants.

What you're asking (whether Trump knew this as a consequence and pushed for
it) would be much more like deep strategic thinking. I don't think that's his
style.

~~~
toasterlovin
Exactly.

Previously the US has been run by people who are the scrupulously honest,
diligent, forthright types. And anybody who was willing to get a little
aggressive walked all over us. Trump totally flips that dynamic around. _He_
is the guy who is aggressive, belligerent and unpredictable. As much as he may
be a reprehensible human being, I’ve been on the other side of the table from
people who negotiate like this and it’s refreshing to have one of them in
America’s corner.

------
deogeo
Again [1] this narrative of the protectionist US vs. free-trade champion
China. Yet China has been heavily protectionist since long before the US
started firing back [2].

I cannot imagine these journalists lack this very basic knowledge, which makes
me think they are being deliberately deceptive in their framing.

[1] [https://www.reuters.com/article/us-imf-worldbank-
china/china...](https://www.reuters.com/article/us-imf-worldbank-china/china-
denounces-protectionism-in-swipe-at-u-s-trade-policy-idUSKCN1RP0HU)

[2]
[https://www.forbes.com/sites/douglasbulloch/2016/10/12/prote...](https://www.forbes.com/sites/douglasbulloch/2016/10/12/protectionism-
may-be-rising-around-the-world-but-in-china-it-never-went-away/)

~~~
dang
That's clearly not what this article is about. Please focus on what's new and
interesting about an article instead of hauling in old links to restart old
flamewars. Repetition is the enemy of curiosity. We want the latter. Edit: one
can see this problem in the very first word of your comment: "Again".

" _Eschew flamebait. Don 't introduce flamewar topics unless you have
something genuinely new to say. Avoid unrelated controversies and generic
tangents._"

[https://news.ycombinator.com/newsguidelines.html](https://news.ycombinator.com/newsguidelines.html)

~~~
deogeo
But the framing _is_ interesting.

I agree that "they started it!" won't make for a very interesting discussion,
but talking about which facts the press focuses on, and which it ignores,
could be.

~~~
dang
That is simply not a significant aspect of the article. In fact, I didn't see
it there at all, though I only skimmed it.

~~~
deogeo
That it (Chinese protectionism) is not there at all is precisely my point.

~~~
dang
In that case your post was an example of what that guideline asks you to
avoid: flamebait and generic tangents.

Shoehorning a pre-existing grievance into the thread is exactly how we get
repetitive flamewars. I know it feels more important, but it always feels that
way, and that feeling needs to be resisted if we're to have curious
discussions about new things. The art of being a good commenter involves
focusing on the specific new information in an article.

------
vannevar
Regrettably, that didn't stop us here in the US.

