An aspect of this is that with the effects of globalization and the reliance of business in both nations on those in the other we could see entire large companies vanish almost over night as their supply chains dry up.
If you cant build your product because a component you relied upon is now 25% more expensive, you're continued existence is predicated on having deep reserves. Many smaller companies don't and even the larger ones will have to implement deep layoffs relatively quickly to conserve resources as they won't know how long the trade war will last.
This in turn will have an effect on the political situations in both countries although primarily America as its the democracy. Globalization and the economic relationships amongst nations now has a direct effect on the internal politics of those same states.
Yep. My view on trade wars is basically: let's all chop off an arm. Last one standing wins. Whoever wins may discover that they didn't really need that arm to survive, but is life really better without it?
In some ways a trade war had already happened with China refusing to open markets and supporting theft of IP. ignored because it was convenient for both sides for a long time,but China is reach a level of power where their ambitions are threatening an established world order in the South China Sea,etc.
So true. China has been waging this quite war for over a decade. Pegging its currency, flooding us market with cheap (and unreliable) good (which are expensive when u consider tco and environment), stealing ip to leapfrog us without needing heavier investment, us loosing manufacturing knowhow, buying off local realestate causing jacked up prices in us. Its unfortunate that we took this lonv to react. Not sure if next administration will keep up this good work to keep china in check.
Not the OP but the use of economic disruption as a political tool to exert control over other nations is a common tactic.
The poster child recently for this sort of thing was the US pumping out hundreds of thousands of bbl of oil to create a glut and push prices down. This hurt some of our middle eastern allies but it hurt Russia much harder. It is sort of a sanction without a sanction, rather than tell people they can't buy Russian oil, push the price of oil down with your own supply so that the Russians can't use it to prop up their economy.
The article talks about how this action undermines the Chinese leadership by taking money out of the pockets of people who are needed to support the status quo. It also puts pressure on their economy for which they have limited options for correcting. They mention adjusting the exchange rate, which might work but that percolates through the economy in hard to control ways.
Are you claiming that US-based shale oil producing companies produced a lot of shale oil at the direction of the US government, as a tactic to hurt Russia and other oil-producing countries? Occam's Razor suggests those companies operating out of economic self-interest rather than a secret plot to politically destabilize other countries is more likely explanation of what has happened.
And, in fact, oil's lowest prices were met because OPEC, with Saudi Arabia leading I think, continued massive production even as global supply increased, to drive the price down to the point that shale oil is no longer profitable and put shale oil companies out of business.
No, I wouldn't put it in those terms (government directing oil production of shale oil). I was trying to use oil as an example of a commodity that is often used as a foreign policy tool (see https://www.cfr.org/timeline/oil-dependence-and-us-foreign-p... for some flavor of that) There was a pretty decent article on oil as foreign policy in either the Economist or Foreign Policy Review which showed regulatory response to oil production when viewed as policy. The bottom line was that the Government can make it "easier" or "harder" to get to oil reserves through regulation or easing regulation. And those changes, combined with the short term ability to fill or dump the strategic oil reserves influences the market in ways that are useful.
What? By 2016, US companies had extracted so damn much oil from shale that they could finally convince the government that letting them export some wouldn't jeopardize the US's energy security. And this is two years after global oil prices plummeted, in 2014, causing trouble for Russia but really causing trouble for Venezuela.
> you can arrange the world such that they want to on their own
The US government didn't arrange for the oil to be in the shale. I don't know if it funded research into cheaper extraction from shale or if the companies figured that out on their own but even if they did, there are much better reasons to do so than hoping to screw with Russia at some point in the future.
Does this mean that tradewars can or are in effect M.A.D. Devices?
ie If China backs down and the US wins then china will stay forever repressed? so therefore they have to keep battling it out until a reset happens via "True War" or the collapse of one of them? (or both)
No, while I suspect it is possible for trade actions to lead to actual war if you look at previous events the most common effect is a sort of economic restructuring not warfare. It does however leave animosity which expresses itself in other ways.
He might be talking about the Renminbi's fixed exchange rate[0]. It's a fairly common belief that Chinese exports gain a huge advantage because CNY aren't floated but USD (and basically everything else) are, and if I remember right Trump jumped on the bandwagon some time last year.
I think the Chinese Communist Party and Chinese industry in general was built up by the global elites, not by a bunch of Chinese farmers. They want China to be the model for the eventual one-world government that they’re playing towards.
You don’t have to be a conspiracy theorist to see that we’ve been sold out. At the very least, “Made in China” is a curse that the general conspiracy of corruption has put on us. In my opinion though, all the major world leaders are puppets who’ve been bought and paid for and are easily controlled.
I know HN hates conspiracy talk but IMO the unity of opposites dictates that if there are altruistic groups of people, there are evil groups of people and it’s not that far-fetched to believe that some rich and powerful people might get together and try to rule the world once in a while.
However, one can deduce that the dictator is running scared. The stock market has fallen 25% this year. Yuan has fallen 10%. There's a 400 billion tariff coming his way, and because of 'saving face', there's no way he will back down. He has to prop up the real estate bubble:
"price rose 31 percent to nearly $202 per square foot. That's 38 percent higher than the median price per square foot in the U.S., where per-capita income is more than 700 percent higher than in China." https://www.bloomberg.com/view/articles/2018-06-24/why-china...
and he has to also unwind China's 12-18T shadow banking, China's version of subprime loans similar to 2008 crisis (but way bigger). He has to figure out how to steal IP to move up the chain when US and the rest of the world has upped their defense, restricting Chinese tech investments and resisting hacking attempts. He also needs to deal with the tariffs encouraging manufacturers to leave China and go to southeast asia or back home via reshoring or automation. There is also the matter of a lack of consumer market in China, after it gets shut out of US and europe. Not much Chinese consumers can buy after $800/month income, after paying most of it to mortgage and inflated food prices.
One of the few policies of the current administration that I support has been its efforts with China trade and maybe North Korea. It is not healthy for the world to have an emerging world power that regularly abuses human rights and seeks true totalitarianism through electronic surveillance.
I've come to the conclusion that those are cover fire for distracting attention, or maybe just for staying in the news ("any news is good news"...). The press gets outraged over the tweets (justifiably so), but the point of them is to get people outraged. I'm not convinced they reflect anything Trump will actually do.
That would make sense if his tweets weren't consistent with what is known and observed about Trump's personality, and if some of his tweets didn't do more harm than good to his own administration, party and agenda. And he doesn't need to make an effort to stay in the news - he's the President, so the news will cover him no matter what.
Honestly, I think he's just a troll, nothing more complex than that. They don't represent what Trump will actually do but I'm certain they do represent what he thinks, and what he wants to do.
According to this, it's far less than $10 trillion:
The U.S. debt to China is $1.19 trillion as of March 2018. That's 19 percent of the $6.29 trillion in Treasury bills, notes, and bonds held by foreign countries. The rest of the $21 trillion national debt is owned by either the American people or by the U.S. government itself.
China held around $1.17 trillion of Treasuries as of the end of January, making it the largest of America's foreign creditors and the No. 2 overall owner of U.S. government bonds after the Federal Reserve.
"If you owe the bank $100,000 the bank owns you. If you owe the bank $100,000,000 you own the bank." Not a perfect parallel to this situation, but a nice aphorism.
A similar way of looking at it that I've heard: The USA got hundreds of billions of dollars worth of manufactured goods and raw materials, while China got hundreds of billions of rows in a SQL database.
Of course that analysis leaves out the skills, experience, and intellectual property they also got. That's more significant than dollars.
China holds a lot of bonds. But there's not much there as far as leverage goes with that. Buying up those bonds let's the US and their consumers keep spending and that includes on Chinese goods.
Both nations are tied pretty tightly together in trade.
Less trade due to tariffs lowers the incentive for China to a) roll over the bonds and b) buy new ones. This will hit the US federal budget and in turn be noticable for everyone.
That is how you reduce the deficit: americans consume a lot, so the US borrows, and the deficit is high.
Put another way: one way, the easiest for the US, to reduce the deficit is to reduce consumption. This will happen more or less automatically with increased prices.
Another way is for the dollar to tank, which will also reduce consumption and increase exports.
The ideal situation (for Trump I assume) is to keep a strong dollar, increase exports, keep consumtion high and get the financing the US wants. It is difficult to see how this can be achieved, or whether this is fair for 95% of the planet's population, most of which are poorer and work as hard or harder than americans.
It wouldn't. The general threat is that China would sell these treasuries on the market and flood the supply. That would make it much harder for the US to sell new treasuries (which it does every quarter) and so the discount it would have to give would be higher (the bond yield would go up) and that would mean more expensive debt repayments in the future.
Modern nations fiat debt, meaning their currencies ultimate value is derived from many things, but ultimately hard power. A $10 trillion diff doesn't mean much if it comes to enforcement.
They can dump their treasuries on the open market satiating demand. This glut would make it extremely difficult for the US to raise the money it needs to fuel its record $1 trillion deficit.
They can do that, although they would lose an incredible amount of money with that dumping. Further, this must be considered an act of warfare executed through financial means. What makes you think the following will be true?
1) The Fed won't simply buy them all up, then unwind their position over the next few years.
2) China won't be subject to extraordinary DPRK-like secondary sanctions, minimizing China's ability to trade with those dollars and thus limiting the inflationary effect of those newly-printed proceeds.
3) The US will not retaliate with other coercive measures, like sector-wide sanctions on strategic Chinese market sectors, elimination of MFN status, removal from WTO, military pressure in the South China Sea, etc., which combined are likely more than enough to dissuade China.
We're already in a new cold war. If hacking power plants and publicly releasing government secrets to sway elections aren't acts of war, legal market activities like selling treasuries won't be either.
It would certainly be an escalation and the US would respond but its pernicious in its attack of the free market values of the US. Any response would be tacit admission that there are flaws in the capitalist system and as a result it would be more subdued than otherwise.
Any attack would not be motivated by money. It would be a striking blow at a weak US to knock it down from its super power perch.
I'm not sure it would have that effect. Such an action from China would almost certainly result in solidarity and coordinated action from basically the entire West. If others don't act, they're next.
I also don't see how a US response is somehow an attack on free market values. Dumping $1.2T of Treasuries onto the open market is not normal market activity. It's an attempt to manipulate and distort the market.
China wants to surpass the US, but while such a stunt might harm the US, it would do immense damage to China. I think it would be more like a striking blow alienating China from much of the global economy and financial system for a long time to come. That is surely not the route to surpassing the US as the preeminent world power.
That’s an interesting question. I have no idea how much China owns in Treasury debt, but it’s substantial.
So China has some disincentive to pushing down the value of the U.S. dollar lest that debt be worth less in the future, in addition to its desire to keep it up so we can afford to keep buying Chinese products.
Complex interrelationship. I think it’s safe to say there are no important issues that don’t play a role in this calculation, except human rights and environmental issues since there’s no indication that Trump would push on those anyway.
China has $1.2 trillion, as of April 2018. Total foreign ownership is $6.2 trillion (this includes individuals, companies, countries, though it may miss some). Total debt is $21 trillion.
Yes I understand the situations are vastly different but that is not guaranteed in the future. The US is most definitely showing signs of decay and decline. Many more economically challenged leaders like Trump in charge and the situation could change beyond recognition. It only took one decision to destroy farming in Zimbabwe.
It may be a large caveat,but at least it doesn't try to frame national debt as the same kind of debt as households deal with when they take out a loan. It is fundamentally different. Debtors can't print money to pay off a loan.
Also inflation does not just happen if you print money. The increased demand has to meet a lack of supply. Most historical cases of hyper inflation involved disruptions to supply capacity. America is not really in that position, and I suspect this is one of the reasons we see few signs of inflation these days in America.
The US has played nicer than most countries were they to enjoy its economic might and pre-eminence[1]. Few countries would allow their workforce to endure economic self-inflicted hardship while maintaining an economic advantage in negotiating trade. But the US has, over the years, put up with unfair trade from Japan, SKorea, China, Some of Europe in the name of "free trade". I don't begrudge allowing some disadvantage with regard some developing nations --but not developed nations.
For fair trade to work, it has to be bi-lateral. If you unilaterally do fair trade but your partner doesn't, you may do your principle good, but you're selling out your worker for principle.
Since Reagan, maybe before, the blue collar worker of America has seen their government give in and cower in the face of unfair trade saying, "we'll make it up in services" or "your goods will be cheaper". But what good does cheap do you when you have no job and no money? They never saw their lot get better. People wonder why people are now "working poor".
When I was in middle and HS, my bus drivers and janitors (they were not "cleaning engineers" just yet), were able to raise a family with decency. No way that happens now.
As Michael Moore poignantly, albeit ironically, said, finally, someone stood up to the corporations and said, "no more". I'll stop the hemorrhaging. One AFL-CIO in PA, the other day, endorsed a Repub. As an atheist, I have to say, Good God, what happened to the Dems? They sold out the American worker in favor of the multinational, transnational capitalists. If they don't watch out, they will lose labor to Repubs.
[1]Just look at how China manages its advantage in Africa, LatAM, etc. Japan in SEAsia, Russia with Former SU repubs., etc.
You, and most americans, seem to be fixed with deficit in goods, but at the same time do not even mention the massive trade surplus that the US has in services. By some measures, total deficit with the EU for example is fairly balanced.
I assume that you are in favour for a rebalancing in services trade too?
If we are trading in services unfairly, sure. But we're likely not. Others will put up many different barriers to impede fair trade. The US does less of that nonsense, on balance.
What about unfair technological lead due to government support? The internet is a DARPA spinoff.
What about unfair IP rules due to overwhelming control of international organizations and standards?
What about unfair tax dodging by US multinationals, not paying tax on profits in the corresponding countries by abusing an international tax system made by the US for the US?
More to the point, what about the "exorbitant privilege" the USA enjoys from having the worlds reserve currency?
If other nations make a concerted effort to ditch this set up, the USA can no longer run massive deficits. Imagine the USA trying to run a balanced budget immediately.
That happened in the golden era of multilateralism, after the fall of the Berlin Wall and the Soviet Union. The US realized how unfair the situation was, and took some timid steps to start a rebalancing of the situation, allowing for the creation of a competing currency.
It is not that the Euro was not a threat to the dollar, it is simply that the threat was minor then, and that it was plain and simple the right thing to do: renounce to unfair advantages in order to move to a more just world.
The US continues to unfairly abuse the dollar as world currency, and dismissing this fact can be a costly misjudgment: fair for the world, but painful for the US.
France had Minitel. They just never did anything with it. The EU also subsidize (even more) then the US does. US corps can't take profits from military ops to subsidize civilian ops. EU also tax dodge[1]. It's not an American thing. Also, The US double taxes its companies. The EU do not. Am Cos pay taxes on worldwide profits. EU cos do not.
If you gotta go back two centuries ago to find something major, I think this proves my point. Regardless I was talking about the post war period, when modern international trade began its earnest desire to propagate free trade.
Japan is capitalist, so is South Korea, Taiwan, etc. Still, they do protect their blue collar workers without selling them out to transnational capitalists.
I'm not an anti-capitalist, but I am for protecting your own workers in the face of international shenanigans.
yeah they were protecting while USA corporations were expanding, too bad it doesn't trickle down that good. There was no disadvantage for the actual ruler, the profits. So.. Yeah, what was gonna happen happened.
Also, no maternity leave, no paternity leave, no social safety net, no unions, no paid vacations, etc, etc, etc. How did it happen? It's not really that of a mystery, they just had a very long strip-tease on the workers, removing protection piece-by-piece, for the 'job creators'! you may not be anti-capitalist, but capitalism is anti-you. Anyway, I'm an anti-capitalist so that's my point of view.
Those countries are a different culture. Some of these things are seen as personal failings. There is also more reliance on family than govt or charity --the tradition for charity is limited.
To be frank, I like seeing the government doing something to protect against unfair trade practices. At the same time, I wish unions would go back to their roots and work to protect workers rather than their current raison d'etre which is to perpetuate itself.
When was the last time Unions demanded their reps push back on unfair trade?
Nicer yes, but not nice at all: fake wars, dollar bullying and rules ownership (global IP and trade laws are made by US for US) has given the US a tilted playing field. The US is still by far the richest country. If it has blue collar problems maybe it should rethink the way richness and costs are distributed.
Maybe the US led capitalism needs a rethink.
And blamimg the world for this ideology is quite astounding: the US has pushed for it for over 60 years.
And more: what do you have against 95% of the world"s blue collar workforce?
>And more: what do you have against 95% of the world"s blue collar workforce?
Nothing. But they are not mine. As they don't care about my blue collar sisters and brothers, nor do I care about theirs.
People think redundant blue collar workers should retrain, get new skills. That's nice. Usually the service jobs don't pay as well and it's naïve to think 50 and 60 yos have the bandwidth to retrain and achieve similar status in a new career.
EU and Japan enforce IP just as much as we do. They may be even be more stringent.
If Trump is successful in this, he has a decent chance at making it possible for blue collar whites and blacks to achieve the potential Bruce Springsteen saw in them.
Well, trade war it is then. And it might not be so easy to win against 95% of the world. Specially seeing how unfairly the US has been acting internationally: trade disputes are minor issues compared to the military and monetary abuses done by the US.
If you want unfair monetary abuses, talk to the IMF/World Bank[1] and China's "loans" around Asia and Africa. I think we have retreated from military affairs compared to the Bush and Obama years (to the chagrin of Dem and Repub neo-cons).
In trade, we've acted too fairly with the other developed nations.
No, I prefer to talk US bullying to anybody willing to swap the dollar for euros for example (Iranian Oil Bourse).
And it is quite rich to say "we have reduced military affairs": the EU is suffering a massive migration crisis caused by the lie-based military intervention in Irak over 15 years ago, while the US refuses to take any of those migrants.
Most of those migrants are from North and Sub-Sharan Africa, You can thank Obama (and Bush). Most blame goes to the ill-conceived "Arab Spring" Obama and Hillary sprung.
The general unstability of the region after the collapse of one of the few stable regimes (Irak) due to US intervention is one major reason why so many crisis sparked in the area.
Most migrants come from Siria. And little matters which american polititian is to blame for this crisis: the US is mainly responsible, and unfairly does not play any role in mitigating the consequences by taking refugees.
Iraq had its issues, sure, but the instability you see in Syria is unrelated to that but quite related to the "Arab Spring". Iraq was not exporting its instability. The Obama admin tried stirring thigs up and then Saudi and Iran of course had to rush in to fill up the vacuum and create more instability along with Russia (backing Iran) because each wanted to be hegemonic in the ME.
I'll let you know when I see Saudi and Iran taking in their brethren.
Europe contributes to the drug trade in Mexico whose instability leads to illegal crossings into the US. Over the years we’ve taken more millions. We don’t ask the EU to “do its part.”
It's interesting to hear Chinese academics take a pragmatic, realist view of potential impacts. A prolonged trade spat with a US strongman is hardly a desirable outcome. But even if China's export-oriented industries will suffer due to trade protection measures brewing in the US, EU, and Canada, Trump's domestic focus will likely allow many of China's global ambitions to continue unabated: in Africa, in Central Asia, and possibly in Oceania.
This approach mirrors what the US and Soviet Union pursued during the cold war by winning favors through a mix of economic assistance and direct foreign investment. It's a parallel game whose fruits will pay off in the long term, when China reaches its post-industrial stage, and has to use its network of connections to ensure continued prosperity for its people.
I am no Trump supporter I will start with that. I disagree with almost the all of his policies/actions.
However, China has been playing behind the US back for too long. Tech espionage, hacking, trade to a certain extent as well. China is not a developing economy as most think. It is already a superpower.
This is actually pre-emptive war. No weapons, but at some point the US had to act while the odds were still in its favor.
IF you played Civilization, any strategy game - then you know what I am talking about (or history books).
>> Loans - But China has tons us US debt!?!?
-Yes they do - do you know the best part about an IOU? you guessed it I - O - U. its paper debt. So better not upset me.
-Both nations are interlocked in a dance. US spends China Makes. But China also has stolen tons of tech. Nuclear weapons, ballistic missiles. Hacking.
-Talk to anyone in the armed forces. The sentiment is bad. There is more going on in the background than we all know.
-Talk to anyone over beers in the armed forces. They will say its long over do.
If only there had been some kind of trade agreement with a lot of pacific nations that would have given the US a lot more clout with other countries in the region and maybe a common front for some of the real problems that are out there - as opposed to the ones that exist purely in Trump's mind.
If you cant build your product because a component you relied upon is now 25% more expensive, you're continued existence is predicated on having deep reserves. Many smaller companies don't and even the larger ones will have to implement deep layoffs relatively quickly to conserve resources as they won't know how long the trade war will last.
This in turn will have an effect on the political situations in both countries although primarily America as its the democracy. Globalization and the economic relationships amongst nations now has a direct effect on the internal politics of those same states.