On 2 March 2018, the 45th U.S. President stated that “trade wars are easy to win” (CNBC). Initially, his statement was ridiculed, like most of his statements, and even at the UN. Expert opinions have changed since then. At this moment, analysts think that the US will indeed win the trade war because China is being hurt more than the USA (eg, Bloomberg, CNBC, NYT).
The key issue in this trade war is that China imports far less from the USA (ie, $ 130 billion in 2017) than the US imports from China (ie, $ 506 billion in 2017). A main reason is the American outsourcing of production facilities to countries with cheap labour. This common phenomenon is the principle of comparative advantage, as developed by David Ricardo (1772-1823).
This same principle of comparative advantage is also causing the relocation of Chinese factories to other Asian countries (eg, Forbes, FT, NYT, Trouw). This relocation had already started some years ago due to rising Chinese wages, but is now being accelerated following import tariff wars.
The above results in the following diagram:
In 2016, then-candidate Trump promised to do something about China (eg, IP theft, trade deficit, US jobs). The timing of the 2018 trade war may reveal additional strategic intentions (eg, 5G-USA, 5G-China). The trade war probably disguises a (strategic) “war” between 2 superpowers.
CNBC, 24 September 2018: “[] many longtime China watchers say the most important drivers and trends affecting Asia’s largest economy go well beyond tariffs.” This article makes an interesting connection between a 2017 IMF warning on unsustainable debt-fuelled economic growth, a debt-to-GDP ratio of 300+%, and an imploding (demographic) population.
Allegedly, China is restraining itself in the trade war because (i) China wants to retain the appearance of the victim in its trade fight with the U.S, and (ii) China is betting on Trump’s removal as 45th President. The renewed submission of a competing superpower might, however, be too appealing for Trump’s successor.
Dirty Laundry (1982) by Don Henley
artist, lyrics, video, Wiki-1, Wiki-2
Kick ’em when they’re up
Kick ’em when they’re down
Kick ’em when they’re up
Kick ’em all around
Note: all markings (bold, italic, underlining) by LO unless stated otherwise
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