If you want to understand the developing trade war with China, the first thing you need to realize is that nothing Donald Trump is doing makes sense. His views on trade are incoherent. His demands are incomprehensible. And he vastly overrates his ability to inflict damage on China while underrating the damage China can do in return.
The second thing you need to realize is that China’s response so far has been fairly modest and measured, at least considering the situation. The U.S. has implemented or announced tariffs on virtually everything China sells here, with average tariff rates not seen in generations. The Chinese, by contrast, have yet to deploy anything like the full range of tools at their disposal to offset Trump’s actions and hurt his political base.
Why haven’t the Chinese gone all out? It looks to me as if they’re still trying to teach Trump some economics. What they’ve been saying through their actions, in effect, is: “You think you can bully us. But you can’t. We, on the other hand, can ruin your farmers and crash your stock market. Do you want to reconsider?”
There is, however, no indication that this message is getting through. Instead, every time the Chinese pause and give Trump a chance to rethink, he takes it as vindication and pushes even harder. What this suggests, in turn, is that sooner or later the warning shots will turn into an all-out trade and currency war.
About Trump’s views: His incoherence is on view almost every day, but one of his recent tweets was a perfect illustration. Remember, Trump has been complaining nonstop about the strength of the dollar, which he claims puts America at a competitive disadvantage. On Monday he got the Treasury Department to declare China a currency manipulator, which was true seven or eight years ago but isn’t true now. Yet the very next day he wrote triumphantly that “massive amounts of money from China and other parts of the world is pouring into the United States,” which he declared “a beautiful thing to see.”
More at https://tinyurI.com/y5cns9ln
The second thing you need to realize is that China’s response so far has been fairly modest and measured, at least considering the situation. The U.S. has implemented or announced tariffs on virtually everything China sells here, with average tariff rates not seen in generations. The Chinese, by contrast, have yet to deploy anything like the full range of tools at their disposal to offset Trump’s actions and hurt his political base.
Why haven’t the Chinese gone all out? It looks to me as if they’re still trying to teach Trump some economics. What they’ve been saying through their actions, in effect, is: “You think you can bully us. But you can’t. We, on the other hand, can ruin your farmers and crash your stock market. Do you want to reconsider?”
There is, however, no indication that this message is getting through. Instead, every time the Chinese pause and give Trump a chance to rethink, he takes it as vindication and pushes even harder. What this suggests, in turn, is that sooner or later the warning shots will turn into an all-out trade and currency war.
About Trump’s views: His incoherence is on view almost every day, but one of his recent tweets was a perfect illustration. Remember, Trump has been complaining nonstop about the strength of the dollar, which he claims puts America at a competitive disadvantage. On Monday he got the Treasury Department to declare China a currency manipulator, which was true seven or eight years ago but isn’t true now. Yet the very next day he wrote triumphantly that “massive amounts of money from China and other parts of the world is pouring into the United States,” which he declared “a beautiful thing to see.”
More at https://tinyurI.com/y5cns9ln
