A short time ago I suggested on this blog that the US had a distinct advantage in the escalating trade war with China. This was based upon the extreme imbalance of trade that I believed favored America.
For the past several years it seemed like everyone was convinced that China was on the verge of overtaking the US economically. I don’t believe this is necessarily true.
Xi Jinping celebrated all this by making himself the leader of the country for the rest of his life. Maybe his elation has been a bit premature.
On the dark domestic side, China was making a mockery of free trade by supporting its homegrown industries with oversized tariffs, and stealing trade secrets from any foreign company that did business on main land China.
Further, bank lending mandated by the government to bolster the domestic economy has now come home to roost. Banks are leveraged to the hilt and many financial experts are concerned about their solvency and the number of defaults popping up every day.
Yet Sinophiles still think China is going to overwhelm the US. Even thought the Chinese government falsifies its economic performance, it has become obvious that its economic growth is declining. The auto industry for example has reported that sales were down over 16% in 2018 after many years of positive results.
The Chinese government is sanctioning work leaves and sending millions of workers home without pay. This could have huge ramifications should it continue. Workers are complaining publicly that they are not able to work enough hours to support their families.
A few months ago nobody was reading the tealeaves in their haste to criticize Trump’s trade onslaught. In 2018, through October, China sold $447 billion of merchandise to the US, and the US sold $102 billion to China. This imbalance gives Trump the upper hand in an economic showdown.
If Trump continues to increase tariffs on Chinese goods, it will devastate the Chinese economy. In fact this is exactly what is happen to an extent, and the president has a lot more tariff opportunities if China refuse to negotiate in good faith.
The US is China’s largest trading partner. By decreasing orders because China’s products are noncompetitive with tariffs, Trump can effectively create unemployment in China, even if the latter calls it temporary work furloughs. How will the Chinese feel about their leader when the country has workers on unemployment lines? This could become an existential threat to the Xi regime.
It should be noted that the Chinese, who are always concerned about saving face, are suddenly becoming more amenable to negotiating a settlement with the US. In a nutshell Trump’s tough stance with China is beginning to bare fruit.
Economic strength is proving to the newest weapon of mass destruction being wielded by the US.