Trade War 7th Round

I keep trying to make sense out of the trade war with China. It isn’t easy. I use metaphors to describe the tariffs and the tit-for-tat jabbing of the two major powers. It is a bit like Ultimate Fighting Championship, but it is much more complicated. Donald Trump has an election battle coming up, and a booming economy is his biggest asset going into 2020. China’s Xi has no election, but he has Communist cronies who are not all fawning stooges.

Trump has immigration woes that he is trying to turn into a positive politically, but it isn’t working well.  Xi has Hong Kong mass demonstrations, which are now more than an annoyance to his regime. It is a problem that is a public relations horror and potentially could spark rebellion within China, despite its rigidly controlled press. Just like a million people leaving Central America desperately knocking on the door of a country built by immigrants is a problem without an easy solution here, the longing for freedom in Hong Kong ultimately overflowing into China is a problem that just won’t evaporate.

China under Xi wants to overwhelm the United States in every way other than a shooting war. Manipulating outdated trading norms developed by Kissinger and Clinton and maintained without a whimper by every administration since then out of convenience and laziness has served China beautifully as it has eviscerated American industry and workers in exchange for $5 t-shirts at Walmart and Target. The Obama Administration timidly objected to the Chinese trade bullying, but had no taste for a trade war which would have been rather uncomfortable and unpopular.

Pugnacious Donald Trump was looking for a fight. He seems to thrive on nonphysical, non-shooting warfare. Advisors convinced him that it was a winnable war if he played it right. Tariffs were his weapon of choice.

Tariffs probably hurt China a bit more than they hurt the United States because we buy a lot more from them than they buy from us, and if the farmers take a fist to the jaw, Trump and Congress can cushion the hurt with subsides. If t-shirts bump up $0.50, Walmart can eat a little bit and the richer American workers can absorb their annoyance with fatter paychecks. China can manipulate its currency to cheapen its goods and the Fed can manipulate interest rates to make mortgages cheaper.

This is why, after two years of trade war, the American economy is still quite good and China’s economy is still growing.

The mavens in the press here have exaggerated the impact of the tariffs, and some are trying to talk the country into a recession for political purposes. It is having an effect: capital spending is slowing, and big business bureaucrats are becoming fearful because they tend to be sheep. Machine tool sales are weakening. Japanese production of machine tools is soft.

Was Trump right in picking this fight with China? Short-term, politically, it was dumb. Since most politicians only think in terms of the next election, it was a stupid aberrant move in their eyes. He hurts his base in rural America. Any gain for American industry is far away and foggy.

Barack Obama saw the same things as Donald Trump, but was afraid of confrontation. Trump relishes confrontation, but appears to lack a coherent strategy. The Chinese want to outlast Trump and may succeed, but Xi may be in trouble at home amongst his enemies because Trump has not folded yet. Hong Kong is potentially very dangerous for the regime with the Chinese home economy softening, and China’s ambitious plans for a Belt and Road initiative to aid developing countries seeming to have faltered.

Trump’s Huawei gambit has given Xi a black eye, but the company evidently has some attractive 5G products at good prices, which will allow it to weather the storm.

Put it all together and the two fighters have fought a draw through six or seven rounds of a 15-round bout. China has not given in on intellectual property theft, and America keeps jabbing them with tariffs.

I do not see a knockout or surrender in the foreseeable future. The stock market will be a yo-yo. Big business will play defense. Growth in both countries will gasp a little, but keep on going.

Is the battle worth the trouble? The Chinese certainly think so. Do we?

Question: Where were you on September 11, 2001?

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8 thoughts on “Trade War 7th Round

  1. John Martin

    Was just exiting my car to meet with a factory rep at the McDonald’s on rte 83 and Greenleaf Ave in Elk Grove Village IL. when a report came over the radio. My associate had just pulled in next to me and I told him that some kind of plane just hit the World Trade Center. We walked into get a cup of coffee before our first sales call, we didn’t leave for 4 hours. We have both changed directions several times since, but we have spoken at 7:48 Central time for 17 years on this day.

  2. Lloyd Graff

    I was on a plane in Los Angeles, preparing to come home to Chicago. Everybody was told to get off without explanation. We all politely exited. A TV was on over a bar near the exit and I paused to look at it and realized something awful was happening. I immediately decided to leave LA, rent a car and head East. I knew Mickey Tajariol who now runs ZPS was visiting in Las Vegas. He had lived with us for several months. So I drove to Vegas to wait things out. Ironically, today I pulled out the Venetian Hotel t-shirt I bought 18 years ago to work out this morning, not in thinking consciously of September 11th, 2001, though I always remember it when I put it on.

  3. Robert Ducanis

    I was in my office when one of the younger guys came in a reported that a plane had crashed into one of the World Trade Towers. At that time I figured a little private Cessna flew into the building. Little did I know….

  4. Joey

    I was in a detached boiler room at my previous employer when my boss pulled up in the company truck with the radio playing and called me over. I remember the chill that ran down my spine as I listened to the report, and the fact that all the phone lines were tied up (even here in Indiana) so I was unable to contact my wife. I also remember remarking in the following days that I had never seen the sky as clear as it was then, this was the only time in my life that when I looked to the sky there were no aircraft vapor trails. It was something I had always seen, so in the ensuing days when they weren’t there due to the national grounding it seemed eerie.

  5. Rod

    Out in my boat Salmon Fishing before going into the office.
    Should be doing the same today but not going into work.

  6. Paul Huber

    We had just completed packing our bags for our flight to Switzerland scheduled for the following day.
    We ended up flying to Zurich two weeks later.

    Paul & Nenita Huber

  7. Donald Green

    My brother and I were in our office. The TV was on in the other room. We heard the news about the first plane, and were stunned. Then the news came about the second plane. We never made it back to work that day.

  8. r in nyc

    I was at work at our shop in NYC.
    The planes took out the local TV station transmitters, and internet if any was via dial-up.
    So I literally saw the towers burning and then disappear from a window on the top floor of our building. That foul burning smell hung in the air for many weeks.
    We lost many neighbors and acquaintances that day.

    Regarding China, are you saying we should roll over concede defeat and let them have the world’s manufacturing? I think not!!!

    That’s not what we did after 9/11.
    We are a Americans, and we fight – and fight to win!
    (unless the politicians get involved – then it all goes into the crapper…)


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