Elder Patriot – The Chinese play for long term results. America’s investment class is only interested in short term gains regardless of the downstream costs.
President Trump is the only one willing to absorb short term losses in exchange for not-so-long-term benefit.
Yesterday, after China reneged on previously agreed to concessions made during trade talks with the United States, Trump announced his intention institute the long-delayed tariffs on $200 Billion in Chinese imports.
The financial media’s pearl clutching began immediately following a relatively small market adjustment.
$1.36 Trillion may sound like a lot of money but consider that we lose that much every two and a half years under the current arrangement with China.
Importantly, we have the consumers. American manufacturers and their expanded workforces will be the beneficiaries. We’ll be just fine. China? Not so much.
Remember, the consumers are here not there.
What brought us to this point?
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin had negotiated a 150-page outline agreement with China covering seven chapters of trade issues including: theft of U.S. intellectual property; protection for trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.
Then, when Chairman Xi Jinping reviewed the deal, China suddenly reneged on all of the substantive points of agreement, counting on Congress and the media to bring pressure on President Trump to acquiesce.
Not this president. Not now that he is so close to fulfilling another campaign promise.
The “sky is falling” media complied, becoming apoplectic, not over China’s distrustful behavior but over Trump rolling out the heavy artillery in response.
We really have to question whose side is the media on? Certainly not on the side of our children.
Any reasonable assessment of the situation, each nation’s goals, and the comparable effects that a tariff war will inflict on their economies leads to the conclusion that if we are willing to ride this out, we will win.
When President Trump levied the first round of tariffs on only a small fraction of imported Chinese good in the summer of 2018, China retaliated with counter-tariffs of up to 25 percent on about $110 billion of U.S. products.
They followed that with tariffs of 5-10% on another $60 Billion is U.S. goods a couple of months later. Those tariffs were placed on LNG and small aircraft.
The effect of those tariffs couldn’t prevent the U.S. GDP from growing 3.2% last quarter.
“The reality is, with the Tariffs, the economy has grown more rapidly in the United States and much more slowly in China.” Peter Morici, Former Chief Economist, USITC
— Donald J. Trump (@realDonaldTrump) May 8, 2019
China now finds itself out of bullets. Based on 2018 U.S. Census Bureau trade data, China is left with only about $10 billion in U.S. imports left on which to levy in retaliation for further U.S. tariffs, including crude oil and large aircraft.
Tariffs on crude and large aircraft will do further damage to their economy.
On the other hand, Trump still has an additional $325 billion of China’s goods waiting behind the $250 billion of products that go into effect at midnight tonight.