US will be forced to back down in trade war against China [barf alert]

Irish Examiner ^ | uesday, September 25, 2018 - 12:00 AM | Anatole Kaletsky

[Olog-hai]

The United States cannot win its tariff war with China, regardless of what President Donald Trump says or does in the coming months.

Trump believes he has the upper hand in this conflict because the US economy is so strong, and also because politicians of both parties support the strategic objective of thwarting China’s rise and preserving US global dominance. But, ironically, this apparent strength is Trump’s fatal weakness. By applying the martial arts principle of turning an opponent’s strength against him, China should easily win the tariff contest, or at least fight Trump to a draw. […]

In handicapping the US-China conflict, another economic principle — rarely used to explain the futility of Trump’s tariff threats — is much more important than Ricardo’s concept of comparative advantage: Keynesian demand management. […]

With little spare capacity available, the new investment and hiring required to replace Chinese goods would be at the cost of other business decisions that were more profitable before the tariff war with China. So, unless US businesses are sure the tariffs will continue for many years, they will neither invest nor hire new workers to compete with China.

Assuming that well-informed Chinese businesses know this, they will not cut their export prices to absorb the cost of US tariffs. That will leave US importers to pay the tariffs and pass on the cost to US consumers (further fueling inflation) or to US shareholders through lower profits.

Thus, the tariffs will not be “punitive” for China, as Trump seems to believe. Instead, the main effect will be to hurt US consumers and businesses, just like an increase in sales tax. …

[Teacher317]

You’re ignoring the fact that markets are dynamic. If you think Vietnam and other cheap manufacturers will keep their prices low if we divert our massive buying power from Chinese products, I’ve got a bridge to Mars to sell to you.

So you think that Vietnam etc will instantly give up their advantage so that they can give the manufacturing back to China? My, yours is a dizzying intellect.

Hint: Prices will likely rise from current levels... BUT not enough to give up their newfound markets. You left that out of your analysis, which is why it comes up short.

You owe me a note of appreciation for schooling you on this topic.

Ahem.

[roadcat]

From your simplistic writing, clearly you’ve never studied economics.

Enough with the insults. I subscribe annually to daily financial briefs and am very well off. I don't need your schooling. The trade war against China is a nothing-burger compared to far more critical financial crises on the horizon. For instance, the CAPE ratio is extremely high, nearly the highest in history, incredibly overpriced stocks, more so than 1929, 1987, and before the mortgage crisis of 2008. I'll be pulling back from the market prior to 2019 when it blows. Check out the Composite Liquidity Indicator (CLI), the market is overextended. And so on. I'd worry more about situations like these than anything the Chinese market is doing with tariffs.