Posted on 08/06/2019 12:20:23 PM PDT by SeekAndFind
Back in May, I wrote that Trump’s China tariffs will only “work” if Americans pay them. The president wants to shrink our trade deficit with China; tariffs further that end by making it more expensive for Americans and American firms to buy Chinese goods; if China takes steps that absorb the cost of the tariffs, then Americans will be spared part or all of the tariff burden, but they’ll also have less incentive to buy American.
Sure enough, after President Trump announced that another round of China tariffs would start September 1, the Chinese responded by allowing China’s currency to weaken. A weaker yuan reduces the cost of Chinese exports, helping to offset the cost of the tariffs for American consumers. That, in turn, makes American-made products relatively more expensive and hurts U.S.-based manufacturers — the opposite of Trump’s professed goal in all this.
Linette Lopez of Business Insider predicted this outcome on my KCRW podcast Left, Right & Center last Friday, saying, “This is a perfect excuse for Xi and the People’s Bank of China to lower rates, to maybe let the Yuan depreciate a little bit and blame it on Donald Trump instead of their domestic situation.” China has its own domestic economic problems that could be helped by an export-boosting currency devaluation, but a weaker currency also reduces Chinese consumers’ purchasing power and living standards. With the trade war, Trump has given Chinese president Xi Jinping a “look what you made me do” opening to weaken the currency while blaming America for pushing him to do so.
Trump would like the Federal Reserve to respond in kind, starting a competitive dollar devaluation. The Fed is very unlikely to take a step as inflationary as that; while chairman Jerome Powell made clear last week that greater global trade tensions will tend to mean more rate cuts at the margin, the Fed is pretty cautious about this sort of thing. The sharp decline in stock prices that has followed the tariff announcement, and Chinese responses to it, make it clear that market participants do not expect enough rate cutting to make investors whole from the economic costs of the trade war.
Trump expects to win the trade war because he thinks that it does more economic damage to China than to the U.S., which means China will eventually have to cave to his demands. He’s right about the first part, but not the second. While the Chinese government cares about living standards and is responsive to public opinion, it’s not a democracy. Politically, the Chinese have more room to withstand economic damage than Trump does, especially when they can appeal to nationalistic sentiment and (not implausibly) blame outside American action for their troubles.
All of which is to say, this could go on for a long time and cause a lot of damage to the global economy along the way. The sharp drop in oil prices should be especially ominous for the president — that’s the market saying that what he and Xi are doing is expected to cause real harm to global demand and output (that’s why oil’s getting cheaper: fewer people are expected to want to buy it). Investors do not believe the Fed can or will fix all of this.
Matt Yglesias made a good point over the weekend: While there still isn’t good reason to say a U.S. economic recession in the near term is likely, people aren’t focusing enough on the very likely outcome that economic growth will slow significantly while remaining positive. That already appears to be happening due to the fading of temporary effects from the 2017 tax cut. And as the trade war intensifies, it will go from a phenomenon with a small, negative effect on the growth rate to a moderately negative one. Trump still probably won’t blunder his way into a recession, but I think it’s reasonably likely he will blunder his way into, say, one percent GDP growth in 2020.
From a political perspective, the significance of the growth rate is not binary, with anything above zero being fine and anything below it being a disaster. A slower growth rate means less upward pressure on wages, less consumer spending, and less positive public sentiment about the economy. The strong economy is the main thing this unpopular president has going for him as he seeks reelection. He’s endangering that, and himself, with the trade war.
confronting china about their currency manipulation was bad for trump’s reelection, now china’s deevaluation of their over priced currency is bad for trumps reelection... can it be both ways bad for trumps reelection?
CHINA HAS ONE ADVANTAGE WE DO NOT HAVE, WHICH IS THIS -— THEY PLAY THE LONG GAME WHILE OUR ELECTIONS GO IN CYCLES.
Sure, their economy will be hurt as well, but what do they care? Can their party be voted out of office? Nope. They are a ONE PARTY system where the Communist Party will be in power whether their economy is good or bad.
What about us? We hope that a recession will not occur during Trump’s tenure. If God forbid, the economy takes a bad turn next year as a result of this lingering effects of the trade war, there is no guarantee that Trump will be re-elected ( factor in voter fraud ).
So, China can wait us out hoping that with their interference in the world economy, it will cause things to turn bad for us ( never mind them, they don’t worry about the fate of their party ) which will result in a change of American administration, which for China, hopefully will result in a more docile President they can deal with ( remember, Joe Biden was already in their pockets when he was VP ).
Trump in a landslide. More tariffs please!!!
Take the medicine.
This is the fight that needs to be fought.
The RINO squishes will give in when they come back, so don’t worry Globalists, if we don’t win this in the current timeline, the world will be shiite anyway.
Roll MAGA, roll!
The other piece to this is that China is not one country.
It’s like the old Soviet Union.
A bunch of cultures hammered together by force.
With a little push and a shove, it would split into 3 to 6 autonomous regions.
No it wont.
Now if he kowtows to the anti-gun crowd he’ll lose in a heartbeat as will the GOP.
Uh, no, actually it doesn’t. We’ll cling to our guns, bibles and vote for him.
China STUPIDLY walked right into TRUMP’S TRAP. They manipulated their currency thus providing proof they engage in currency manipulation. They have provided Trump what he needs to get changes made in how the WTO and IMF treat China. I predict that, as a result of Trump’s actions, China will be recategorized from being designated a “developing nation” (which is ridiculous for the world’s 2nd largest economy). Losing that will also cost China all the special considerations it is currently UNFAIRLY allowed because of that categorization.
WAY TO GO MR. PRESIDENT! I’m not yet tired of WINNING.
Trump has to push China to the limit in two terms because the GOP and the Democrats are in cahoots with the chicoms and sold their souls long ago. He must break them.
The title is wishful thinking. The United States owes no one an apology for trying our best to maintain our place as the number one world power. Deplorables know that Trump is dealing with China (and the rest of the world for that matter) like nobody else can or would or has. China is just one of the nations playing games and counting on our elections securing their own dominance. Well, we’re not going to let them win that game because we are going to keep Trump firmly behind the Resolute Desk.
“Back in May, I wrote that Trump’s China tariffs will only “work” if Americans pay them.”
Prima facie proof the author is an idiot that nobody should listen to.
Tariffs only work IF they reduce demand, not if people keep demand constant and just pay the tariff.
So raise the tariffs as high as necessary to reduce demand.
We’re in the fight now now. Committed. We must prevail, or surrender.
We cannot lose and remain a sovereign nation.
They're nice guys; they never did anything to us.
Governed or murdered? Asking for a friend...
If so, we'll all be Squaw-d.
This is from the linked article below.
“How China Affects the U.S. Economy
China is the largest foreign holder of U.S. Treasurys. In May 2019, it owned $1.11 trillion in Treasurys. That’s 27% of the public debt held by foreign countries. The U.S. debt to China is lower than the record high of $1.3 trillion held in November 2013.
China buys U.S. debt to support the value of the dollar. This is because China pegs its currency, the yuan, to the U.S. dollar. It devalues the currency when needed to keep its export prices competitive.
China’s role as America’s largest banker gives it leverage. For example, China threatens to sell part of its holdings whenever the United States pressures it to raise the yuan’s value. Since 2005, China raised the yuan’s value by 33% against the dollar. Between 2014 and 2016, the dollar’s strength increased by 25%. The rise forced China to devalue the yuan. This ensured its exports would remain competitively priced with those from Asian countries that hadn’t tied their currency to the dollar. “
https://www.thebalance.com/china-economy-facts-effect-on-us-economy-3306345
Trump can, and wi, adjust tariffs upward accordingly.
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