Andy Xie on why the U.S. will swap words for action to bash China

In Put Down Trade Spats, Pick Up a Mirror, Andy Xie turns more negative as he believes that this time, the protectionist rhetoric isn't just rhetoric. Based on the declining social mood, I have to agree. The U.S. is about to punch China in the face, diplomatically speaking.
Quite likely, the U.S. Treasury Department will name China a currency manipulator in its April report to Congress. Such a conclusion would require that the Obama administration impose punitive tariffs on Chinese imports.

China may be tempted to strike back with a trade-war volley. But such a move would be in China's worst interests. China is the biggest beneficiary of globalization and must do everything possible to defend the global trading system. So its best response, in my view, would be to take the case to the World Trade Organization, even though any resolution would be a long time coming and would not help the current situation.

China also would be wrong to stoke a dispute with the United States in hopes of diverting attention from its domestic problems. China's biggest challenge today is how fruits of its economic growth are divided, not how fast the economy is growing. And a key to this dividing game is held by the middle class, which deserves support.
In a nutshell, China can grow more internally and the best action is to turn the other cheek as it were, and focus on internal development. This is not just a diplomatic win, since the U.S. would lose stature, but a necessary step because China can't gain from a declining U.S. economy. He goes on to list the massive economic problems in the U.S., including the expensive new entitlement program, and brings it back to the confrontation with China.
The Democratic Party may lose a lot of votes for passing healthcare legislation, but blaming China for U.S. economic problems could win votes in the November mid-term elections. Thus, pressure on China's currency value will skyrocket before November.

But as long as China remains calm, pressure will dissipate over time. The United States has been selectively imposing tariffs on Chinese products over the past few months. Nothing will change in the near future, and a massive, across-the-board tariff on Chinese products is unlikely.

Most Chinese exports to the United States are designed, owned and sold by major U.S. corporations. IPhones, Nike sneakers, and HP PCs are good examples. A massive tariff would hit their profits and trigger a stock market collapse. It would bring down the U.S. economy and trigger a double-dip.

The U.S. government doesn't have the courage to prosecute people who caused the bubble and brought down the economy, fearing negative economic consequences. Neither will it have the guts to do something against Chinese exports that would surely bring down its economy.
A lot more good analysis in the article. Read the whole thing.

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