Potential China Boycott Highlights Asymmetries in Trade War

In March I wrote: Prepare for Smashed Up KFCs and McDonald's. China's ultimate (as in the last option, not the best option) weapon in a trade war is aggressive nationalism. Mass protests similar to anti-Japanese riots could be unleashed on visible American brands in China. However, a wider boycott of U.S. products will have less of an impact because most manufacturing is done outside the U.S. Apple (AAPL) is not General Motors. While it's profits would fall and its stock price would tumble, the economic blow from an Apple boycott would hit Chinese (and overseas) employment harder than the U.S., where Apple retail jobs dominate.

NYTimes: In a Trade War, China Might Boycott U.S. Goods. That Could Backfire.
Some Chinese state media outlets have hinted darkly that Beijing could weaponize its hundreds of millions of shoppers should Washington go through with its recent tariff threats and start an all-out trade war. On Weibo, China’s version of Twitter, there are sporadic calls to boycott Apple’s iPhones. Beijing has done it before, ably punishing Japanese, South Korean and Philippine products and companies over political disputes.

...If China calls for a boycott of American goods, Chinese workers like David Xu could be in trouble.

Mr. Xu is one of thousands of residents of this port town who cash paychecks from American companies. He works as a technician at a Procter & Gamble manufacturing and distribution center here, one of the company’s biggest in China. Across town, Nike has opened a huge distribution center, its largest in Asia.
That isn’t to say that the idea is off the table.

The Global Times, a nationalist tabloid controlled by the People’s Daily, the Communist Party’s official newspaper, warned that a “people’s war” could be waged against the United States. On Chinese social media, the phrase “China is not scared!” has become a popular hashtag, the People’s Daily illustrating it with an image of Chinese and American boxing gloves.

“The patriotism and collectivism of the Chinese people will likely play a role,” the newspaper said in an editorial last month. “And the slogans to boycott American cars and other big commodities may ring through the Chinese internet and get a response.”
As I wrote before, if I was an American company I'd probably work to reduce my "Americaness" in China even without a trade war because negative social mood and rising nationalism could provide a flash point in the future.
Consumers in China can be a potent force. In 2012, Chinese nationalists wrecked Japanese stores and car dealerships and boycotted Japanese cars because of a territorial dispute, hurting sales for years. In 2016, online vendors stopped selling dried mangoes from the Philippines after a United Nations tribunal ruled in favor of Manila in another territorial dispute.

Last year, the South Korean conglomerate Lotte was forced to shut down more than 80 stores in China after the South Korean government provided land for an American missile defense system that Beijing strongly opposed.

More recently, Chinese nationalists have besieged the social media accounts of Western companies that labeled Taiwan, a self-governing island that Beijing considers a breakaway region, and Tibet as countries.
It is wrong to think of a trade war solely in economic terms, just as it is wrong to think of a war solely in terms of the cost of human lives and materials. In both cases, a pure cost calculation always tells you wars are destructive and should never happen. Yet they happen with regularity throughout human history because the people in charge do a net present value analysis and get a positive value. The issue of going to war is binary, it either happens or it doesn't.

A trade war is stupid from the U.S. perspective because, as even Trump points out, China didn't maliciously attack the U.S. economy. It's own leaders stupidly gave everything away and put the U.S. in a weakened position. The biggest weakness for the U.S. economy is the U.S. dollar's status as sole reserve currency. Solving China trade will only shift the trade deficit to other nations. Targeting China pushes the costs of U.S. policy errors onto China, forces them to increase imports to offset the weaknesses in American economic policy.

Even without incompetent or malevolent elites, American workers face a doubly weak position in a global economy as a high-wage economy that issues the reserve currency. Domestic economic reform, global monetary reform and domestic monetary reform are needed. But those aren't coming. Trade war is coming. The U.S. has an advantage in a trade war because it will lose far less than China and can absorb the pain (political, social) better than China. As nationalism increases on both sides, the NPV calculation will turn more positive as it increasingly relies on the psychological value of "winning."

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