China Will Lose the Trade War, Only a Matter of American Will and Time

One of the falsehoods peddled by China bulls /American bears is that one day China will stop selling junk to the American consumer. The Chinese will consume their own output and the American standard of living will collapse. There is more than a grain of truth in that story, but it ignores a crucial point I've made more than once: Chinese have not built factories for domestic consumption. Chinese output is aimed at foreign markets. The closure of America's market is a loss for companies that focus almost entirely on the U.S. market. To exaggerate, much of China's economy is an American colony, it exists to serve U.S. consumers. If they lose access to those consumers, they are not prepared to sell into other markets, let alone China.

Moreover, the Chinese economy is not as efficient as it seems. It grew into a global power because it leveraged its access to the capitalist, free market industrialized world. Unlike Japan, South Korea and Taiwan, China has not reformed its economy away from reliance on foreign export markets because that requires loosening domestic political control. Instead of reform, it piled on ever increasing amounts of leverage to keep the old economic model running. There would always come a day when the U.S. would reach its limit for running trade deficits, either a political limit or a natural economic limit that would result in currency collapse. There would always be a limit to how much debt China could force into its economy, and how much steel, autos and ghost cities it could build to pump up GDP. And now all of these limits are being reached simultaneously.

NYTimes: China Needs New Places to Sell Its Mountain of Stuff
Faced with severe factory overcapacity at home and tariffs on exports to the U.S., Beijing wants to finish a much-delayed Asian free-trade pact.
No country can absorb the sheer volume of what China sells to American customers. China’s regional neighbors compete against it in a number of industries. And China continues to maintain high tariffs and other barriers to protect its own industries — barriers that would have to drop if other countries were to sign on.

The economic clash between the United States and China has thrown the world trade system out of balance. China runs an annual surplus in manufactured goods trade of almost $1 trillion, meaning that is how much more it sells to the world than it buys each year. Nearly half of that surplus comes from trade with the United States.
Already, the country is plagued with excess capacity for making cars, steel and other staples of global trade. More factory slowdowns and shutdown could lead to job losses and further drag down economic growth.
It's the NYTimes, hence there won't be any sentence about "President Trump was 100 percent correct in saying the U.S. already lost the trade war and that China has more to lose." Yet that is the reality on the ground. Their economy as currently structured cannot win the trade war. It was true in 2008 and it is more true today: China is more similar to the United States in 1929 that anyone wants to believe. The events of the 1930s were not caused by tariffs and other nonsense peddled by globalists seeking to subvert sovereignty of individual nations, but by a massive credit bubble enabled by poorly structured global finances. The British overvalued the pound, this led to incredible amounts of capital flowing into the United States, who in turn financed much of global trade while blowing twin real estate and stock market bubbles. In the 2000s and 2010s, China undervalued the yuan, blew a massive real estate bubble three times over, plus two stock market bubbles, ran up credit faster than any nation in history, and is far less efficient that the capitalist America of the 1920s.

No comments:

Post a Comment