US WILL WIN TRADE WAR WITH CHINA SAYS EXPERT

Daily Beast on March 26, 2018 published an article by leading China expert Gordon G. Chang. Chang said that China would risk the falling apart of their economy and political system if opposing the United States. Excerpts below:

…President Donald Trump has imposed tariffs on steel and aluminum from various countries, including China, pursuant to Section 232 of the Trade Expansion Act of 1962.

…he has signed a memorandum that will soon lead, pursuant to Section 301 of the Trade Act of 1974, to the levying of tariffs on perhaps $60 billion of Chinese goods. At the same time, he directed the Treasury Department to consider the imposition of curbs on Chinese investment.

It certainly looks like a trade war is brewing. China’s Ministry of Commerce [has] announced tariffs of 15 percent and 25 percent on almost $3 billion of American products in 128 categories, retaliation for Trump’s Section 232 tariffs.

At the same time, Chinese officials have been making threats, especially promising to not buy American agricultural products or to reduce purchases of U.S. Treasury debt.

[USA holds the winning cards.] First, [China] is growing more dependent on access to the American market. In 2016, a stunning 68.0 percent of China’s overall merchandise trade surplus related to sales to the U.S. In 2017, that figure increased to 88.8 percent. Trade-surplus countries, as history shows, generally suffer more in trade wars.

Beijing, therefore, is generally vulnerable to being pushed around by Washington.

Second, the American economy is far bigger than the Chinese one. Beijing claimed gross domestic product of $12.84 trillion in 2017. America’s economy, by way of contrast, clocked in at $19.39 trillion last year.

China’s GDP numbers are surely overstated because, especially during the last two years, the country’s growth was less than half that reported by the official National Bureau of Statistics. America’s larger economy is, at the moment, in fact growing at a faster clip than China’s.

Third, the American economy, for all its faults, is stable, and China’s, by most accounts, is on the verge of a debt crisis. China’s debt-to-GDP ratio looks like it is somewhere, depending on the amount of so-called hidden debt, between 350 percent and 400 percent.

Chinese concern about the state of the economy led to extraordinary capital flight in 2015 and 2016, with net capital outflow probably reaching $2.1 trillion in the two-year period. Only the imposition of draconian capital-control measures beginning in the fall of 2016 stopped the outbound torrent of capital.

In this regard, Beijing has been, on balance, selling American Treasury obligations since the middle of 2014 in order to defend its currency, the renminbi, and this has not caused any noticeable effect on the ability of the U.S. to finance deficits.

In addition to ignoring the fundamental balance of power between China and the U.S., experts in recent days have been making specific arguments that are particularly unconvincing.

[A false argument is] when American retailers, politicians, and others contend that Trump’s tariffs will punish Americans, who have become accustomed to buying cheap goods.

Yet China, as its promoters have told us for a half-decade, is no longer the lowest-cost producer of many items. Take… [the]example of apparel. At the beginning of this century, about 90 percent of apparel sold at Walmarts was made in China. By the end of 2012, that balance between China and the rest of the world essentially reversed.

Trump’s tariffs on apparel or other items, even if they make Chinese goods more expensive or unavailable, will not result in significant cost increases beyond a month or two. Americans will soon be buying their low-cost items from other producers, which are already, if I may use the phrase, beating the pants off China.

…consumption is ultimately not the driver of growth in China. The ultimate driver remains investment. Consumption in China falls whenever Beijing reduces the flow of state-directed investment. And because of debt concerns, Chinese technocrats are losing the ability to create growth by investing.

For decades, Chinese leaders have staked their legitimacy primarily on the continual delivery of prosperity. Trump not only threatens the Chinese economy but also the Communist Party’s political system. That gives China’s leaders great incentive to hold back retaliatory moves.

Boeing executives and American soybean producers are right to be nervous [about Chinese moves], but they surely know how global markets work. If China does not buy soybeans from the American heartland and purchases them from Brazil instead, American producers will sell soy to Brazil’s customers.

There are only so many soybeans in the world at the moment, and the same principle generally holds for commercial aircraft. Airlines and leasing companies are unlikely to wait years longer because Airbus’ production has been diverted to China to fill orders that would have gone to Boeing. In most cases, Airbus customers will opt for Boeing craft to fill needs.

In short, Trump holds the high cards when it comes to China, and, unlike his predecessors, he knows it.

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