Posted on 01/13/2019 9:22:10 AM PST by rickmichaels
Not that long ago, China’s economy was seen as a juggernaut that would soon overtake America’s to become the world’s largest. “Made in China 2025,” the Chinese government’s blueprint to take over manufacturing, was seen as an existential threat to U.S. technological leadership. Speculation had the Chinese yuan replacing the United States dollar as the world’s reserve currency.
What a difference a trade war makes. No one marvels at the Chinese economy today.
Car sales in China, the world’s largest car market, plummeted by 19 per cent in December, capping a six-per-cent decline in sales for the 2018 year, the industry’s first fall in 20 years. Goldman Sachs predicts the decline will steepen to seven per cent in 2019. More broadly, China’s private and public manufacturing sectors both contracted in December.
China’s mainland stock markets, which declined 25 per cent in 2018, aren’t doing well either. Neither is growth in consumer spending, which is at a 15-year low. The government is backpedalling on its targets for “Made in China 2025,” and its other high-profile initiatives — the much-ballyhooed Asian Infrastructure Investment Bank and the Belt and Road Initiative — are falling short.
In fact, the entire Chinese economy may not only be falling short, it may never have performed as well as claimed. Many believe that China’s official economic growth rate, a fabulous 6.5 per cent, is more a fable. A World Bank estimate for 2016 put China’s economic growth at 1.1 per cent, with other estimates showing low or even negative growth. Also worrying is the potentially catastrophic hidden debt that fuelled China’s growth — as much as US$6 trillion by China’s local governments alone, according to S&P Global Ratings, which called it “a debt iceberg with titanic credit risks.”
Many authorities point to the trade war to explain in part these poor metrics, typically adding that trade wars are always lose-lose. Yet while China clearly seems a loser, the same can’t be said for the U.S., whose economy is on fire.
In contrast to the 15- and 20-year lows logged by China’s economic indicators, the U.S. is racking up 20-, 30-, 40- and 50-year highs. Wages are up, especially for those traditionally worse off, while unemployment rates for blacks, Hispanics and women are at lows not seen in decades. The U.S. economy has added 4.8 million jobs since Donald Trump was elected president, with U.S. manufacturers last year adding 284,000 jobs, the most in more than 20 years. Americans are ditching food stamps and disability payments for well-paying jobs. “Put it together, and this is the best time for the American labor market in at least 18 years and maybe closer to 50,” The New York Times noted in November.
So much for the claims of the U.S. Chamber of Commerce, which warned that Trump’s tariff policy on imported products “endangers the jobs of millions of workers”; of the Tax Foundation, which predicted that Trump’s tariffs would decrease Americans’ wages; of Bank of England Governor Mark Carney, who stated the trade war with China would reduce U.S. GDP; and of the Heritage Foundation, which called Trump’s tariffs “ineffective and dangerous.”
While China’s demise and America’s rise can’t all or even mostly be attributed to Trump’s tariffs, the tariffs clearly hurt China’s economy more than America’s. For one thing, the “tax” that tariffs represent has mostly been paid by China. According to a recent policy brief from EconPol Europe, a network of researchers in the European Union, U.S. companies and consumers will pay only 4.5 per cent of the 25-per-cent tariffs on US$250 billion of Chinese goods, with the other 20.5 per cent falling on Chinese producers. The EconPol report found that the Trump administration selected easily replaced products, forcing China’s exporters to cut selling prices to keep buyers. “Through its strategic choice of Chinese products, the U.S. government was not only able to minimize the negative effects on U.S. consumers and firms, but also to create substantial net welfare gains in the U.S.,” the authors determined, adding that the tariffs will accomplish Trump’s goals of lowering the trade deficit with China.
More importantly, the tariffs have spurred investment confidence in the U.S., not only in steel and aluminum, where dozens of plants are either being built or reopened, but in the broader economy, too. A UBS Wealth Management Americas survey found that 71 per cent of American business owners support additional tariffs on imports from China, with only one-third believing tariffs would hurt them. A Bloomberg Businessweek article in October bore out the view that tariffs hitting steel and aluminum imports would be beneficial: “Employment in metal-using industries has risen since the tariffs went into effect last spring, (more than) the increase for overall manufacturing.”
The American public likes tariffs, too: According to a Mellman Group and Public Opinion Strategies poll in October, nearly 60 per cent of likely voters deem it important for Trump and Congress to “place trade restrictions on countries that violate trade agreements.” When the tariffs apply to China, the public doubtless also likes them for non-economic factors — to rein in one of the world’s worst human rights offenders and America’s chief military threat.
Contrary to the conventional wisdom, this trade war is anything but lose-lose. This one is a big win for the U.S.
Trump is much much smarter than some think.
Go, Trump, MAGA!
When all is said and done - the Chinese don't understand the nuances of capitalism. If they had forced North Korea to take up Trump on his original deal they might have learned enough to prevent a fall...
I have been posting the same for 2 years here, that China will lose tariff war big-time because of the very simple fact that we buy 4 times more than China buys from us. It is simple to understand, I can’t believe there is a debate over this issue.
“Trump is much much smarter than some think.”
Yes, if you look at the media he would HAVE to be. He also has something few or none of them has. Common sense.
One would think that at some point the MSM would have to start acknowledging some of the successes, but I would not hold my breath. Much of the constant nonsense is meant to keep people from noticing.
. A World Bank estimate for 2016 put China’s economic growth at 1.1 “””
On top of that if reports that the gov’t is shifting back to more top down control are true...
Trump is making them howl. This is how a New York real estate tycoon plays the game. No mercy. My way or the highway.
ping for a later read.
[Trump is much much smarter than some think.
Go, Trump, MAGA!]
Seriously. The US was a laughing stock because of how the deep state simply let China have it’s way with us. Yeah, our deep staters stole our money and built Chinese carriers with it.
Such a good read. Thank you!
We knew it was a lie because it didn't make any common economic sense.
Yep - we still have some FReepers whining about how wrong Trump is on China but, as usual, Trump is right on the money.
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