Pundits are engaged in an irresistible debate: who miscalculated more on trade – Donald Trump or Xi Jinping? A good argument can be made either way.
The US president erred significantly when he argued: “Trade wars are good, and easy to win.” Not when your foe is the leader of a proud government whose legitimacy relies on looking strong and resolute.
Xi’s miscalculation in Beijing was thinking the “America First” leader was bluffing. Clearly, Trump wasn’t. But the next misstep is all Trump’s as he turns on multinational companies that long made America’s economy great.
“The goal is to ‘decouple’ the world’s two largest economies by encouraging US firms to invest less in China and more back home,” says Arthur Kroeber of Gavekal Research. “Given this aim, what will cause Washington to ease up on its tariff pressure is not any action by China, but evidence that American firms have changed their ways. This will be a long time coming.”
A self-inflicted wound
If that time ever comes. Trumponomics has already created a circular-firing-squad dynamic between trading partners. While aimed at China, Trump’s tariffs are pitting the US against Europe, Canada, Mexico and giving Japan, South Korea and others reason to stop taking calls from the White House.
But Trump’s ambivalence toward America’s top CEOs is a self-inflicted wound, and a lasting one.
Ford Motor Co recently passed on becoming Exhibit A of Trump’s desire to reclaim America’s manufacturing mojo. After Trump stated as much in a Sept. 9 tweet, Ford explained it was not feasible to make models like the Focus Active in the US.
At the same time, Trump’s tariffs make it pointless to assemble models in China for US import. That leaves Europe, where Harley-Davidson also is moving production.
Apple, too. Trump wants CEO Tim Cook to stop assembling iPhones in China, moving jobs to the US instead. Aside from sharply higher US labor costs, about 90% of the smartphone’s parts are made abroad, the vast majority of which come from the East Asian supply chain. Transporting all those chips, batteries, camera modules and other components to the US, and paying Trump’s tariffs, makes zero sense.
Direct investments in China
There are myriad other case studies that bely US Trade Representative Robert Lighthizer’s oft-stated advisory: if you want to avoid our import penalties, make things at home. To amplify the point, regulators increased scrutiny of Chinese companies investing in America and US ones selling technology to the mainland.
This choose-us-or-them policy has many problems. One, Kroeber says, is that US companies have more than $250 billion of direct investments in China, ginning up nearly $500 billion in mainland sales each year.
“For many companies, China is their biggest and fastest-growing market. In a growing number of sectors, it is simply not a viable business strategy to shun the China market.”
If an American multinational isn’t there, it will lose market share and profits, running afoul of shareholders. Extrapolate this dynamic a bit further, and the rising stock market Trump touts on a daily basis might not be so vibrant.
“And in the other direction,” Kroeber says, “plenty of US local governments are hungry for the investments in manufacturing and infrastructure that China offers.”
With his expanding trade war, Trump is thinking small. His administration would get far more mileage out of policies to lower trade barriers, incentivize innovation, offer education assistance to increase productivity and competitiveness and attract even more foreign talent. Trump is doing the opposite all around, while betting all on mercantilism.
Consider too how Trump is being forced to bail out farmers and other industries being devastated by China-related tax hikes. That money, of course, will be borrowed from China. Talk about circular financial logic.
China’s engagement with Africa
China is going the other way. Trump aside, says Ian Bremmer of Eurasia Group, the real story of the moment is the growing pre-eminence of Chinese commercial relations and how the global order is also accommodating expanded Chinese political, technological and military influence.
“This,” Bremmer says, “is greatest in China’s immediate neighborhood and among the world’s poorest markets, most dependent on their engagement with China – like in Africa, where Chinese trade is already four times greater than African trade with the US, but quickly growing beyond that.”
Do US-based multinationals really want to sit this megatrend out? Hardly. That leaves CEOs in an impossible position: ignore Trump’s re-shoring requests, while avoiding his wrath when he realizes everyone is waiting for 2020, when Americans presumably elect a president who grasps basic economics.
Xi has already signaled he won’t bow to Trump Nation. US multinationals may have a harder time dodging Trump’s circular firing squad. Wall Street valuations, too.
Trump can’t even miscalculate as "Trump" and "calculate" don’t ever belong in the same sentence. Trade War gives China a sting but in the bigger picture, China loves Trump. Reagan, Bush, Trump, they were the best presidents for China.
4 years ago anticipating Trump, Xi launched New Silk Road that will unite Asia, Europe, Africa into one trading block.
That is forward thinking.
60 years ago there were 2 Communist powers. USSR, flush with its Sputnik caper promised to bury Capitalism 6 feet under. Mao the wise told his people to concentrate on building their country, ignore America the "paper tiger".
And that was well before America’s Korea stalemate, Viet-Nam rout, 9/11, fake WMD, Iraq quagmire, Abu Ghraib, Guantanamo, AF-Pak debacle, rise of BRICS, Arab spring, Jihad challenge, irrelevance of EU and Israel, loss of Iran and Pakistan as assets and allies, financial meltdown, debt, depression, despair, bigot Trump hell-bent on replacing baseball with pussy-grabbing as US national sport.
Now that is forward thinking.
The Pesek’s of the West have their heads stuck in their behinds. And Asia could not care less.
THE DOW HIGH HAS NOTHING TO DO WITH ANY REAL ECONOMICS .IT IS FRAUDULENT FIGURE. THE QE 1 2 3 4 AT ZERO INTEREST AND USED TO BUY BACK SHARES .AND DUBIOUS INVETMENTS BY UNEDUCATED PENSION FUND MANAGERS DUMPING BILLIONS INTO BAD INVESTMANTS KEEP THE DOW ROARING ALONG.
Bravo! U hit the nail straight into the head…
I have to admit, China is doing the right things all over the world.
Vietnam, and other nations, should resist US attempts to incite conflict and bring death and destruction everywhere to benefit a small group of bankers and Trump buddies.
China may not have anticipated Trump, but for sure anticipated the US rise of protectionism.
Richard Truong That’s what a failing world power usually does
The TRUMP HATER————is showing his weak hand———-nothing to see———just move ON!!
Richard Truong
Well, you have a point.
But on the other hand even a novice like me had anticipated Trump by at least 20 months. I wasn then living in the US and was close to my workers in Michigan, and saw how America was hollowing out.
So it is high likely that Xi, being infinitely more astute than I may have anticipitated Trump by 4 years. But you are right. Unquestionably, the protectionism started under Obama.
Unfortunately the farmers got the rounds from the circular firing squad…
Trump saw a smallest part of international trade and hastily started the trade war, mainly with China and other countries as well. It’s like looking at the portion of an elephant’s leg and considering an elephant as an ordinary pillar. it was indeed very unwise and all unwise decisions has to pay “tremendous” toll eventually.
One question becomes whether Russia wanted a strong China and miscalculated. Obviously Russia wants to have the US suffer but I wonder if they realized the Chinese would outlast the Americans.
At this point other nations are inciting conflict in the US and giving us a taste of our own bitter medicine. The problem for the world is what replaces America’s mix of democracy and predatory financial practices. Will Europe take up the cause or will Russia and/or China take that role? With spheres of influence shifting it would seem the question is how to wield that influence.
Josh Kierstead – Spot on. Perfect question.
So what is the US supposed to do? Roll over, play dead and decimate the US steel industry by allowing China to dump steel into the US at below market prices? Let countries like Mexico and Canada dictate our trading terms by imposing a 300% tariff on dairy products?
We here in the United States are tired of being taken for granted. There has to be FAIR trade – which hasn’t occurred because of backdoor deals from countries buying out our politicians (see Mitch McConnell and his wife’s China dealings). America spends the most of any Western country on foreign aid. Defend yourself – its time to take care of our own.
China steals American technology, hacks our system, threatens an entire quadrant of the world as does Iran. The rest of the world is terrified to stand up to these countries lest they either be overrun or decimated economically in the bed they made for themselves. The only way you make a bully stand down is to confront him. Si vis pacem, para bellum. Trump shows the way. Even the New York Times admits Trump’s approach is working with Iran.
This is an economic war, between China and USA.. The huge capital of China was came from these G7 Countries lead by America.. In 1982 China was owed huge debts of $52 billion and more on G7 countries lead by America.. While China was used this huge debts, By funding to all 3rd World neighboring Asian countries, Africa and Latin America.. So these 2nd World countries of China, Brazil, Colombia and more, and all 3rd world countries around the World were affected and burdened on this huge tarifs by G7 Countries lead by America.. And all 111 Countries who were followed America. Off course every year and in the long run of years these huge DEBTS would be bubbled…
Since the members of USSR was broked in 1990.. under Michael Gorvachev regime.. And Russia was became one country.. This Russia is not a Communist country anymore.. Because this country was signed the agreement to follow International law Constitution of Federal States of America since 1990.. America, Russia and all G7 Countries including these 111 were followed America.. There are 211 Countries around the World.. While these remaining 100 Countries were called the 2nd World Countries and 3rd World Countries around the World were still manipulated by greed and corrupt ideologies of Communism system of China…