The reason it is implausible is that it would send millions or more people both in the U.S. (consumers) and manufacturers in China and workers into Bankruptcy. It might even throw China into an outright Great Depression from which it might feel that we attacked them to respond militarily with their armies and navies by attacking the U.S. mainland or Hawaii or Alaska. So, because it is so implausible to do this it is sort of like playing with fire. In other words someone or both countries is going to get burnt up. Trump is unrealistic about what he is trying to do especially telegraphing it the way he is. Unless you give China a way to save face in their culture it likely would only mean various kinds of disaster for both the U.S. and China. It is a no win situation for both countries and could lead to a very bloody war or something else equally as bad.
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Op-Ed: The Trump rally is young
| CNBC | - |
A
trade war with China -- a country with a $473 billion of bilateral
trade with America in the first ten months of this year -- is an
implausible assumption.
Commentary
Getty Images
Chinese President Xi Jinping
The President-elect Donald Trump is seeking a better deal for America. That should be easy to understand and support for any fair- and free-trader.
And, rest assured, Washington's intent to correct its huge trade imbalance with China is not coming as a surprise to Beijing. The Zhongnanhai mandarins know that their trade surpluses with the U.S. -- $366 billion in 2015 and $289 billion in the first ten months of this year -- are difficult issues that must be addressed. That is the substance of the problem.The rest is rhetoric.
Mr. Trump's opening salvo used legitimate trade remedies,such as import tariffs, anti-dumping investigations, and possibly other measures if China was recognized as an exchange-rate manipulator.
Tax reform is crucial
China has announced that it would respond with unspecified retaliatory measures, but President Xi Jinping talked about the need for Sino-American cooperation in his congratulatory phone call to Mr. Trump. The Chinese also liked the appointment of Iowa Governor Terry Branstad as an envoy to Beijing. They called him a "friend of China" and noted that he has known Mr.Xi since 1985.
Difficult trade negotiating rounds are quite common. In this particular case, Washington also has the option of using non-confrontational measures to reduce the existing trade imbalance.
A change in the corporate taxation is one of them. That could bring back American manufacturing producing Chinese exports to the U.S.Some leaders of the U.S. Business Roundtable – a forum of 192 companies that account for most of investment activity in the United States -- doubt that a large amount of that business can be quickly repatriated. They feel confident,however, that appropriate corporate tax cuts would keep firms producing and reinvesting their profits in the U.S.
The corporate tax reform is at the top of Mr. Trump's agenda, and that is perhaps one of the most effective trade signals he can send to China. Indeed, reducing the incentive for the exodus of American manufacturing, and bringing some of it back, would also stop large technology transfers that are part of mandatory Sino-American joint ventures for American firms doing business in China.
Investors, therefore, should pay no attention to trade war noises. Mr. Trump has powerful cards to play in a trade negotiation with China,and in the discussion of political and security issues that need to be clarified.
The lack of America's clear China policy remains cloaked in buzz words like "keep them guessing," pivots and rebalancing to Asia to contain China, and what Hillary Clinton called "jazz-like diplomacy" – "situation specific" improvisations – laced with hostile gestures and rhetoric of"strategic competition."
Deal-based linkages
The Chinese, for their part, want a new "big power relationship," implying some kind of a Sino-American condominium in Asia and beyond.
On top of that, Mr. Trump has to deal with increasingly urgent and serious crises on the Korean Peninsula and in the South China Sea.
Maybe Mr. Trump can cut through all that with a pragmatic approach to clarify America's national interests in a situation where there are no military options between the two nuclear-armed states.
Mr. Trump will probably also see through the blind alley of "triangulation," advocated by some would-be strategic thinkers. That "advice"consists of a diplomatic effort to break up the Sino-Russian partnership.
Here is an example of what happened to such efforts in the recent past.
Using China's keen interest in German technology, Berlin was apparently commissioned to peel Beijing off its friendly relations with Russia during Mr. Xi's visit in March 2014. The Chinese were ready for the challenge. Mr. Xi was strictly business and uniquely focused on the Sino-German economic and industrial "dream team." He was so aloof to other issues that a widely read German news magazine ran a story headlined "Smiling from a distance."
Since that time, Mr. Xi has been circling around Germany on his European tours, while the German Chancellor Angela Merkel, with her nine official missions to China, remained the most frequent high-level visitor to Beijing. She is now contacting mainly with the Prime Minister Li Keqiang.
Trying the same thing over again and expecting a different result would be Einstein's definition of lunacy. The U.S. has to deal with China and Russia in different theaters.
Investment thoughts
People peddling fears of Mr. Trump's trade wars with China are as relevant as those professing to know how many Fed rate hikes to expect next year.
Mr. Trump won't be sidelined by pipe dreams of "big power games." He is on the same page with China in the search of stable and fair trade relations. Beijing understands that Mr. Trump holds the winning cards, and that he is ready to use them.
Closer to home, the Fed should not overestimate the strength of the key growth drivers in an economy advancing at a lethargic annual rate of 1.5 percent in the first three quarters of this year. With 15 million people out of work, or without stable employment, the actual jobless rate is double the officially reported rate of 4.6 percent. Incomes are also showing some weakness. Real hourly compensations in the first nine months have grown only 1.5 percent from the year earlier. Over the same interval, the growth of the real disposable household income has slowed down to 2.9 percent from 3.6 percent in the same period of 2015.
Apart from that, the dollar's 5.6 percent trade-weighted appreciation over the last six months is technically equivalent to a considerable monetary tightening. The Fed, therefore, may wish to refrain from a recent acceleration of liquidity withdrawals in order to play along with new fiscal, structural and trade policies -- which have yet to be defined.
In spite of these uncertainties, the prospect of America's growth-oriented economic policy offers some of the best and safest equity market values in the world.
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