My question: US - China Economic War?

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Lemonyellowschwin's picture
Lemonyellowschwin
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Posts: 560
My question: US - China Economic War?

I am asking this question because I feel ignorant and have not found commentary elsewhere:

The US and China seem to be engaging in what people are calling a trade war. I don't know what a full blow trade war looks like, but I do know the US put tariffs on Chinese goods and then the Chinese put tariffs on US goods, and now we're talking about putting more tariffs on their goods which presumably would cause them to put more tariffs on our goods, and both sides are saying the other one is being unfair . . . . 

My larger question is whether China would have it in their interests to hurt us economically by, e.g., selling their Treasuries or some other such thing. I do not know if that would hurt China more than it would hurt us, or whether "hurting us" economically (without doing too much damages to themselves in the process) is something they could achieve or something they would even desire.

My three questions:

1. Would China want to hurt us economically;

2. If so, what would be their preferred means? 

3. Would it work, and what would be the effect on the American economy?

Snydeman's picture
Snydeman
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Posts: 475
I'll take a stab

Ok, so I'll take a stab at this, but first I'll preface with a long post I recently made to FB as a warning to some of my more neo-con friends/family who seem to think bullying or cajoling China is a good idea. I'll then directly try to answer your questions at the end, though please know I'm not an expert on the topic. I teach history and economics, and I speak a lot with the Chinese students and faculty at my school, but I don't have a PhD in the subject area or anything.

 

TLDR summary: Don't try to bully China. It may backfire horrendously.

 

Longer version: I've heard a lot of chatter about how China is just bluffing, or about how China is going to fold to US pressure anytime now. I would caution that this may be an oversimplification based on an incomplete knowledge of recent Chinese history.

 

See, back in the 1840s, Great Britain sought to overcome its massive trade deficit with China (the Brits were buying tons of tea, but China had no use for any British products) by selling opium to China in ever increasing amounts. The Chinese government responded by rounding up Chinese addicts, confiscating and destroying any caches of opium they could find, and forcing British merchants to sign promise notes that they would stop shipping and selling illegal drugs in China. The British responded by declaring war; a war which they won handily. The treaty that ended the war, signed in Nanjing, forced the Chinese to pay millions (billions today) in silver and gold to Britain, open up several ports to British trade, and hand over the city of Hong Kong on an extended lease of 99 years. Oh, and the British could keep importing opium into China. Western history books call this treaty the "Treaty of Nanjing," whereas every Chinese student I have ever asked tells me it is called the "Unequal/unfair Treaty" in China.

 

The following century included several rebellions or civil conflicts, famine, opium addiction, civil unrest, and foreign invasions as the nations of France, England, and even Germany began carving slices out of the Chinese mainland for themselves. By the end of the century, even the United States got involved, by trying to push a policy called the "Open Door," which basically stated that China's ports should be completely open to any and all trade by anyone who wanted it. The only problem was no one asked the Chinese for permission. When a group of Chinese attempted to fight back against the westerners at the end of the 19th century (The Boxer Rebellion), the British, Germans, Japanese, Americans, and French sent a combined force, under the command of a German general no less, to crush the revolt and re-assert the right of the Europeans, Americans, and Japanese to stick their fingers into the Chinese pie at will; to hell with what the Chinese wanted.

 

Now, during this century all of these problems led to the death of between 20-40 million people in China. Twenty to forty MILLION CHINESE PEOPLE. Factor in the casualties caused by the Japanese invasions in the 1930s (go ahead, research the "Rape of Nanking," which is an event most Americans know nothing of, but which every Chinese student has known since they were in elementary school), and it would not be hyperbole to say that the century between 1840 and 1940 was a shitshow of epic proportions for the Chinese. I'm not sure if there is a word that would even encompass the problems that foreign interference and intervention brought to the Chinese people in that time period.

 

So, know this: I've talked with many Chinese students and many of our Chinese teachers here at GFS and elsewhere, and I can tell you that the Chinese are a very diverse and wonderful people. Many of them have no love lost for the Chinese Communist Party, and they do not all agree on what path China should take in the future. That shouldn't surprise anyone, because no culture, nation, or people is as monolithic and homogeneous as outsiders usually think they are.

 

BUT.

 

But every Chinese person I have ever spoken to seems to be unified in ONE important thing: The Chinese must never, NEVER again allow China to be bullied, harassed, or told what to do by outsiders (especially Americans or Europeans) again. Heck, they even scrapped with the Soviet Union when IT tried to tell the Chinese how to be communists back in the 50s/60s when both were enemies of the United States. If one looks deeply at the military capabilities of China (which are not on par with our own by any stretch), those systems seemed designed for one purpose - to keep outsiders the hell away from China's shores and borders.

 

So, be warned that even IF the trade we currently have with China isn't fair, bullying/cajoling China carries massive risks, because while they are generally a pragmatic and patient culture, there ARE limits and they do have trigger points we as Americans should be aware of. There are subtler ways to deal with the issue, and our current President's tactics are dangerous, precisely because I doubt he nor most of his advisers know much about Chinese history.

 

 

 

So...

My three questions:

1. Would China want to hurt us economically;

I don't get the sense they WANT to, because their economy is intertwined and interdependent with ours - their prosperity is linked to our prosperity, at least somewhat - but they WILL retaliate. In fact, due to domestic politics they HAVE to- the legitimacy of the Chinese Communist Party would be called into question if they back down to western threats and bully tactics.

 

2. If so, what would be their preferred means? 

Well, that depends on what the Trump administration hits them with. In general, they seem to be shooting back with tariffs intended to cause pain to the very same states that voted for Trump - they aren't stupid, the Chinese government, and they know the 2018 elections are important, so they will take pains to not hurt left-leaning states - but if things get bad enough they may start picking bigger targets. They could even accelerate their selling of US treasury notes, knowing that could hurt the bond and even equity markets in the US.

 

3. Would it work, and what would be the effect on the American economy?

Chris or others could lay that out for you in more detail, and probably better, but the Chinese CAN hurt our economy, yes. Many US companies do business in China, but more importantly many US businesses manufacture their products in China. More importantly, though, is that a trade war will hurt both countries. As to the exact effect, that greatly depends on which tariffs they impose and how high the tariffs are. There's no one answer to the question. 

 

Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 560
After I wrote this . . . .

 . . . . I listened to the latest, engaging, Off the Cuff, where there is a discussion related to this issue.

. . . . also this article from Zerohedge: 

https://www.zerohedge.com/news/2018-04-06/here-are-chinas-five-options-n...

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 313
Gaming out the Extent of China's Weapons

Those are the knowns .Many of those actions could hurt China.They could easily strike back without harming themselves.How about the unimagineables that have not hit the financial papers like lending out or repo-ing its own Treasury holdings.Look who we have running our defense?Two supply-side dinosours from the 80s dusting off the Reagan playbook with bluster and bravado.AtTreasury we have an incompetent doofus who has no business doing the job.Hell,on Friday the 3 Stooges couldn't even manage a cohesive message for the press.The left has no idea what the right is doing.They have no plan....Believe that....

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