Politics Liberation Day - The biggest tax hike in world history

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China has just shown it can defeat America in a trade war
Donald Trump has almost certainly started a battle he cannot win

Free trade is a win-win, so the escalating tariff war between the US and China will be a lose-lose for both parties. Nonetheless, China is more likely to come out on top.

This may seem counter intuitive. After all, China benefits from a huge trade surplus in goods with the US, worth nearly $300 billion last year, driven by exports of $440 billion. These exports could easily halve as tariffs bite.

In turn, this might knock more than 1 per cent off China’s GDP, other things being equal.

However, even a hit this large would not be a game changer. For a start, the official data suggest that China’s economy grew by about 5 per cent last year. The true figure may well be lower, but a sharp drop in trade with the US alone is unlikely to tip China into recession.

Moreover, there are several ways in which Beijing could limit the damage. One is simply to reroute more exports to the US via third countries.

The US will of course be alert to this and attempt to tighten up the “rules of origin” which determine the tax due on each shipment. But it will be almost impossible to enforce a regime with so many different rates on different goods coming from different countries.

Beijing could also refocus on selling to other markets. Officials in the EU have already raised concern about the prospect of a flood of cheap imports, as Asian producers divert goods that can no longer sell in the US.

Even if other countries resist this, perhaps with additional “anti-dumping” tariffs of their own, China has the firepower to support the economy with looser fiscal and monetary policy.

Admittedly, China’s public finances are already deteriorating. Government borrowing could be twice the target of 4 per cent of GDP this year. Nonetheless, China’s public debt is relatively low – a little above 60 per cent of GDP – and there is plenty of room for it to rise further.

China’s inflation is also relatively low. Consumer prices actually fell by 0.1 per cent year-on-year in March, and producer price inflation has been negative since late 2022. Deflation is far from ideal, but it does at least mean that the monetary authorities can do more to boost growth. And unlike in most Western countries, officials in China can largely dictate what big banks do, as well as prop up the markets in other ways.

Contrast this with the position in the US.

The flipside of China’s huge trade surplus is that US businesses and consumers have come to rely on relatively cheap manufactured goods from China, as well as the rest of Asia. These supplies cannot easily be replaced.

Indeed, it would be practically impossible to replicate Asia’s low-cost manufacturing model in Ohio, even if this were desirable. Basic economics tells us that the US will always run deficits in goods with countries such as China, and Vietnam, because America’s comparative advantages lie elsewhere.

The scope for US fiscal and monetary policy to offset a trade shock is more limited too, partly because the public finances are in an even worse state.

Some hope that the new tariffs might raise as much as US$700 billion a year for the US Treasury. But this assumes that these tariffs will do little harm to trade, to the wider economy, or to revenues from other taxes. In reality, most of the economic burden of higher US tariffs will be borne by US taxpayers.

Another flipside of the large US trade deficits is that other countries have accumulated large holdings of US assets. In particular, China is the second largest foreign holder of Treasury securities, after Japan.

Speculation that China is already accelerating its diversification away from US assets has already contributed to a rise in Treasury yields. While there is no real evidence for this, the speculation alone is another useful weapon for Beijing.

The US also has less scope to loosen monetary policy. The Fed is still more likely to keep US interest rates higher for longer as inflation picks up.

Attempts to force other countries, including China, to stop manipulating their currencies could backfire on the US too. Beijing has long been accused of depressing the value of the renminbi to gain a competitive edge. But a sharp fall in the value of the dollar could further undermine the Greenback’s status as the world’s reserve currency, increasing the US government’s cost of borrowing further.

Finally, the geopolitics matters as well – and China should win here too.

Many smaller emerging economies will be hit especially hard by US tariffs, combined with cuts in US overseas aid. This provides another opportunity for Beijing to gain more influence.

There may even be some in the West who are grateful to Beijing for “taking one for the team”. China’s forceful retaliation against the US has rattled the markets so much that others have not had to join in.

In contrast, the US administration seems determined to lose friends and allies, whether in economic policy, foreign affairs, or defence.

The upshot is that President Trump has started a war that he almost certainly cannot win. And he may even have made President Xi Jinping look like the “good guy” in the process.

https://www.telegraph.co.uk/news/20...t-shown-it-can-defeat-america-in-a-trade-war/
 

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SlyPokerDog said:
Not with that attitude we won't.

Have you thought that maybe you should be collecting the tariffs on your deliveries?
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Actually there’s some packages we collect checks for because UPS covers the cost when it goes across customs
 
MickZagger said:
Actually there’s some packages we collect checks for because UPS covers the cost when it goes across customs
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Change your legal name to Ulysses Paul Sagger, and you could be collecting those checks for yourself.
 
Hoopguru said:
LaRue & Lucas?
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Larue and Herm Gilliam.

Some of the older drivers I work with have fond memories of Gilliam. Said he was the nicest dude.

Sadly, both of their pensions at UPS were most likely more than they got from the NBA. They played in an era of tape delayed games. Unfortunately, Gilliam died in 2005 when he was still pretty young. He was working at the Corvallis building.
 
MickZagger said:
Larue and Herm Gilliam.

Some of the older drivers I work with have fond memories of Gilliam. Said he was the nicest dude.

Sadly, both of their pensions at UPS were most likely more than they got from the NBA. They played in an era of tape delayed games. Unfortunately, Gilliam died in 2005 when he was still pretty young. He was working at the Corvallis building.
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Herm was a key factor in sweeping the Staked Lakers 4-zip in the WC finals in 77. He was a key part of that team all year.
 
Hoopguru said:
There's a whole lot of insanity going around/and been around, thats for sure. Pretty obvious there'a an attempt to de-globalize.
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The extreme right bullshit that they've been spreading (Fox News, talk shows, etc) and supporting for decades leads to a lack of support for global trade and abundance in general.

It's an incredibly small minded and backward way of thinking that has lead the UK to Brexit and the US to electing fools like Trump and the ass-sucking judges and congress that won't hold him accountable.

Yes. You're right. It has been a trend. An ignorant, toxic, and hurtful trend which relies on uneducated fear and insecurities.
 
Phatguysrule said:
The extreme right bullshit that they've been spreading (Fox News, talk shows, etc) and supporting for decades leads to a lack of support for global trade and abundance in general.

It's an incredibly small minded and backward way of thinking that has lead the UK to Brexit and the US to electing fools like Trump and the ass-sucking judges and congress that won't hold him accountable.

Yes. You're right. It has been a trend. An ignorant, toxic, and hurtful trend which relies on uneducated fear and insecurities.
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The deal we made with Europe and others after WW2 as being the High Seas Police & Security for countries, for trade seems, insane any more. Doesn't mean we leave our allies hanging, many of those countries have their own military.
 
Hoopguru said:
The deal we made with Europe and others after WW2 as being the High Seas Police & Security for countries, for trade seems, insane any more. Doesn't mean we leave our allies hanging, many of those countries have their own military.
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Why does it seem insane? It worked incredibly well for us.
 
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