The China-U.S. trade war thread.

originally posted by: AugustusMasonicus

originally posted by: nwtrucker
So yes, I think China is the one going 'all in' and it's going to backfire.Not many hold that view, I admit.

I do. 100%.

The company I work for manufactures in China and we're feeling the pinch. Our newest factory is almost fully automated so we don't have to pay workers to do manual labor that robotics can handle like they do in other countries.

That's the game plan that Silicon Valley held, I believe. Use automation to negate Asian cheap labor supply. Massive automation would be a boon for Silicon Valley. The issue being a huge job loss situation in the U.S.. Hence the trial balloon on a guaranteed annual income for those left unemployed. The profit margins they project must be mind-warping to even consider paying for a GAI.

It seems the initial 'upset' with Trump's election from Silicon Valley has 'mellowed' considerably since.....

When the US established diplomatic relation with China in the late 1970s there should have been a treaty. China want to buy planes from America? Fine. Sign a treaty first. Treaty says China buy planes from America and promises never to develop its own plane industry and compete with the US on the global plane market. China needed the US. The US didn't need China.

originally posted by: sunShines
When the US established diplomatic relation with China in the late 1970s there should have been a treaty. China want to buy planes from America? Fine. Sign a treaty first. Treaty says China buy planes from America and promises never to develop its own plane industry and compete with the US on the global plane market. China needed the US. The US didn't need China.

Actually, the U.S. did do that with China. 'Cept it wasn't planes. It was wheat. The first big deal exporting U.S. wheat to China included the provision that in the event of cutting imports of wheat, China agreed to cut other nations wheat exports rather than U.S.'s. It was largely targeted at Canada's exports to China which had been going on much longer than the U.S. agreement.

Go figure.

a reply to: RadioRobert

I do have a decent understanding of the business world, and the economics of the country.

But beyond that, there is one thing that can not be denied, that since March 18th, when Trump started this trade war, if you look at the Dow Jones index, it has been a steady downward loss. Which means companies are losing money, as investors are nervous and are either selling off or pulling out of the markets.

a reply to: nwtrucker

The more I see, the more I'm leaning to the view that China grew too fast, way too fast and is suffering as a result.

How are they suffering from it? It's not like they're throwing away trillions of dollars on overseas wars like we are, literally cutting our social programs so we can spend more on defense contractors lol. They have a larger middle class than the entire US's population; they're one of the world's most powerful economies in many different categories; have the most supercomputers; etc etc etc. In no way are they perfect, but if they're suffering then who's winning?

I also disagree that they "grew too fast" since China was a global power before they were crushed in the West's Opium Wars and the "Unequal Treaties" that came afterward. It's been a slow and extremely methodical journey back to their former position of power. And ironically, our business and political organizations have been working with them during every step of their recent return to power (from outsourcing deals to banking deals and more).

As for their spending in Africa, that's because of a long series of alliances that China has with many African countries. And the alliances are definitely beneficial to China, with the main criticism usually being that the deals are actually too beneficial for China. For example, just a few days ago Zimbabwe's new leadership put out an "Illegal Looters" list that included hundreds of Chinese nationals and businesses on it (HERE). That will likely get worked out asap since Zimbabwe's leader has just arrived in China for a meeting w/China's President, but it drives home the point that China isn't losing out on these deals.

China simply has a different approach to African countries from Western countries. Their government typically wants the African countries to grow strong so they can have strong & independent allies with stable business environments & efficient supply lines; while the West simply invaded, colonized, and exploited those same African countries during the "Scramble for Africa" through the decolonization period.

Here's an article that describes the African-Chinese alliance from 1955 onwards. There's so much good info in it from an economic standpoint that I wish I could just quote the whole thing (but it's way too long for that).

Ethiopia: The Dragon’s Quest in Africa

The first phase of the Sino-African policy—prior to the 1970’s, could be rightly categorized as being ideologically driven. If one were to look at relations between China and African countries’ relations, what emerges here is an ideological connection or influence. The situation in Algeria, Angola, Congo, Mozambique, Namibia, South Africa, Rhodesia (Zimbabwe), Guinea, etc. including inter-party relations of ZAPU (Nkomo) and ZANU (Mugabe), the African National Congress (ANC) are all examples of the ideological influences of the Sino-African relations.

The second phase heralded in the 1970’s and 1980’s was a Sino-African relationship that partially got eclipsed because of the cold war. Even during this period, China’s connection to the continent, while quieter, was not completely extinguished. It was during this period that the emergence of China took an urgent and focused tone leading to Deng Xia Ping’s “Economic Transformation” push. Toward the end of this period, China renews its South-South Cooperation referred to since as the “Beijing Consensus” (posing China’s economic development model as an alternative, especially for developing countries—and rejecting the universality of the Washington Consensus.

Phase three of the Sino-African relations policy heralds the emergence of the current China policy regarding the continent and is punctuated by: a) the Beijing Consensus; b) continued South-South dialogue, and c) the formation of the Forum on China-Africa Cooperation or FOCAC.

This third phase heralded the self-acknowledgement by China that the country needed several conditions to be fulfilled if it were to move forward in its push for economic transformation as envisaged in the second phase of this Sino-Africa development trajectory. By its own assessment, China needed:

1. Resources for its blossoming economy, namely, oil, minerals, timber, and other raw materials
2. A market for its manufactured goods
3. Reliable political allies for its “One China Policy”

To accomplish these goals (and satisfy the needs), China saw Africa and began propagating the continent as being rich in: a) culture, b) religion, c) social dynamism, d) energy, and e) as being a great opportunity for business. One needs to contrast this view to that of the West’s, which saw Africa, in most cases and justifiably, as: a) chaotic, b) conflict ridden, c) corrupt, and d) poor in wealth as well as in governance.

The next paragraphs are even better but you should get the point.

China do steal American plane exports, even if it's drones. They are copycats and they use cheap price to undercut competition. Also, diplomatically they are more liked by 3rd world countries because they don't bomb other countries.

www.popsci.com...

a reply to: enlightenedservant

It 'sounds' good and I'd agree that resources is an issue for China in many areas. It also serves as an export destination for Chinese citizens....LOL. There's military aspects unmentioned, as well.

www.npr.org...

In an way, it can be a confirmation of that 'expand or collapse'-runaway train analogy, as well. single digit expansion doesn't save the over-leveraged Chinese economy either. I suggest all these actions are forced on them from an economic viewpoint.

It may work and it may not. China has pretty well disaffected anyone they come in contact with. Their immediate neighbors, who could have supplied many of Chinese resource needs, are almost without exception allied with the U.S..

Even Russia, the other major member of the SCA, has a fundamental and drastic difference in goals. One is an huge oil exporter, the other a monstrous importer. One wants the lowest price possible and the other the highest. agreements are in place but they are fragile, at best.

Yes, that may work out, as well. Perhaps the Petro-Yuan as well. The U.S. hold a huge leverage over both in that combined realm of oil and dollars vs Yuan. That is taking off the restrictions on U.S. crude exports. That crashes the world-wide prices of crude even further. ( Seeing SA is involved with China in that base building in Africa, that option is leverage against SA, as well.) They're also pushing hard on India, the other major partner in the SCA, with near skirmishes occurring on a regular basis.

You, yourself cite an example where China pushes as hard as they can get away with in Zimbabwe. The very fact that XI is meeting with their leader speaks volumes, at least to me, that China endorses and intends that criminal activity otherwise he'd leave it to the locals to address criminal activities within their own nation.

Another example is China buying into Canadian oil production, I believe in Alberta. The Chinese demanded that Canada allow Chinese guest workers to work their operations as the Canadian work force was too expensive. I believ Canada nixed it.

The point is they push. Hard. They end up disaffecting too many other nations and actually turn nations like Vietnam into unlikely allies of the U.S..

I hold to my premise, on this. China may have no choice in acting as they have. Grow and continue to grow or face collapse. Now there's a world leader in Trump that says not so fast and the world sees he follows through, do not be surprised that others fall into the U.S. sphere that have been previously lost or never aligned with the U.S. to begin with. Such as India.

Heck, you may very well be right on this. Do not discount this scenario, however. There IS evidence pointing in that direction.

P.S. Add in stealing technology and copyright infringement to the list. It will bite them in the ass, sooner or later.

a reply to: nwtrucker

Silicon Valley has a lot of issues. One of the biggest issues is that smaller tech companies are totally disfunctional. The entire tech industry has a huge issue with it's hiring practices, and it's most notable in the bay area. It stems from the hiring system Google pioneered, but since then it was adopted by pretty much everyone in a cargo cult fashion. Without going into extensive details, the hiring process focuses on eliminating false negatives from the process. It's designed such that it figures they'll get plenty of average to above average candidates through, and filter them post hiring into appropriate roles. Instead the main role of the hiring process is to eliminate bad employees from ever getting hired. It's designed to reject 99.8% of all applicants, only 1 in 500 gets through. When you filter 5000+ resumes per day, this process works, but when you have lower volume it doesn't. Only the biggest companies get the proper volume, this leads to immense demand but low volume in anything smaller to midsized. Companies have compensated with hiring overseas and getting skilled worker visa's. Even that doesn't meet demand though.

How this ties into Trump is that Trump is increasing the number of these visa's and the tech companies love it. It's not going to solve the underlying issue though which is that most CEO's, CTO's, and CFO's that write these things aren't software engineers and therefore don't know what sort of guidelines they need. Furthermore, when HR writes job postings they aren't technology people either, so the whole thing is effectively a giant game of telephone. The CEO tells HR that they need an experienced web developer, familiar with current technologies. So HR writes something up that says 6 years experience with Angular. Then they don't find an applicant because Angular has only existed for 5 years, so the only people who pass the filter are lying. So they end up going to the global pool and lowering their standards. They hire someone from India from a school that has lower morals and promises those 6 years experience. That person comes to the US and gets paid 60% of the wage (Trump recently lowered the pay for these visas). Then, that person ends up doing a job that has nothing to do with Angular.

The entire process is disfunctional, and it's not looking to improve any time soon.

Anyways, the business side of SV absolutely loves Trump because he's getting them more employees for less money. It's questionable if that's actually improving their businesses, but that's what's going on.

a reply to: sdcigarpig

Of course the Dow is down. Markets hate instability.

Everyone is waiting to see where it goes. If it goes full on trade war, it will go down even further. But only while the industries and new trade routes open up. It will hurt both sides short term while markets readjust. Long-term, we're in a much better spot than China in a resultant trade war. China is going to pressure to keep the status quo. Both because they are making out like bandits with our trade imbalance, and because their industries are already largely overcapacity and they need access to our huge market, or what they have is a tremendous amount of industry and infrastructure devoted to things they cannot sell anywhere.
Play it out to the conclusion: in the case of a "nuclear" trade war that goes full embargo before anyone backs down, who loses the most when the countries have a $350,000,000,000.00 trade imbalance every year?

Intensely simplistic example: US places an embargo on Chinese toys ($27 billion, 4th most industry imported from China). Chinese in response embargo US soy (largest export to China [$4 billion] from US, is where they can hurt us most).

China now has billions invested in infrastructure to make toys that noone else needs and that they can't sell in the US. Now can they sell them in the UK, EU with a little investment? Some of them. But noone has a market as large as their capacity outside the US. Noone has the size and strength of middle class America to absorb all that production-- especially at the same margins/price point. What does China do with all the factories and workers cranking out a gazillion plastic dinosaurs and Barbie™ dolls? Do they retool to make Tupperware™? Where is the plastic gadget market undersaturated or underserviced? Do you know anywhere that has a shortage of cheap plastic stuff? Does anywhere other than the US buy cheap plastic stuff at a better price point (in a hard currency) than the US? Maybe they retool to a whole new industry. Or make PVC pipes instead. Or maybe they shutter because those industries are already overcapacity in China.
Where do they get now get soy? Well, they can wait for production to expand in South America or the Med or SEAsia to meet their demand and enter into new trade agreements. In the meantime they face a local shortage of soy. Not earth shattering, but not great for food prices (especially since factories are shutting down leading to lower wages), it's a problem, but surmountable. Between new deals, growth rates, transportation China faces a one year or so readjustment for soy.

What happens in the US? Prices for plastic dinosaurs and Barbie™ go up. Supplies dwindle. Well, thank the divine power (s) of your preference that noone in the US needs dolls and toys, and that other companies in SEAsia and the Pacific would love the chance to expand their native industries to include/expand production of plastic dinosaurs with a favourable (and now underserviced) market in the US. That will take months to implement, years before the plastic doodad market fully adjusts, and it will hurt and impact the US. But does it hurt the US as much as continuing to watch our money handed over to the ChiComs to use as a stick to dominate their neighbors, losing our local manufacturing/industrial base, and nourishing their machine to rival ours on a global stage? I'm not so sure.
The domestic soy product would take a big hit. Farmers would have to be subsidized, switch to another crop, and/or find new avenues for agricultural markets. Not ideal, but $4B as a percentage of our GDP is pretty small, and it shouldn't be severe (unless you're one of the farmers affected by the new markets).

Now, is that overly simplistic? Yes. Will other industries be effected? Yes. Companies like Apple, for example, who rely on Chinese manufacturing might get crushed if it came to full embargoes -- it'd be important to work with Apple to find new avenues for production and encourage local production or from other countries. Production in electronics is more difficult than opening a plastic toy factory, and it would take more time to adjust that entire market from production to consumer. We should probably be leaning on those companies to look at other avenues anyway,-- but tariffs as leverage won't hurt that effort or us domestically as consumers in a largely noticeable manner.

The truth is the economies are interwoven. Sure, they could crush Apple. At the cost of destroying their own heavily-leveraged economy. The US could crush Chines industry at the cost of severe pain domestically (and globally) during readjustment. The goal should be a slow transition away from the huge imbalance fueled by addiction to cheap Chinese labour and industry. They are already more heavily leveraged. They need us more than we need them. That should make for favourable trade deals! It hasn't.

We are a loser on trade with China no matter how you slice it and have been for decades. We hoped to gradually gain access to their ginormous market by offering them sweet heart deals throughout the 80's and 90's.That never happened by and large because they've protected their industries, and ignored intellectual rights with the same dogged determination with which they ignore our complaining about it. We hoped the example of Hong Kong and encouraging trade would show them the benefits of capitalism and result in reform. That has failed, too. They simply said, "thanks for all the cash; please buy more".

It's well past time to readjust the trade with China. Slowly. In a measured way. Not to cut off trade with China, but to attain access to their markets or adjust the level of imbalance. If that means short-term pain through tariffs and a trade war to encourage domestic production or finding other trading partners, then I'm willing to go that route. They are heavily leveraged and in need of our market. That should make for favourable trade deals, but we knuckle under every time they apply any sort of pressure. It is ridiculous. If we'd taken a stand earlier, we would have an even better position to negotiate from. But better late than never.

a reply to: Aazadan

Seems everyone has a lot of issues. I have a head hunter neighbor who services cyber-security operations and other high tech companies. They're doing really well. It's a newer, smaller firm and it's customer base is the smaller, newer operations.

Apparently, there's more to the H1B mechanism-which I knew little about- and it's the fee for those H1Bs visas. If they're for 10 years the person accepted on that visa is free to move to any other company that they choose/recruits them. The H1B is paid for by the company that hired them and remains with them. So the little guys usually can't afford them and fears losing them once they're here. I would assume they'd lose them to bigger, more financially capable firms. So it's even tougher for the little guys than just the small percentile that are qualified.

The tax breaks are probably a bigger boon from Trump, anyways, as an increase in those H1Bs hasn't really changed anything as your post implies.

You might find this perspective interesting:

www.youtube.com...

a reply to: sdcigarpig

What is "VALUE"? Facebook provides nothing but a platform for people to connect with each other, but is worth Billions $$. Same for UBER... A platform to connect passenger with a driver. Worth Billions ON PAPER.

a reply to: AugustusMasonicus

The company I work for manufactures in China and we're feeling the pinch. Our newest factory is almost fully automated so we don't have to pay workers to do manual labor that robotics can handle like they do in other countries.

Large companies are increasingly more likely to invest in production facilities in Malaysia or Bangladesh, etc (or even the US) as the costs of manufacturing (combined with tariffs) rise in China. Japan is going heavy on Malay investment already, so the base is already there. Not ideal for the company that already has a facility in China because of the new capital outlay, but there is already a diminishing return on China. I am surprised we haven't seen more industrial investment with the Saudis, since they are increasingly hungry to get away from reliance on oil.

a reply to: RadioRobert

Agreed on all points, particularly the Saudis. We ruined the oil market for them with fracking and they need to invest that oil money while they still can. I predict they will be out of the oil business sooner than we are.

Of course, Trump and his band of economists and the Chines government won’t suffer in any trade war, only their egos.

Just like a regular shooting war, mostly the poor and middle class in both countries will be the ping pong balls of this trade war, not Trump the billionaire and his millionaire cabinet and his fellow millionaires in China

a reply to: Willtell

In a full blown trade war, I wouldn't bet against the people in Chinese government losing everything. Literally their ability to breath. They are fully aware of the consequences of starving a billion people to make a buck. They are gambling the Chinese people have a higher tolerance for pain than the US. Probably true in so far as it goes. We already have "oh, no" cries in the US because washing machines might become more expensive. Still, lack of food in the belly generates more outrage than washing machines, if history is any judge.
I'm not advocating the collapse of the Chinese economy. It'd be equally foolish as the status quo. Maybe worse. But noone has ever pushed back. We roll over at every threat even though we hold the leverage. Makes no sense. Time to find a win-win for both countries and explore other options.

a reply to: RadioRobert

I Doubt any trade war will be catastrophic. Likely pressure from more sober people will intervene before a lot of damage can be done. At least that’s the hope.

a reply to: Willtell

Lots to lose for both sides. A little heat could be a good thing, though.

originally posted by: RadioRobert
a reply to: Willtell

Lots to lose for both sides. A little heat could be a good thing, though.

Just another thought, assuming pork exports drop, not mention all the other products, that will drive prices internally down as the U.S. supply goes up. Deflationary???....

a reply to: nwtrucker

Everyone loves cheap bacon!

Again, there X numbers of pigs in the world. There isn't a huge glut or surplus of domesticated pigs/pork meat. If China stops importing it, it has to import them from somewhere else. If China buys pork from Germany (top exporter, about equal with US) instead, then other countries that were buying German pork need to get it somewhere. US pork producers now have a new market or an expansion of an old market. Status quo stays about the same. Hurts until those agreements develop, but not a lot, unless other China and other countries are going to significantly grow their pork production, which will take time. The markets are a tangle of set agreements. Despite being a major exporter of pork (2.5 million tons) with trade agreements, we still imported about a half million tons of pork last year from Canada and Denmark, mostly.
US produced about 2.5 million MT of pork last year. A little over 300,000 tons were exported to China. It's a spit in the bucket to the domestic producers even if they didn't find a new market. It'd just slow the industry. We actually imported more pork last year than we exported to China. Pork producers wouldn't love it, but it wouldn't be devastating.
Soy would be much worse. It's about 20% exported to China. But again, it's a small drop of US Ag.
Compare that to how much China produces in plastic doodads and what percentage are consumed by the US markets, for example. It wouldn't be pretty in China.

a reply to: RadioRobert

The futures are going to roller coaster, though.