Trade Wars: Understanding Complicated U.S. / China Relations

By Bob O'Brien

“Trade wars in a global economy”? If that is not an oxymoron I don’t know what is! Every time there is a trade dispute with China it is amazing how everybody holds their breath. It is not hard to see why the U.S. is having trouble adapting to the global economy, because we have not yet fully accepted it.

Over the years the U.S. has spent so much energy trying to create a global economy that we now seem reluctant to really take part in it. The global economy is very much alive and well and there is no turning back!

Arm for an arm? Let’s destroy the entire global economy because the U.S. won’t sell our tires.

If China wanted to create massive economic turmoil for the U.S. they could do it in a minute by simply dumping all their dollars. It is not there interest to do this, and just as the cold war had a defining moment when Regan and Gorbachev made it clear that neither side could ever win a nuclear war, it is already understood by both China and the U.S. that neither would win a trade war.

There are plenty of BRIC nations that could easily step up and be the catalysts in this global economy.

As the global economy evolves trade disputes need to be called out and discussed. Just as Democrats and Republicans do not see things eye to eye, China and the U.S.A. will have to “air out” their frustrations with each other from time to time.

What’s wrong with holding China’s feet to the fire on trade? China is a strong player and there is nothing wrong with moving them off the plate a little. There just seems to be a lot of people out there so afraid of self defeating protectionist trade policies that they feel Americans should become martyrs in order to defend them.

The U.S. relationship with China is no doubt confusing, but without a doubt mutually beneficial. It is also an evolving relationship. These changes are at the root cause of the economic crisis for it has become apparent that the U.S./China relationship is not as efficient as it was 5 year ago.

The era of growth sparked by U.S. borrowing from China, in order buy from China did not turn out too well. China’s demand for U.S. debt helped fuel the real estate bubble, excessive leverage, and a shopping spree memory of a lifetime.

Americans are becoming savers and spending less. This relationship is without a doubt evolving and where there is change there are bumps in the road, and it is only a matter of time before China becomes a big consumer in the global economy.

Original article

Comments

[Joe Duggins:]

During the Cold War the United States and Russia were playing a game of chicken with nuclear weapons. This was something that was absolutely insane, and eventually it became labeled MAD which stood for Mutually Assured Destruction; meaning if one of the countries launched a nuclear weapon on the other, the other would retaliate and destroy the nation that launched first. This would mean both nations would be destroyed.

Game theory predicts that that's not a game worth playing. Thank God no one played the game, but in reality no one should have ever been sitting at that table anyway.

Now consider the present period, where the United States and the US are locked together in trade. China produces goods to help us nation grow, and then with the money China buys U.S. Treasury notes, which helps finance our debt. If the United States stops buying products, China will stop buying our treasury notes. If the US consumer decides to boycott Chinese goods, the Chinese economy will collapse, but then the United States government will not be able to perform the services promised to the citizens or consumers that didn't buy the products.

Currently the United States of America has a GDP of between 14 and $17 trillion, China has a GDP which comes in number fourth or fifth in the world. Thanks to all the products that the US buys from China - their nation has experienced nearly a 10% year-over-year growth rate for the last two decades. At this rate eventually China and the US will have equal GDP. Some say, that by working together we are assured Mutual Dominance of the planet.

Others say, if we are not careful with the way we do business we both are insuring ourselves mutual economic destruction. And that of course is the topic of the day at The Online Think Tank. Perhaps you will think about it as well, please consider all this.
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Sep 15 05:45 PM

[Pat C:]

This insane symbiotic relationship with China has to break at some point. When I looked at a recent SA article on non-durable manufacturing I couldn’t believe the decline over the last decade. It is simply impossible for an economy that is dependent on wages for tax receipts and consumer spending to outsource the very labor that it depends on. I’m not a union leader or an isolationist but we have to look at this problem straight on and stop sticking our heads in the sand. We must invest in capital improvements and increase employment if our Nation is ever going to work our way out of this mess. That is of course unless we are going to somehow merge into this wonderful “Chimerica” and create a single nation state.

Sep 15 06:52 PM

[Bill Jencks:]

I keep reading blogs and articles like this, written by western and American authors who can only ever see the harm that China's economic policies are doing to America. The fault is always China's, indeed China's insolent, self-serving economics must be taught a lesson....blah, blah. Your one-sided arguments just don't convince.

If you look at America's own very blemished economic history, if you take a long, hard and deep look at institutions such as the WTO, IMF, World Bank etc. -- all institutions touted to "help" under-developed countries, then you will be shocked at the one-sided, self-serving and protectionist rules and policies that they promote for only America. Try Googling the "Washington Consensus" for some confirmation of this.

So, simply put, if America has been so protectionist for the last quarter century, is there any surprise that China is now playing just as dirty economics as America, since America has indeed set the precedent and had the economic advantage for so many years? How can anyone argue with this, since America was the first to dirty its hands with its very own brand of longterm, protectionist, controlling economics?

Therefore, with this precedent already set by America, who can possibly complain that China is now playing dirty, since China has only learnt from The Master?

Or ist it to be one economic law for America and another law for the Rest of the World?

Sep 16 12:33 AM

[coreopsis:]

Bill Jencks: you are a breath of fresh air in the stagnant environment that is SA. Is there little wonder that the US is viewed with veiled hostility the world over, developed and developing economies alike?


On Sep 16 12:33 AM Bill Jencks wrote:

> I keep reading blogs and articles like this, written by western
> and American authors who can only ever see the harm that China's
> economic policies are doing to America. The fault is always China's,
> indeed China's insolent, self-serving economics must be taught a
> lesson....blah, blah. Your one-sided arguments just don't convince.
>
>
> If you look at America's own very blemished economic history, if
> you take a long, hard and deep look at institutions such as the WTO,
> IMF, World Bank etc. -- all institutions touted to "help" under-developed
> countries, then you will be shocked at the one-sided, self-serving
> and protectionist rules and policies that they promote for only America.
> Try Googling the "Washington Consensus" for some confirmation of
> this.
>
> So, simply put, if America has been so protectionist for the last
> quarter century, is there any surprise that China is now playing
> just as dirty economics as America, since America has indeed set
> the precedent and had the economic advantage for so many years? How
> can anyone argue with this, since America was the first to dirty
> its hands with its very own brand of longterm, protectionist, controlling
> economics?
>
> Therefore, with this precedent already set by America, who can possibly
> complain that China is now playing dirty, since China has only learnt
> from The Master?
>
> Or ist it to be one economic law for America and another law for
> the Rest of the World?

Sep 16 09:54 AM

[Peter Medved:]

brings the term ... "Eating your own dog food" to mind.

Like a school bully, US has for years been able to weigh in on others via its huge economy & even huger armed forces. As soon as the rules change, they do not seem able to adapt, not flexible & cannot understand why none listens. The normal reaction is to lash out at everyone in confusion ....

As coreopsis said, it is nice to not have to read xenophobic c**p in the comments section for once.

On Sep 16 12:33 AM Bill Jencks wrote:

> I keep reading blogs and articles like this, written by western
> and American authors who can only ever see the harm that China's
> economic policies are doing to America. The fault is always China's,
> indeed China's insolent, self-serving economics must be taught a
> lesson....blah, blah. Your one-sided arguments just don't convince.
>
>
> If you look at America's own very blemished economic history, if
> you take a long, hard and deep look at institutions such as the WTO,
> IMF, World Bank etc. -- all institutions touted to "help" under-developed
> countries, then you will be shocked at the one-sided, self-serving
> and protectionist rules and policies that they promote for only America.
> Try Googling the "Washington Consensus" for some confirmation of
> this.
>
> So, simply put, if America has been so protectionist for the last
> quarter century, is there any surprise that China is now playing
> just as dirty economics as America, since America has indeed set
> the precedent and had the economic advantage for so many years? How
> can anyone argue with this, since America was the first to dirty
> its hands with its very own brand of longterm, protectionist, controlling
> economics?
>
> Therefore, with this precedent already set by America, who can possibly
> complain that China is now playing dirty, since China has only learnt
> from The Master?
>
> Or ist it to be one economic law for America and another law for
> the Rest of the World?

Sep 16 10:59 AM

[Pat C:]

These international comments are interesting. Not sure what you would like to see. America fail? Our (or at least mine) comments about China are not meant to be derogatory. Our businesses are operating in an international environment but our public governments and policies are national, state and local. This difference must be openly recognized and reconciled to "lift all boats".

Sep 16 02:39 PM

[johnqh:]

America has a free market, but unfortunately, a political system which encourages people to fight for the max benefit with the minimum of work.

This has been the practice over the last decades and it has severely damaged US's ability to compete. The most obvious evidence is the auto industry, with unions demanding wages which causes the auto makers unable to compete.

This trade war is no different. American workers demands high pay for a low end manufacturing job. Democrats, as the party for the "people", gave in to the unions to protect their votes. However, the result is neither benefitial in short term (the tires will be simply imported from other third world countries with cheap labors) or long term (unions continue to be spoiled and demanding unreasonable pay for minimum work, causing US's competitiveness to continue to drop).

The issue is not international trade practice, but rather American's mentality toward honest work. Unfortunately, the situation will only get worse.

Sep 16 03:17 PM

[Nichalous Otto:]

As an American who has spent several years in southern China I have seen the vastly different lifestyles led between the average Chinese worker and average US worker....
Chinese workers often live in the company dorm, work 6-7 / 10 hour days a week with no overtime pay, are charged for the room and utilities that they share with another employee, and eat mostly rice and choy for breakfast lunch and dinner every day, so they can save some $$$ and send something home to their wife or folks...
Average pay in Guangzhou is about 10-15 USD per day...
There is no OSHA.... and no one to complain to if you feel cheated...
Environmental rules are also lax...
And some wonder why the USA cant seem to compete in this world economy...

Sep 16 11:37 PM

[Think-About-It:]

The U.S. does not have a: "symbiotic relationship with China."

It's a vendor finance situation where the borrower (U.S.) is given an unlimited line of credit and predictably abuses it ultimately borrowing beyond capacity to repay except by means of a highly depreciated currency. U.S. citizens lose as their purchasing power declines and job opportunities vanish and the U.S. government loses as it's credit-worthliness and influence wanes.

Chinas' benefits are straight forward. Yes, they will have to take a hair cut on their dollar denominated assets but that's digestable. In the mean time they are progressing through their industrial revolution, building and buying capabilities and raising their standard of living.

Symbiotic relationships must be mutually beneficial to a significant degree. Owning more depreciating goods made in China is a diminimus benifit for the U.S.

Sep 17 12:06 AM

[mna:]

Pat,
It really isn't about wanting to see America fail. I am a proud American, and I love America. What concerns me, is that nowadays Americans are too quick to pin the blame on others when we really have no one to blame but ourselves.

Who forced us to spend beyond our means? The Chinese? No. It's you, and me, and 300 million other American citizens. It's ridiculous to blame the shopkeeper for making you spend too much. Is it the casino's fault you gambled your life savings away? Is McDonald's at fault for making you fat too? Of course not, the responsibility lies with the individual (and the government).

Add that to the fact that America games the international regime for our benefit, because we created it. Remember Nixon? "The Dollar is our currency, but YOUR problem?" hahaha, neener neener neener?

If anything, the Chinese are the ones getting the raw end of the deal. They provided us with real material goods, in exchange for paper, and the promise that they'll get paid later. We are now inflating that promise away by paying them with new dollars worth only 50 cents on the old dollar.

In essence, we, the richest country in the west, are stealing from a developing country. Real blood and flesh people, who are much poorer than you, who had to live on pennies a day, are paying for your excesses, and who will probably never see half their money back.

How does that make you feel? Personally, it makes me feel really, really, crappy.

On Sep 16 02:39 PM Pat C wrote:

> These international comments are interesting. Not sure what you
> would like to see. America fail? Our (or at least mine) comments
> about China are not meant to be derogatory. Our businesses are operating
> in an international environment but our public governments and policies
> are national, state and local. This difference must be openly recognized
> and reconciled to "lift all boats".

Sep 17 02:09 AM

[tradingdayz:]

I'm afraid the there might be a devaluation of USD sooner or later by perhaps 10-15% over the 3% erosion seen lately, likely sometime next summer if oil climbs or if the banks have another round of failures, but whatever the cause, it seems likely from a competitiveness point of view. That being said, the US is still transforming into a knowledge-based economy--it won't be the Chinese pharmas that absorb the majority of the 15% annual pharma growth, but mostly US ones. The US will benefit by playing ball--just consider the monoploy the US artificially created with MS. This kind of patent-turned-copyright kind of shenanigans have been largely ignored by the Chinese. It is not in their interest to call a spade a spade. They play ball and will allow the US to artificially (MS) and honestly (pharma) reap huge Intellectual property based revenues in order to be able to sell their various trinkets and manufactured products. So I think the central point of the article is well-said, that the two are each other's best friends and worst enemies, depending on how they cry foul or play ball. And ball they will play in my opinion since "mutually assured dominance" (Nice term!) will prevail as philosophy in both repub and demo camps. What is interesting is how china is learning to have tighter economic discipline even in capitalist economics--their ability to do this could be a huge advantage as they whipsaw markets going forward and earn huge returns for their discipline--Go China!

The US was truly Dr. Jeykll and Hyde these last 60 years--championing human rights but staunchly refusing social rights as basic to human dignity. They also hobbled the third world by creating a system through the IMF (the WTO textile and agri exemptions) to impoverish 70% of humanity to the tune of 675 trillion dollars of net wealth transfer. The Europeans got smart and banded together but the poor nations had few champions other than China ( though their Tibet policy is regretable). So perhaps with China the new dance partner, we will see some benefits to the world's poor.

Sep 17 02:11 AM