Trade Wars

di Finanza Operativa 24 Settembre 2018 | 13:41

A cura di Walter Snyder, Swiss Financial Consulting

There have been numerous reports on the ongoing trade war between the US and China. So far the markets in the US seem to have taken the goings on in their stride while in China the Shanghai index has fallen 20%. The Chinese national plunge protection team has already been at work. One has to ask the question whether Chinese investors see things that their counterparts in the US do not. The majority of Western commentators are of the opinion that the US has great advantages and will come out ahead in the competition.

Only a few take into consideration that the Chinese plan far ahead. In the US executives are greatly concerned with their quarterly figures and plan accordingly. In China, on the other hand, the government looks ahead for the next twenty or thirty years and is used to planning for the long term.

In this respect one should reckon that the Chinese thought very carefully about the prospects of the imposition of tariffs on their exports to the US. They will have considered in detail the possible results of a commercial war with the Trump administration and those that will follow. Once tariffs are imposed, it usually takes a long time before they are removed.

Punishing China for having a trade surplus and stealing IP by imposing tariffs may not be the best policy to bring about a more equitable balance and put an end to the legalized theft of IP. The people who will pay the most for the tariffs are low-income and middle-income Americans that will have to pay more for the goods imported from China. American consumers will be losers as a result of the trade war. Inflation will surely result from the higher prices caused by tariffs since importers will simply pass on the increased costs. The Chinese imports will not easily nor rapidly be replaced by American manufacturers that can produce the same goods but only at much higher prices.

The ploy of exempting various Apple products from the tariffs may or may not work. The Chinese could impose export duties on Apple products that are produced in China, and it would take some time before Apple could take measures to produce the goods elsewhere.

Another factor to take into consideration is that China trades with many countries other than the US. In addition the trade balance surplus with the US is not going to evaporate because of the imposition of tariffs. It will most probably be less, but how much less remains to be seen.

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