Empire of Debt
Debt in Pictures
Wargaming the Trade War
Some Thoughts on Getting Through the Great Debt Reset
San Francisco, Frankfurt, and Puerto Rico?
With all the trade war talk, we all ask the obvious question: Who will win? President Trump says the US will win. Chinese business leaders say no, we will win. Free-traders on both sides say no one will win. Few stop to ask, “What does a ‘win’ look like?”
This makes discussion difficult. People are chasing after a condition they can’t even define. Victory will remain elusive until they know what they want. Regardless, you can score me on the “no one wins” side. I believe, and I think a lot of evidence proves, that free trade between nations is the best way to maximize long-run prosperity for everyone.
As Keynes famously said, we’re all dead in the long run. Trade war may end with no winners, but the parties will be better and worse off at various times as it progresses. So we have to distinguish between “winning” and “holding a temporary lead.”
On that basis, I think the US will have the upper hand initially, and could hold it for a year or two. This is because, for now, our economy is relatively strong and we can better withstand any Chinese retaliation. Beyond that point I think our current policies will begin to backfire, maybe spectacularly.
Remember, too, China has growing trade surpluses with much of the world. One Chinese insider told me that within four years China can replace lost US exports via increased trading with the rest of the world. I can’t verify that but looking at general statistics it certainly seems plausible. That doesn’t mean lost US trade won’t be felt, but China is not entirely helpless.
When watching a fight, we ask metaphorically, “Who will blink first?” In this case, that’s the wrong question. Neither side will blink but one may eventually fall to the floor, unconscious. So the better question might be, “Who will faint first?”
Next week we will deal with the tariff situation, as I get that question a lot. But let me state right here: I hope President Trump is engaged in a trade bluff and not a trade war. The market seems to think so. My Asian sources believe that it will be resolved by the end of this year. But make no mistake, an actual trade war along the lines being threatened will impact both economies negatively. Enough to throw the US into recession? Enough to cut Chinese growth in half? No one actually knows, which is a big part of the problem.
Before we proceed, let me remind you that Over My Shoulder members get to see some of the best China and trade war research I get from my worldwide sources. It’s almost like reading, well, over my shoulder.
Better yet, members get short summaries of each item by me or my co-editor Patrick Watson. This saves you time and lets you zero in on the material that’s most relevant to you… a valuable feature as we are all deluged with more and more news.
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Now, let’s dig into China.