Trump's trade war will end like in Vietnam? “FT”: XI has “stronger cards”

The Chinese leader XI Jinping has “stronger cards” than the US President – the main commentator on Foreign Times Gideon Rachman wrote on Monday. Attacking China with customs duties, Donald Trump began the economic version of the Vietnam war – says Adam Posen in Foreign Affairs.

The decisions of the US President on tariffs, the date of their implementation and excluding certain goods from the policy of customs duties are absolutely chaotic, but his die -hard supporters claim that he is a “master of strategy”. However, it seems that in the “tariff poker Trump has much weaker cards than he thought,” Rachman believes.

Posen, the head of the Washington Think Economic Tank Peterson Institute for International Economics, emphasizes that the US administration makes decisions based on “false logic” because it assumes that he has an advantage over every country with which he has a negative balance in commercial exchange.

However, China has an advantage in the trade war – emphasizes Posten. Trump does not notice that if it limits trade with China, they will lose “only money”, and the US will be in a position where they will run out of “vitally needed goods, which cannot be quickly replaced with something produced in the US, and if so, with absolutely prohibitive costs” – says the economist.

Rachman presents this in this way: “The US does not buy goods in China for charity. Americans want what China produces. So if these products become much more expensive or disappear from shelves at all, Americans will suffer.”

Meanwhile, Beijing can afford to “play delay”, and if he decides to brutally moves in this war, he has a fairly powerful weapon. China produces e.g. 50 percent ingredients required for the production of antibiotics. The construction of F-35 aircraft requires rare lands imported from China. What's more, the Middle Kingdom has the second in the world, in terms of quantity, reserves of American government bonds, and can throw them on the market – calculates Rachman.

The balance of bilateral trade allows you to predict who will win the trade war, because “the advantage lies on the side with a surplus, not the one that has a deficit” – explains Posen. China, like surplus countries, have more savings, and countries with a general deficit, like the US – spend more than they save. And Trump, when making “capricious decisions” to impose gigantic duties, leads to the fact that investors lose interest in America, the interest rate on its loan is growing, and therefore the service of state debt is becoming more and more expensive – continues Posen.

In the event of a real war, provoking a potential adversary “before you argue – is suicidal.” This is what Trump does, and given the fact how far the US economy depends on imports from China, “extremely careless” is to speak the customs war, as long as “alternative suppliers or adequate domestic production,” Posten writes.

Rachman also points out that China has long been preparing for a possible trade war; They are also “better prepared for a period of political and economic pain than the US, where turbulence quickly translates into political pressure (into authorities).”

Trump administration “initiates the economic version of the Vietnam war. (…) And we all know how it ended,” concludes Posen. (PAP)

Fit/ Szm/