Trump’s China Shock

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Age: 2019
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I didn’t know that the Dow was going to drop 750 points, so my latest column is El Paso-related. Probably the right choice anyway, because
US-China is moving so fast that anything in the print paper would be out
of date.To get more china breaking news, you can visit shine news official website.
But it does look as if I should try to explain (a) what I think is happening (b) why the markets are going so nuts. By the way, given
Mnuchin’s declaration just a few minutes ago that China is a currency
manipulator, tomorrow’s market action should be … interesting.
So here’s the thing: neither Trump’s tariff announcement last week nor, especially, the depreciation of China’s currency today should
objectively be that big a deal. Trump slapped 10 percent tariffs on $200
billion of Chinese exports, which is a tax hike of 0.1 percent of US
GDP and 0.15 percent of Chinese GDP.
In response, China let its currency drop by about 2 percent. For comparison, the British pound has dropped around 9 percent since May,
when it became clear that a no-deal Brexit was likely.
So why are these smallish numbers such a big deal? Mostly because we’ve
learned things about the protagonists in this trade conflict, things
that make a bigger, longer trade war seem a lot more likely than it did
even a few days ago.
First, Trump really is a Tariff Man. Some naïve souls may still have been hoping that he would learn something from the failure of his trade
policy so far. More sensible people hoped that he might do what he did
with NAFTA: reach a new deal basically the same as the old deal,
proclaim that it was totally different, and claim a great victory.
But no: it’s pretty clear now that he refuses to give up on his belief that trade wars are good, and easy to win; his plan is to
continue the beatings until morale improves. What may have looked like
temporary tariffs designed to win concessions now look like permanent
features of the world economy, with the level of tariffs and the range
of countries facing them likely to expand over time.
Second, China is clearly signaling that it’s not Canada or Mexico: it’s too big and too proud to submit to what it considers bullying. That
slide in the renminbi wasn’t a concrete policy measure as much as a way
of saying to Trump, “talk to the hand” (no doubt there’s a good Chinese
expression along these lines.)
Incidentally — or maybe it’s not so incidental — while there are many valid reasons to criticize Chinese policy, currency manipulation isn’t
one of them. China was a major currency manipulator 7 or 8 years ago,
but these days if anything it’s supporting its currency above the level
it would be at if it were freely floating.
And think for a minute about what would happen to a country with an
unmanipulated currency, if one of its major export markets suddenly
slapped major tariffs on many of its goods. You’d surely expect to see
that country’s currency depreciate, just as Britain’s has with the
prospect of lost market access due to Brexit.
In other words, the Trump administration in its wisdom has managed to accuse the Chinese of the one economic crime of which they happen to be
innocent. Oh, and what are we going to do to punish them for this
crime? Put tariffs on their exports? Um, we’ve already done that.
So how does this all end? I have no idea. More important, neither does anyone else. It looks to me as if both Trump and Xi have now staked
their reputations on hanging tough. And the thing is, it’s hard to see
what would make either side give in (or even to know what giving in
might mean.)
Posted 07 Aug 2019

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