US president Donald Trump initiated, then backed off, then resumed, an ongoing trade war with China over its alleged theft of technology and intellectual property, as well as the trade deficit between China and the US. In Trump’s mind, applying pressure on the Chinese through economic tariffs can spur the Chinese to be more ‘fair’.
Trump doesn’t seem to understand, however, that much of what Americans buy is manufactured in China and then exported to America, meaning that Trump’s ‘pressure campaign’ stands to increase the cost of doing business and therefore increase the cost of many of the products which his own constituents purchase.
For this reason, some Chinese media describes Trump’s brand of protectionism as a form of ‘paranoid delusions’, which will come back to bite hits own constituents. Trump’s protectionism is therefore protecting consumers and investors from their confidence in the stability of the market, and in the purchasing power of the USD, of which it will take more to purchase goods which Americans buy and which are largely Chinese produced.
Reuters reports:
BEIJING/SHANGHAI (Reuters) – U.S. protectionism is self-defeating and a “symptom of paranoid delusions” that must not distract China from its path to modernization, Chinese media said on Friday as Beijing kept up with its war of words with Washington while markets wilted.
President Donald Trump threatened on Monday to hit $200 billion of Chinese imports with 10 percent tariffs if China retaliates against his previous targeting of $50 billion in imports.
Investor fears of a full-blown trade war have weighed on markets, including Chinese shares, which posted their worst weekly loss since early February. Even ordinary Chinese people aired their unhappiness on social media.
China’s commerce ministry accused the United States on Thursday of being “capricious” over trade issues and warned that the interests of U.S. workers and farmers would ultimately be hurt, vowing to hit back with “quantitative” and “qualitative” measures.
The official China Daily said in an editorial the United States had failed to understand that the business it does with China supported millions of American jobs and that the U.S. approach was self-defeating.
The English-language newspaper cited research by the Rhodium Group saying Chinese investment in the United States declined 92 percent to $1.8 billion in the first five months of the year, its lowest level in seven years.
“The woes the administration is inflicting on Chinese companies do not simply translate into boons for U.S. enterprises and the U.S. economy,” it said in an editorial headlined “Protectionism symptom of paranoid delusions”.
“The fast-shrinking Chinese investment in the U.S. reflects the damage being done to China-U.S.-trade relations … by the trade crusade of Trump and his trade hawks,” it said.
The U.S. administration on Tuesday issued a report about how Chinese policies, and what it described as China’s economic aggression, were threatening the technologies and intellectual property of not just the United States but of the world.
While the White House report did not go beyond what the U.S. has said previously – that China engages in theft of technologies and intellectual property (IP) – it did not help to soothe tension. China has repeatedly denied accusations of IP theft.
U.S. FIRMS
The 30-stock Dow Jones Industrial Average slumped for an eighth consecutive session on Thursday as shares including Caterpillar Inc and Boeing Co wilted.
Big U.S. manufacturers and automakers were also under pressure after Germany’s Daimler cut its 2018 profit forecast and BMW said it was looking at “strategic options” due to the Sino-U.S. trade war.
Shares of Apple Inc, whose iPhones are assembled in China by Foxconn, also declined.
Foxconn Chairman Terry Gou said on Friday the U.S.-China trade war was the Taiwan company’s biggest challenge.
“What they are fighting is not really a trade war, it’s a tech war. A tech war is also a manufacturing war,” Gou said.
A Sino-U.S. trade war could disrupt supply chains for the technology and auto industries – sectors heavily reliant on outsourced components such as those supplied by Foxconn – and derail growth for the global economy, analysts say.
Uncertainty over how the tariff war would unfold in the near term is also starting to move commercial decisions in the energy sector.
Industry sources told Reuters that Chinese oil buyers will keep taking crude from the United States through September, but plan to cut future purchases to avoid a likely import tariff.
China has put U.S. energy products including crude and refined products on lists of goods that it will hit with import taxes. But no activation date has been specified for this cluster of products yet.
‘TUMBLING’ INDEX
Shares in Shanghai dropped 4.4 percent for the week, while China’s blue-chip CSI300 index fell 3.8 percent.
Hong Kong’s Hang Seng index shed 3.2 percent for the week, its poorest weekly showing since late March.
The share losses have prompted sarcastic posts in China’s social media, while others compared the falling stocks to China’s 2015 market crash.
“The tumbling Shanghai Composite index must be China’s so-called quantitative and qualitative counter-measures,” one social media user mused.
Not helping sentiment, the yuan extended its decline against the dollar this week, falling to its lowest in more than five months on Friday.
“Chinese exports are now contained, domestic demand has long been weighed by soaring home prices, and the yuan will depreciate, so everyone, hurry up and convert to U.S. dollars,” one social media user quipped.
The Global Times, a tabloid published by the ruling Communist Party’s official People’s Daily, said in an editorial China needed to be realistic about how it could handle the United States and look at other strategies.
“The U.S. has the upper hand over China in technology, defense and international influence, and therefore the country will continue to have a strategic initiative over Beijing for the foreseeable future,” it said.
“As long as China remains clear-minded in strategy, level-headed in its U.S. policy, and avoids a full-fledged geopolitical competition or a strategic clash against the U.S., China will be able to withstand U.S. pressure. In other words, China should focus on its domestic affairs.”
China should keep promoting its own economic development and ensure its growth exceeds that of the United States in both quantity and quality, the paper said.
“As long as China can effectively utilize its successful policies and experiences accumulated since the reform and opening up, and avoid subversive mistakes, the country will see robust momentum for development,” the Global Times said.
China got its economic boom largely because of American corporations’ desire to decrease their expenses by conducting their production in an environment of relaxed regulations and depressed wages, which is a large part of what China has to offer American firms.
Trump’s tariffs, therefore, aren’t as much of a pressure applied to the Chinese as it is to American firms producing their goods in China and shipping them back to America to be sold to the American consumer.
These tariffs increase the expenses which these corporations will bear, which, by extension, the American consumer will bear. Ergo, Trump’s pressure campaign, via tariffs and eliminated international trade participation agreements, isn’t enough to incentivize those companies to return their production to America, at least not as long as it’s cheaper to produce their products elsewhere and as long as they can pass the expense of Trump’s tariffs on to the consumer. In the end, Trump is damaging a world market system which America built to benefit America, and America will realize the effects of market pressures applied by the president who they elected to relieve their economic concerns.
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