Monday, October 8, 2018

US-China Trade War

I must apologise for being long absent from here, by desire. As the political loop now goes through its second iteration, there is nothing to hope except the recycling business.

I must thank walla and James for keep faith with this blog. I have reclaimed the links for you walla and I am writing this for James and everyone else who are interested in the above topic. I do not profess to be the expert on the subject matter, but I have my views which are formed quite ephemerally.

The trade war is started by Trump who as a businessman does not give any shit to the economics of interest trade. He thinks that if I have a trade deficit, then I am on the losing end. I must make profit and therefore I must accumulate international reserves.

This is where knowledge of economic theory triumphs business common sense. (Some MBAs may think they are economists and the current state of Malaysian economy is to some extent the influence of these business administrators influencing greedy politicians. I had argued with that administrator in person when he first mooted the implementation of the GST.)

The problem for Trump is that he does not realise that the current US deficit is financed by US printing money. This money was printed by Greenspan who has been panned as the man who knew everything. If Trump were to reduce the US trade deficit, then he has to take back all the US dollars that Bush, Clinton, Obama had printed. You start that by stop printing money and raise interest rates. This I am glad the US Federal Reserve has already started doing this, raising US interest rates for the third time this year and which Mr Trump is very unhappy about.

Trump wants to reverse the trade deficit because he wanted to jobs back in the US. This is true. You run a trade deficit because you can afford to consume without having to work. Americans are almost all obese except for those in movies and TVs. There is the privilege of consuming without having to work because the government can afford to give unemployment benefits. The privilege of being the issuer of the international currency.

Now he wants Americans to work and be great again. Good for Americans who want to work.

Strategically, the stage is now being set for the turning point in global economy history - the rise of the China economy as a world economic power. As the US reduces its trade deficit, it reduces the volume of US currency circulating around the world. This is now time to give the US dollar back to the US as the US interest rates go up. This should flush the US banks with cash. Whether small businesses should do well depend on how they are going to create their new domestic markets or to try to export to China which may not be easy. The stronger US dollar does not help.

The Chinese has been trying to dump the US dollar by buying up real commodities such as land and minerals around the world which dismayed the governments of the free world. This is of course strategic. By controlling global resources, they are positioning for future growth.

The China economy is slowing down because of the political spring cleaning that Xi Jinping has been doing for so many years. This cleanup is necessary for long term growth, as you cannot have multiple factions in the undercurrents disturbing your long march. The old guards who benefited from the previous economic surge of China are the real political masters as they have money to buy power. This needs to be "rebalanced" in favour of the incumbent regime. This is a significant makeover. (Which by the way is what seems to be happening in Malaysia in order that the original UMNO can come back in a different guise and it will champion the Bumiputra Policy.)

The China economy will take a dip for a few more years. This does not matter, for China typically takes a long term view. The China economy will recover by fueling its own domestic markets through the production of needed goods with resources that are already in place globally. The infrastructure is now being built through the One Belt Road which is none other than rekindling the golden age of China in days gone by. When the pieces are in place, China will wake up again and come into action like a newly minted sex doll. When the global economy is in the depth of recession, the China economy will smell like a rose.

We have only about two kingdoms. The third kingdom is not EU or UK, although the EU like to think that they have a solidarity that can conquer the world. The current of the UK with the UK is the unfinished business of WWI and WWII. The EU as originally conceived is the dream of Germany and France to make the UK an appendix. But the British will always find a way to survive, being islanders.

The third kingdom is Russia and Putin is now acting up. On the fringe but not to be left out. Our Cao Cao? Russia is trying to come into the world picture and they can always work with China being of similar ideology and probably psychological twist. That paints half the world red. The fight with the "free war" than goes on in earnest again. The US will rope in its allies - EU+UK and Japan - and I think the dynamics will work first at the economic level and if fails, then militarily.

This may be a good time to be prepared to be a Tao or Zen master.

Hope this satisfies you James. I have been meaning to meet up with walla but I am wallowing in my own mud for now. One day.