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.


walla said...


US companies invested USD250 Billion into China and have been reaping USD500 Billion in sales annually.

Most of China's exports to the US are actually made by those US companies with plants in China which means the portrayed trade deficit is an inflated figure in reality.

So, in raising tariffs on imports from China, the trumpistas would actually be hurting those US multinationals directly and many of the US local industries which depend on imported semi-finished parts or processed materials in order to make local goods to replace those imports whose prices are now raised by the tariffs as a consumption tax to be suffered by the US masses.

As for IP rights, China has been paying for IP no less in amount than Japan while progressing its legal development and enforcement; the issue was because there was a gap between what was enforced at provincial from federal levels, and the process has been ongoing to redress the catch-up so in rankling about it, the US has jumped the gun on what was being done anyway.

As for JV sharing of IPs, the US concerns must have agreed to do so in exchange for access to the China market otherwise they could have walked away but that would mean most would have missed out on profits which in reality have saved many of their bottom-lines beyond IP earnings and paid for new R&D innovations back home besides uplifting their share prices.

It is also instructive to note that the French and Italian luxury brands which had railed against copycat items of yonder days no longer make a fuss because the Chinese consumers now in the millions can afford to buy the real stuff and actually have become the biggest global spenders on luxury items.

As for the US attempts to stop China2025 and China BRI (OBOR), that is just pure hegemonic hubris tantamount to telling another bona-fide national sovereign state they are not allowed to make progress.

Realizing it is an impossibility to stop another state from modernizing, the US should instead have encouraged its multinationals to strike their own technology transfer deals in such a way that the market for new products jointly made-in-by US+China can be global, tapping advantage from China's big-data supremacy to try out new products for the world.

Now that the US is virtually starting another cold-war in all but name, that opportunity has passed and one may expect more anti-US sentiments in the world's biggest market. Even if in the short term the US partially succeeds in decoupling from China's final-assembly segment of the global supply chain thereby ending all prospects for a chinamerica vision, the long-term reality may be telescoped from considering a single Asia-centric fact on ppp: Asia/World population is 58% while North America/World population is 8%.

walla said...


And if the US' answer is to bilateralize the trading world to its own protectionist exclusivity, the other countries may play along for a while but soon enough will realize they will be under the thumbs of the US - because what against China now, too against them one day - so that to hedge against future risks of such an eventuality, they may want to trade in renminbi, thereby softening sovereign monetary risks from servitude to the exorbitant privilege of the petro-dollar, and that will be a safeguard especially germane in the light of the no-turnback, flash-point of global climate crisis only a dozen years away.

All these besides the remaining tariff point to save/create some medieval industry US production jobs but at expense of losing millions of other ancillary and downstream US jobs that had come about from China et al imports........

Back to us:

Unless we reinvent Malaysia immediately and unshackle from past prejudices still embedded in too many yearning for foggy pasts, there will be much pain little gain for at least the next three years which will have to be spent just remediating from all the toxic debts left by the last government. Who can and will be the biggest investor? is a question which must be answered.

Lim is just trying to balance books, Azmin is just fluffing without concrete directions, M2.0 is still dreaming in semi-race mode and AI is certainly not aI. But at least that's a reprieve from the last uniform bunch of crooks and hypocrites who have left all Malaysians in such a mountain of mess.

And on the blogger:

You, mud? Me, MRT2 sinkhole. So let walla assay a one-point graphical observation: those born in the same year (etheorist, sakmongkol and walla) suffer the same constellation effects. Thus they should meet if only to compare notes, crowdsource ideas and innovate solutions. But let's not forget James and that "young, white-haired, legal eagle". These two may belong to a different constellation and thus another graphical point. Somewhere up there...

James said...


Much belated thank you for the blog. My apologies for not visiting your site for a while - we got hit by a supertyphoon with sustained winds of 180 miles per hour, for eight hours, and sustained winds over 220mph at the island of Saipan. With no power and water, I had to spend more time on running generators and desalting water. Now back to normal.

The storm did had many amazed. My tin roof shack of a store withstood the storm without a scratch whilst everything else around it was blown to pieces. It is a local talking point where people drive miles just to see that it is true. I can only say thank you to the ABOVE.

Now I am back, hopefully you will take off from your vacation and write anything to simulate our grey matter, as you always do. And of course, Many thanks and May you have a prosperous and healthy new year - and same to WALLA, our outstanding fella who thinks he is a chick, but brains does matter more than beauty~