And watch while we are plunged into a recession due to a huge disruption in global supply chains.
Sorry, but complex problems don't have simple answers. Trump can't unilaterally force China to stop its protectionism, at least not without inflicting significant hurt on the American economy.
How do you think people will react to a 10% increase in prices for almost all goods?
The United States is already dealing with economic problems caused by the Chinese trade deficit, which siphons almost as much demand from the economy every year as Obama's 2008 stimulus added in a one-time shot. So it is an interesting question and certainly not one-sided....
A trade war would theoretically cause a deadweight loss in global GDP, but as long as the US is not at full employment it is likely losses would end up distributed almost entirely on the Chinese side. Domestic losses would only take place after the return to full employment. Restructuring costs would also be imposed disproportionately on China because they'd be the ones dealing with insufficient demand.
Sure, a better alternative from a conventional economic perspective would be having the United States ramp up spending. The problem is that just printing more USD to enable this causes its own set of problems given that the USD is the world's reserve currency. Having the government take on additional interest-bearing debt avoids this problem, but does not seem particularly attractive when the Chinese are the ones who will end up collecting interest on the loan.
Political outcomes? My sense is that we'd see an upsurge in nationalism in China, perhaps more aggression in the South China Seas, but also a rapid collapse in the Chinese economy that would make coming to terms with the trade deficit a political priority. And is it really crazy for the West to demand a level playing field in exchange for its willingness to keep China from economic collapse?
> and having the government take on additional interest-bearing debt instead does not seem particularly attractive when the Chinese are the ones who will end up collecting interest on the loan.
But the Chinese aren't the ones that will end up collecting interest on additional US debt; while they are the biggest current foreign holder of US debt, their total holdings are dropping; they not only aren't the biggest purchaser of new US debt, they aren't even a net purchaser of US debt. (And they are only the biggest foreign holder, most US federal debt is owed to...entities within the US; non-federal US entities hold 4 times as much US debt as China does.)
You're missing the point. The problem isn’t who buys the loans (that is optics). The problem is that you are imposing a long-term tax burden on Americans in order to paper over a structural demand deficit. This is unsustainable and also unfair -- Americans are already paying for the status quo through persistently high unemployment and wage stagnation.
The best solution of course involves China recognizing that persistent trade deficits hurt its trade partners. The problem is that the Chinese political system is its own distributional game, and while there are direct costs for its participants associated with opening up markets and letting foreign businesses compete with domestic ones, there are no costs and only benefits associated with foreign dumping.
> And is it really crazy for the West to demand a level playing field in exchange for keeping China from economic collapse?
I think the US should demand that China reduce restrictions, not that we should increase them.
> government take on additional interest-bearing debt instead does not seem particularly attractive when the Chinese are the ones who will end up collecting interest on the loan
Why not? Personally, I find the obsession with debt entirely counterproductive. If the government can seemingly borrow endless sums of money with incredibly low interest, why not borrow as much as we can?
Especially since, as you said, we could actually benefit from a bit more inflation.
US economy grew only by 1.3% (as opposed to the expected 2.3%); the news sent XAU and JPY soaring. The silver cloud was that the consumer spending still looked decent; such tariffs without massive structural changes to the US manufacturing will come with a recession.
People don't understand why people manufacture in China - it's less about wages now, and more about logistics. Considering the global decline in demand, it's unlikely US (or any others in S. Asia / Africa) will be able to repeat the China/Asian Tiger story on such a mass scale.
"And watch while we are plunged into a recession due to a huge disruption in global supply chains."
WHAT supply chain? There is NO supply chain anymore. JIT (Just-In-Time) inventory has been replaced by BLTN (Better-Late-Than-Never) and AGNM (Ain't-Got-No-More) inventory.
Went to a large box store on the weekend. They had empty containers marked "Display" on the shelves. Two different employees explained that I should put empty containers for the desired items in my cart and, upon checking out, they would retrieve a full container of each item "from the back". Both assured me all displayed items were available.
Got my display containers and proceeded to check out. Was informed that two of three displayed items were not available. I suggested to the clerk "So now you'll take these two items off display?" He replied "No, they'll probably be back in stock next week."
I left the store w/o purchasing anything and they'll never see me again.
We may be in a recession right now because we can't buy quality goods AT ALL! I've bought five new fingernail clippers in the last six months and, for God's sake, they won't cut my nails! They're all made in China.
Many, if not most Chinese goods, especially machine tools, remain as they were 14 years ago: low quality and every item different with no standardization. And they've driven many good US manufacturers out of business. Why? Because workers buy shitty tools for one-time use, bill the customer for the work and for the tools and then throw away the tools when they're done. Of course no one's considering the external factors here: cost of shitty tools in poor workmanship, longer production times and accidents.
"How do you think people will react to a 10% increase in prices for almost all goods?"
If it convinces American manufacturers to produce quality products then it's great news.
Generally you'll have a number of options with pros/cons of each to select from. Often things are a little on the pricier side - but that price is for quality. Not all items are meant "for life" unfortunately, but a good 5-10 years is better than 5-10 weeks.
The evidence is far more than anecdotal. Anyone who is an active tool user could provide more - ask your local mechanic. The experience I describe is almost universal and transcends the term "anecdodal".
I think that outside the US, the reputation of US-made good has never been particularly strong. We see US cars, and compare them to Japanese cars and see mostly failings.
So far as Chinese goods go, I have no particular knowledge of wrenches.
However, I'd note that (Chinese made) Apple products are generally of pretty good quality.
I'd also point out that the ZeroHedge article doesn't really make a strong case that quality is decreasing at all. And you realize the Onion is a parody, right?
My point was that _everything_ I could post myself would necessarily be "anecdotal", but that anyone willing to do a google search can find millions of remarks: e.g.,
Go to a hardware store and try out a few tools from various countries. You'll see what I mean. _Pay_ _attention_ to the world you live in and the tools you and others use every day. In my case, my fingernail clippers failing (not one, but two pair, from different Chinese manufacturers, within weeks of each other) was the straw that broke the camel's back.
Instead of asking me to provide hard statistical evidence on these forums, I expect you internet wunderkinds to write a one-off ML tool to scrape the internet for "anecdotal" evidence, collate it, translate it with your neural net NL software, correlate it, and finally analyze it as your own statistical evidence. Maybe you'd even share it with others, but that isn't necessary.
nl: "I'd also point out that the ZeroHedge article doesn't really make a strong case that quality is decreasing at all.":
I can only assume you read an article other than the one I linked to.
And yes, I intentionally put the Onion article in there, because it is funny. But some people have no sense of humour and are unable to resist pointing out the obvious.
Vietnam/Thailand are already in the supply chain (where do you think all your cameras/hard disks come from ?). India barely has a manufacturing sector.
Of course. But supply/demand economics means as wages/issues rise in China (i.e. trade war) the rest of Asia, which is rising quickly, picks up the slack.
China has scale, and the right value chains for certain things. But ultimately they are commodities. It's that hard to build simple factories and provide reliable electricity and cheap workers.
Indonesia, India, Malaysia, Vietnam etc. - there's a lot of people there waiting to pick up the slack.
The US does not import a lot of meaningful things from China.
China imports a lot of critical goods from the West, particularly Germany. Also - the trade balance is very lopsided.
A 'trade war' with China would be very painful for China, but the West would hardly skip a beat.
A) Consumer prices would rise a little bit.
B) Some plants (smart factories) would open in the US
C) Mexico would boon, and so would other areas in Asia.
In the long run, if other places pick up the slack, it would permanently damage China's competitive advantages - whereas Western nations would do just fine, save a few German tool makers.
Sorry, but complex problems don't have simple answers. Trump can't unilaterally force China to stop its protectionism, at least not without inflicting significant hurt on the American economy.
How do you think people will react to a 10% increase in prices for almost all goods?