US/China Trade War

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silmcoach
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US/China Trade War

Post by silmcoach »

It's a fascinating standoff, who will blink first? In the blue corner we have President Trump, leader of the most powerful capitalist country. In the red corner, the Party leaders of the most powerful Communist country (see Marx, Karl). Economically, they are placed first and second in the world.

As to decision making, it would seem that the President of the US is able to dictate policy. If it is the case in China, that policy is more of a committee decision following Party lines, then we have a battle between a strong willed and determined individual versus a committee that, although presumably following Party policy, may or may not be divided on how best to enact that policy.

The question is whether China's concern is primarily economic or not. Might there be a more powerful agenda regarding its future status in the world? If the former, then tit for tat increases in trade tariffs don't particularly benefit either side. But if the latter, then standing up against their likely most powerful adversary of the future would be paramount now.
silmcoach
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silmcoach
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Re: US/China Trade War - one viewpoint

Post by silmcoach »

Irwin Steltzer, writing in the Sunday Times Business Section, 19 May 2019, argues that the dispute between America and China is more than a trade war. 'It is about the rules that will govern the battle between these rivals for global economic, political and military leadership in this and the next century.'

He states that China is winning because America has played the role of victim rather than combatant, and China has not played by the rules, stealing American intellectual property as it freely accessed the US market, yet forcing American companies to take on Chinese partners if they wanted to access China's market.

Stelzer believes there is a difference in strategy between Xi Jinping (General Secretary the Communist Party of China, PRC President, Chairman Central Military Commission with a seat on the top decision-making Politburo), who wants to maintain the status quo, and his chief negotiator Liu He, who believes that China's future prosperity requires it to enact promised reforms and move to a market economy. This, he believes would benefit the masses in China, but Xi regards them as a threat to Communist Party's control.

After discussing other factors, including US interest rates, vulnerability of US to China's considerable US Bond holdings, and China's inability to retaliate on tariffs tit for tat, Steltzer suggests that there is two to four week window of opportunity for both parties to reach a deal. The difficulties he identifies include the fact that China's retaliatory tariffs have hit American farmers hard, and were a factor in the loss of two safe seats in 2018. However, Trump has planned a $15bn farm relief package. Xi on the other hand is under greater pressure as Trump is demanding the Chinese president abandon subsidies and the systematic theft of American intellectual property. But Xi says this would be a surrendering of sovereignty, and says Steltzer, make cheating more difficult than it has been up to now.

Given China's record to date, and that a number of US companies have begun to switch production to other Asian countries, or even returned production to the US, the relationship between Trump and Xi, (described by Trump in very positive terms), will no doubt be sorely tested.
silmcoach
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silmcoach
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Re: US/China Trade War - Huawei's use of Android restricted by Google

Post by silmcoach »

It has just been announced that Huawei's use of Android has been restricted by Google following the Trump Administration adding Huawei to a list of companies that American firms cannot trade with unless they have a licence.

Leo Kelion, BBC Technology News desk editor believes this could be very damaging for Huawei in the West for now. However it might give smartphone vendors a reason to seek an alternative to Google's operating system. In fact Huwawei claim to have already put in place such a plan B, having developed their own operating system.

Kelion says this has rattled global markets due to uncertainty for businesses and consumers. Indeed, at the time of writing this post all European markets are down significantly.
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silmcoach
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Re: US/China Trade War - it's politics not trade

Post by silmcoach »

It hasn't taken long for China to show it's hand to the UK. Chen Wen, a top Chinese diplomat has, as reported by BBC Business (23 May), stated that there could be "substantial" repercussions for her country's investment in the UK if Huawei were to be banned from Britain's 5G network.

Given Brexit and the UK's vital need to secure positive future trade relationships and deals, this is a very blunt warning.

From a SILM® perspective this is an example of a negotiation strategy that relies purely upon power and threat. The difficulty for the weaker party is whether to bow to short term pragmatism, or stand resolute against a potential threat regardless of financial penalty.
silmcoach
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silmcoach
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Re: US/China Trade - the Cold War has begun

Post by silmcoach »

Stelzer concludes,

This new Cold War 'will be a test of two very different systems, an America in which individual choices guide the direction of an economy, and China, where party leaders decide what is in the best interests of their party and the state.' STELZER, I. (2019) The Cold War has begun, The Sunday Times, Business section, p.4, June 2nd.

It could be said this war is Capitalism versus Communism. But that is perhaps too simplistic. China is Communist in name only. Neither America or China provide adequate social and health care for the poorest of their citizens. China's poor are the greater number, so the greater challenge, as their exploitation is the source the minorities personal wealth and power.
silmcoach
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