OMG! We can't lose McD's and KFC!

Harry Lightning, Mon, 07/23/2018 - 00:17

You hit the nail on the head. The Chinese people still need to eat, and if they stop importing US food, they will have to buy the same food from a middle man country that buys the American food, marks up the price, and sells it to the Chinese. Result : rampant food inflation in China.

On top of that, a country that is starved for capital because of all the debt it has piled on while accumulating trade surpluses would see half a billion dollars a year of capital drained from its vaults as its trade surplus turns negative.

The difference in all this is that the Americans can produce internally everything they import from China, but China cannot do the same. Food is at the top of that list. So while Americans would see an increase in the cost of the goods they now import from China, that would be offset by the huge savings of capital by reducing their trade deficit, along with the multiplier effect of the money spent domestically staying within the boundaries of the US. Wages would rise and then consumption would follow suit, providing a strong impetus to their economic growth.

China on the other hand would lose capital as they would see their trade surpluses reverse into deficits, and would have an inflationary spike not offset by rising wages. Consumption would plummet and production would follow suit.

Frankly I am surprised at the economic ignorance being displayed by whatever Chinese government officials who are providing source information for articles such as these. The Chinese should be shutting the fuck up, accepting the initial round of tariffs without saying a word, and going on to enjoy a continued substantial trade surplus with the Americans albeit at a lower level of profit.

Instead, these officials are letting their nationalistic egos get in the way of more intelligent responses, which in the end will destroy their economy.

I chalk this foolishness off to inexperience on China's part with respect to trade differences. In the twenty five years that they have become an exporting power, they never had to deal with difficulties between themselves and the clients to whom they export. They have been treated with kid gloves, basically being allowed to sell anything they wanted into America without any obstacles. So now that they have to adapt their trade policies to a more difficult situation that challenges their unfettered access into American markets, they are caught like deer in the headlamps., not knowing how to respond. It is in such times that emotion takes the place of wisdom honed by experience, and truly catastrophic mistakes are made. That is what is developing in China today, as evidenced by the report in the article above.

What surprises me also is that the Chinese nationalistic fervor, fueled by a desperate urge to be seen as a world leader in trade who can dictate the rules of transaction, is being allowed to get in the way of what many of the younger Chinese government bureaucrats were trained in American and European universities to know is the wrong response to tariff imposition. It just shows that China remains ruled by the elders, one generation removed from the revolutionaries, who feel more comfortable relying on their revolutionary reactionisms than on classical economics that were taught to their sons and daughters.

This is typical of young dynasties, they always make some critical growing pain mistakes as they develop a history. How they recover from such mistakes will determine the prognosis of their governance. The Soviet Union approached such a crossroads in the 1950s when Stalin passed, and they adapted to a new paradigm that differed sharply from the Bolshevik structure that Stalin had enforced. In so doing it allowed their dynasty to continue, only to make a lethal error some 30 years later when they faced their second major test and failed.

Many of the countries that embraced communism in the post war era ha d similar challenges and failed them. Castro's Cuba and today's Venezuela are classic examples. Depending on whether the Chinese come to their senses before it is too late, they may be the next developing dynasty to implode over a critical error. The next few months will reveal that outcome.