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 Tariffs are no longer China’s biggest problem in the trade war

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Tariffs are no longer China’s biggest problem in the trade war Vide
PostSubject: Tariffs are no longer China’s biggest problem in the trade war   Tariffs are no longer China’s biggest problem in the trade war Icon_minitimeSun Sep 08, 2019 10:14 pm

What a difference two weeks makes.
Two Fridays ago, pundits seemed to be beside themselves over what was the latest flare up in the U.S.-China trade war. President Trump raised tariffs in retaliation for China’s retaliatory tariffs, he called Fed Chairman Jerome Powell an “enemy,” and the Dow plummeted 623 points while the Nasdaq closed 3% lower.
Now it seems like trade deal optimism is back in the air. New formal talks between the U.S. and China have been announced for next month, and there are even high-level Chinese sources suggesting a breakthrough could occur at those meetings.
It doesn’t appear there’s anything the Trump administration has done to improve this sentiment. Right now, it’s the more encouraging news and messaging from China that’s the cause of that optimism.
But what forced this sudden change in the rhetoric from Beijing?
It’s not the new round of tariffs that went into effect; we’ve been playing the tit-for-tat tariff war for more than a year. It’s not the economic reports; they’ve been a little too mixed lately to force any dramatic moves. It’s not even the decision by Hong Kong administrator Carrie Lam to fully withdraw the controversial mainland extradition bill; it’s still not clear that the Hong Kong unrest would be affected in any way by a trade deal.

Tariffs are no longer China’s biggest problem in the trade war 106116326-1567783424472gettyimages-1152687847

Given the timing of the change in tone, it seems more likely that what’s making the difference is a realization on both sides that there’s another way this trade war could end – and that possible ending is one the U.S. is very unlikely to lose.
That alternate ending is summed up in one word: decoupling.
The decoupling push is quite different than any U.S. efforts to get China to open up more of its economy to American companies. Instead, it focuses on reducing America’s extremely heavy reliance on China for so much of its manufacturing needs.
Even if China’s economy weren’t so closed off to so many American goods and services, a strong argument has long been made that the U.S. needs to diversify its sources for imports. While finding those new sources wouldn’t necessarily do anything to dent America’s trade imbalances, it would reduce the risks of a major disruption to the U.S. economy based on disputes or other problems connected to a single foreign country.
So what happened between Aug. 23 and this week’s trade optimism-fueled rally?
Thanks to some major news about Google, the world got its clearest notice yet that U.S.-China decoupling has gone from just a theory to something that’s really happening.
Just five days after that trade war flare up, the Nikkei business daily reported on Aug. 28 that Google is shifting its Pixel smartphone production to Vietnam from China starting this year and that the company is also looking to shift some of its smart home speaker assembly to Thailand.
It’s not that Google is the first U.S.-based company to announce some shift away from China; more than 50 other big names have moved out or scaled back. But the timing of Google’s reported plans and how they seem to have affected Beijing can’t be ignored.
It’s important to note that decoupling, even if the trend continues, isn’t necessarily a bullish force for the U.S. economy. It doesn’t mean there will be any increase in American jobs, as the expected Google moves to Vietnam and Thailand make clear. The tariffs on Chinese goods are also not making America richer or directly growing our economy, no matter what the White House says.

Decoupling is best understood as a national security benefit, as opposed to an economic stimulus.
For China, further decoupling has to be a terrifying scenario. The U.S. remains the world’s number one consumer market, and America is now clearly looking to shop around. Beijing needs to come up with some kind of offer to slow this trend either at the trade negotiating table or in some kind of arrangement with the U.S. manufacturers that are still in China.
Meanwhile, the benefits of American trade diversification and continued U.S. economic strength are giving the Trump administration the gift of time. This is the opposite of the conventional wisdom that China and president-for-life Xi Jingping have the advantage of waiting out President Trump, who supposedly needs a trade deal sometime before next year’s elections. It’s also quite different from the notion that the U.S. needs to “win” the trade war by getting major Chinese protectionist barriers removed.
In the end, simply looking out for U.S. security concerns above immediate economic benefits might have been the point of this trade war all along.

https://www.cnbc.com/2019/09/06/tariffs-are-no-longer-chinas-biggest-problem-in-the-trade-war.html
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