Interesting analysis of the trade situation.
Irwin Stelzer:
“…Serious poker players regard this opening round as penny-ante stuff. Fifty billion dollars is less than half of one percent of the GDPs of both countries. But the betting and the risks are getting interesting. Trump has put on the table chips representing a 10 percent levy on $200 billion of Chinese goods, doubled to $400 billion if China retaliates. Also coming soon will be bans on exports of U.S. high-tech products to China, unless the regime ends its theft of intellectual property.
Unless the parties agree to call off the game before the next cards are dealt, we will soon find out which player has the most chips. If Trump is a cool enough player to ignore whining by some American firms, he has the chips with which to win. Here’s why:
- China’s exports to the United States come to almost 4 percent of its GDP, while U.S. exports to China equal only 0.7 percent of U.S. GDP. As consultants the Lindsey Group point out, “A tit-for-tat trade war has an impact on China that is six times that on America.”
- The U.S. economy is in rude good health, while China is the throes of an effort to reduce the massive debt overhang that is beginning to stifle its growth. That creates “a strain on the top leadership as it tries to fend off a trade war with the U.S.,” Diana Cheyleva, chief economist with London-based Enodo Economics, told the New York Times.
- China is having difficulty finding U.S. stuff to penalize. It has exempted LNG from tariffs because it desperately needs imports from the United States to fuel its economy. If it cancels orders now with Boeing, it will have a five-year wait to get on the books of Airbus. Tariffs on U.S. agricultural products drive up food costs in China…”