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China Begins to Question Whether It’s Ready for a Trade War
- itchyjunk 8y agoDoesn't USA have some 10 trillion loan from China? How does that factor into all this? Or is that a parallel issue not directly related to this?
- macintux 8y agoThat’s an interesting question. I have no idea how much China owns in Treasury debt, but it’s substantial. So China has some disincentive to pushing down the value of the U.S. dollar lest that debt be worth less in the future, in addition to its desire to keep it up so we can afford to keep buying Chinese products. Complex interrelationship. I think it’s safe to say there are no important issues that don’t play a role in this calculation, except human rights and environmental issues since there’s no indication that Trump would push on those anyway.
- greeneggs 8y agoMajor Foreign Holders of Treasury Securities http://ticdata.treasury.gov/Publish/mfh.txt http://ticdata.treasury.gov/Publish/mfh.txt China has $1.2 trillion, as of April 2018. Total foreign ownership is $6.2 trillion (this includes individuals, companies, countries, though it may miss some). Total debt is $21 trillion. https://www.dallasfed.org/research/econdata/govdebt#tab3 https://www.dallasfed.org/research/econdata/govdebt#tab3
- duxup 8y agoChina holds a lot of bonds. But there's not much there as far as leverage goes with that. Buying up those bonds let's the US and their consumers keep spending and that includes on Chinese goods. Both nations are tied pretty tightly together in trade.
- deleted 8y ago[deleted]
- zmk_ 8y agoLess trade due to tariffs lowers the incentive for China to a) roll over the bonds and b) buy new ones. This will hit the US federal budget and in turn be noticable for everyone.
- gonvaled 8y agoThat is how you reduce the deficit: americans consume a lot, so the US borrows, and the deficit is high. Put another way: one way, the easiest for the US, to reduce the deficit is to reduce consumption. This will happen more or less automatically with increased prices. Another way is for the dollar to tank, which will also reduce consumption and increase exports. The ideal situation (for Trump I assume) is to keep a strong dollar, increase exports, keep consumtion high and get the financing the US wants. It is difficult to see how this can be achieved, or whether this is fair for 95% of the planet's population, most of which are poorer and work as hard or harder than americans.
- HillaryBriss 8y agoAccording to this, it's far less than $10 trillion: The U.S. debt to China is $1.19 trillion as of March 2018. That's 19 percent of the $6.29 trillion in Treasury bills, notes, and bonds held by foreign countries. The rest of the $21 trillion national debt is owned by either the American people or by the U.S. government itself. https://www.thebalance.com/u-s-debt-to-china-how-much-does-it-own-3306355 https://www.thebalance.com/u-s-debt-to-china-how-much-does-i... Also: China held around $1.17 trillion of Treasuries as of the end of January, making it the largest of America's foreign creditors and the No. 2 overall owner of U.S. government bonds after the Federal Reserve. from https://www.reuters.com/article/us-usa-trade-china-treasuries/china-holding-treasuries-keeps-nuclear-option-in-u-s-trade-war-idUSKCN1HB34M https://www.reuters.com/article/us-usa-trade-china-treasurie...
- WillEngler 8y ago"If you owe the bank $100,000 the bank owns you. If you owe the bank $100,000,000 you own the bank." Not a perfect parallel to this situation, but a nice aphorism.
- api 8y agoA similar way of looking at it that I've heard: The USA got hundreds of billions of dollars worth of manufactured goods and raw materials, while China got hundreds of billions of rows in a SQL database. Of course that analysis leaves out the skills, experience, and intellectual property they also got. That's more significant than dollars.
- peterlk 8y agoThis is simply not true in when both countries can print currency, and the global markets are heavily reliant on the value of those currencies.
- webkike 8y agoThis is a mutually beneficial exchange
- SubiculumCode 8y agoLoans denominated in dollars, a currency they can print to payoff any debts as needed, save for its effects on inflation.
- rorykoehler 8y ago>save for its effects on inflation That's a fairly large caveat. Zimbabwe tried it and it didn't work out too well. The Weimar Republic also tried it to similar effect.
- SubiculumCode 8y agoIt may be a large caveat,but at least it doesn't try to frame national debt as the same kind of debt as households deal with when they take out a loan. It is fundamentally different. Debtors can't print money to pay off a loan. Also inflation does not just happen if you print money. The increased demand has to meet a lack of supply. Most historical cases of hyper inflation involved disruptions to supply capacity. America is not really in that position, and I suspect this is one of the reasons we see few signs of inflation these days in America.
- rahoulb 8y agoThey are not the best comparisons as there were other factors involved. Zimbabwe has destroyed its farming output, Weimar had its industrial region occupied by France. The US and EU have been running quantitative easing programmes for nearly 10 years and inflation is low. It’s not pure cause and effect.
- rorykoehler 8y agoYes I understand the situations are vastly different but that is not guaranteed in the future. The US is most definitely showing signs of decay and decline. Many more economically challenged leaders like Trump in charge and the situation could change beyond recognition. It only took one decision to destroy farming in Zimbabwe.
- psergeant 8y agoInterestingly you omitted the currency of that loan in your comment. Thinking on that should answer your question.
- nerfhammer 8y agoThese bonds generally have a fixed term of up to 30 years, under what scenario would the US have to repay its bonds all at once, before they're due?
- ChuckMcM 8y agoIt wouldn't. The general threat is that China would sell these treasuries on the market and flood the supply. That would make it much harder for the US to sell new treasuries (which it does every quarter) and so the discount it would have to give would be higher (the bond yield would go up) and that would mean more expensive debt repayments in the future.
- nerfhammer 8y agoOk, that's more realistic
- Nelgraf 8y agoModern nations fiat debt, meaning their currencies ultimate value is derived from many things, but ultimately hard power. A $10 trillion diff doesn't mean much if it comes to enforcement.
- refurb 8y agoSure, but what could they do? Threaten to call the loan early? And if the US says “no”, then what?
- umanwizard 8y agoWhat do you mean by “call the loan” ? Treasury bonds have a fixed payback schedule.
- slededit 8y agoThey can dump their treasuries on the open market satiating demand. This glut would make it extremely difficult for the US to raise the money it needs to fuel its record $1 trillion deficit.
- kyboren 8y agoThey can do that, although they would lose an incredible amount of money with that dumping. Further, this must be considered an act of warfare executed through financial means. What makes you think the following will be true? 1) The Fed won't simply buy them all up, then unwind their position over the next few years. 2) China won't be subject to extraordinary DPRK-like secondary sanctions, minimizing China's ability to trade with those dollars and thus limiting the inflationary effect of those newly-printed proceeds. 3) The US will not retaliate with other coercive measures, like sector-wide sanctions on strategic Chinese market sectors, elimination of MFN status, removal from WTO, military pressure in the South China Sea, etc., which combined are likely more than enough to dissuade China.
- slededit 8y agoWe're already in a new cold war. If hacking power plants and publicly releasing government secrets to sway elections aren't acts of war, legal market activities like selling treasuries won't be either. It would certainly be an escalation and the US would respond but its pernicious in its attack of the free market values of the US. Any response would be tacit admission that there are flaws in the capitalist system and as a result it would be more subdued than otherwise. Any attack would not be motivated by money. It would be a striking blow at a weak US to knock it down from its super power perch.
- duxup 8y agoLike a lot of these article's about China... there's very little here to know what their actual leadership thinks or doesn't think.
- sampo 8y agoWhat is here to know what the actual leadership of America thinks or doesn't think?
- jdoliner 8y agoTweets, which people seem to find horrific, but they do seem to come directly from leadership.
- prewett 8y agoI've come to the conclusion that those are cover fire for distracting attention, or maybe just for staying in the news ("any news is good news"...). The press gets outraged over the tweets (justifiably so), but the point of them is to get people outraged. I'm not convinced they reflect anything Trump will actually do.
- Mirioron 8y agoEvery time I try to think about Trump he seems profoundly stupid but also profoundly clever at the same time.
- mirimir 8y agoHe comes across as somewhere between 4chan/pol and Forest Gump. And I'm not being critical, by the way. It is, upon reflection, profoundly clever.
- krapp 8y agoThat would make sense if his tweets weren't consistent with what is known and observed about Trump's personality, and if some of his tweets didn't do more harm than good to his own administration, party and agenda. And he doesn't need to make an effort to stay in the news - he's the President, so the news will cover him no matter what. Honestly, I think he's just a troll, nothing more complex than that. They don't represent what Trump will actually do but I'm certain they do represent what he thinks, and what he wants to do.
- nilsocket 8y agoOff-topic Doesn't Bloomberg identify that their users can click on play, when it's needed. It's annoying and it's wasting my data.
- wonderwonder 8y agoAn aspect of this is that with the effects of globalization and the reliance of business in both nations on those in the other we could see entire large companies vanish almost over night as their supply chains dry up. If you cant build your product because a component you relied upon is now 25% more expensive, you're continued existence is predicated on having deep reserves. Many smaller companies don't and even the larger ones will have to implement deep layoffs relatively quickly to conserve resources as they won't know how long the trade war will last. This in turn will have an effect on the political situations in both countries although primarily America as its the democracy. Globalization and the economic relationships amongst nations now has a direct effect on the internal politics of those same states.
- peterlk 8y agoYep. My view on trade wars is basically: let's all chop off an arm. Last one standing wins. Whoever wins may discover that they didn't really need that arm to survive, but is life really better without it?
- dqpb 8y agoYou're assuming it's "just" a trade war. It's not.
- peterlk 8y agoCan you elaborate on this?
- strken 8y agoHe might be talking about the Renminbi's fixed exchange rate[0]. It's a fairly common belief that Chinese exports gain a huge advantage because CNY aren't floated but USD (and basically everything else) are, and if I remember right Trump jumped on the bandwagon some time last year. [0] https://en.wikipedia.org/wiki/Renminbi_currency_value#Historical_Undervaluation https://en.wikipedia.org/wiki/Renminbi_currency_value#Histor...
- rdlecler1 8y agoI think the next step Trump takes is to offer to drop tariffs against Europe and Canada if they put tariffs on China.
- gonvaled 8y agoMaybe, but why would the EU do that? China is a reliable trading partner.
- apexalpha 8y agoAlso, there are already tarrifs on steel from China and other sectors to protect our manufacturing.
- davidw 8y agoGood luck with that after treating them all like shit to get in Putin's good graces.
- temp-dude-87844 8y agoIt's interesting to hear Chinese academics take a pragmatic, realist view of potential impacts. A prolonged trade spat with a US strongman is hardly a desirable outcome. But even if China's export-oriented industries will suffer due to trade protection measures brewing in the US, EU, and Canada, Trump's domestic focus will likely allow many of China's global ambitions to continue unabated: in Africa, in Central Asia, and possibly in Oceania. This approach mirrors what the US and Soviet Union pursued during the cold war by winning favors through a mix of economic assistance and direct foreign investment. It's a parallel game whose fruits will pay off in the long term, when China reaches its post-industrial stage, and has to use its network of connections to ensure continued prosperity for its people.
- 3327 8y agoI am no Trump supporter I will start with that. I disagree with almost the all of his policies/actions. However, China has been playing behind the US back for too long. Tech espionage, hacking, trade to a certain extent as well. China is not a developing economy as most think. It is already a superpower. This is actually pre-emptive war. No weapons, but at some point the US had to act while the odds were still in its favor. IF you played Civilization, any strategy game - then you know what I am talking about (or history books). >> Loans - But China has tons us US debt!?!? -Yes they do - do you know the best part about an IOU? you guessed it I - O - U. its paper debt. So better not upset me. -Both nations are interlocked in a dance. US spends China Makes. But China also has stolen tons of tech. Nuclear weapons, ballistic missiles. Hacking. -Talk to anyone in the armed forces. The sentiment is bad. There is more going on in the background than we all know. -Talk to anyone over beers in the armed forces. They will say its long over do. What do I think? who cares what I think. cheers.
- davidw 8y agoIf only there had been some kind of trade agreement with a lot of pacific nations that would have given the US a lot more clout with other countries in the region and maybe a common front for some of the real problems that are out there - as opposed to the ones that exist purely in Trump's mind. (TPP)
- colordrops 8y agoThe problem with the TPP was that it also snuck in too many distasteful things along with the useful policies.
- kyboren 8y agohttps://en.wikipedia.org/wiki/Policy_laundering https://en.wikipedia.org/wiki/Policy_laundering
- mc32 8y agoIsn't that the same Deal Bernie and "me too" Hillary also opposed after having been in favor of it?
- mc32 8y agoThe US has played nicer than most countries were they to enjoy its economic might and pre-eminence[1]. Few countries would allow their workforce to endure economic self-inflicted hardship while maintaining an economic advantage in negotiating trade. But the US has, over the years, put up with unfair trade from Japan, SKorea, China, Some of Europe in the name of "free trade". I don't begrudge allowing some disadvantage with regard some developing nations --but not developed nations. For fair trade to work, it has to be bi-lateral. If you unilaterally do fair trade but your partner doesn't, you may do your principle good, but you're selling out your worker for principle. Since Reagan, maybe before, the blue collar worker of America has seen their government give in and cower in the face of unfair trade saying, "we'll make it up in services" or "your goods will be cheaper". But what good does cheap do you when you have no job and no money? They never saw their lot get better. People wonder why people are now "working poor". When I was in middle and HS, my bus drivers and janitors (they were not "cleaning engineers" just yet), were able to raise a family with decency. No way that happens now. As Michael Moore poignantly, albeit ironically, said, finally, someone stood up to the corporations and said, "no more". I'll stop the hemorrhaging. One AFL-CIO in PA, the other day, endorsed a Repub. As an atheist, I have to say, Good God, what happened to the Dems? They sold out the American worker in favor of the multinational, transnational capitalists. If they don't watch out, they will lose labor to Repubs. [1]Just look at how China manages its advantage in Africa, LatAM, etc. Japan in SEAsia, Russia with Former SU repubs., etc.
- gonvaled 8y agoNicer yes, but not nice at all: fake wars, dollar bullying and rules ownership (global IP and trade laws are made by US for US) has given the US a tilted playing field. The US is still by far the richest country. If it has blue collar problems maybe it should rethink the way richness and costs are distributed. Maybe the US led capitalism needs a rethink. And blamimg the world for this ideology is quite astounding: the US has pushed for it for over 60 years. And more: what do you have against 95% of the world"s blue collar workforce?
- mc32 8y ago>And more: what do you have against 95% of the world"s blue collar workforce? Nothing. But they are not mine. As they don't care about my blue collar sisters and brothers, nor do I care about theirs. People think redundant blue collar workers should retrain, get new skills. That's nice. Usually the service jobs don't pay as well and it's naïve to think 50 and 60 yos have the bandwidth to retrain and achieve similar status in a new career. EU and Japan enforce IP just as much as we do. They may be even be more stringent. If Trump is successful in this, he has a decent chance at making it possible for blue collar whites and blacks to achieve the potential Bruce Springsteen saw in them.
- balls187 8y agoWhat will this mean for all the Chinese purchased real-estate in America?
- balls187 8y agoAlso, it seems tough to fight a trade war with China, while simultaneously picking trade fights with the EU, MX, and CA.