8 ms·

China’s options for retaliating against tariffs are limited by its own economy

62 points by ycombonator 7y ago

vannevar 7y ago
Regrettably, that didn't stop us here in the US.
deogeo 7y ago
Again [1] this narrative of the protectionist US vs. free-trade champion China. Yet China has been heavily protectionist since long before the US started firing back [2]. I cannot imagine these journalists lack this very basic knowledge, which makes me think they are being deliberately deceptive in their framing. [1] https://www.reuters.com/article/us-imf-worldbank-china/china-denounces-protectionism-in-swipe-at-u-s-trade-policy-idUSKCN1RP0HU https://www.reuters.com/article/us-imf-worldbank-china/china... [2] https://www.forbes.com/sites/douglasbulloch/2016/10/12/protectionism-may-be-rising-around-the-world-but-in-china-it-never-went-away/ https://www.forbes.com/sites/douglasbulloch/2016/10/12/prote...
- DeonPenny 7y ago
  yeh its a crazy misunderstanding of the facts. It makes think someone getting paid to make this narrative happen.
- dang 7y ago
  That's clearly not what this article is about. Please focus on what's new and interesting about an article instead of hauling in old links to restart old flamewars. Repetition is the enemy of curiosity. We want the latter. Edit: one can see this problem in the very first word of your comment: "Again". "Eschew flamebait. Don't introduce flamewar topics unless you have something genuinely new to say. Avoid unrelated controversies and generic tangents." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
  - deogeo 7y ago
    But the framing is interesting. I agree that "they started it!" won't make for a very interesting discussion, but talking about which facts the press focuses on, and which it ignores, could be.
    - dang 7y ago
      That is simply not a significant aspect of the article. In fact, I didn't see it there at all, though I only skimmed it.
      - deogeo 7y ago
        That it (Chinese protectionism) is not there at all is precisely my point.
        dang 7y ago
        In that case your post was an example of what that guideline asks you to avoid: flamebait and generic tangents. Shoehorning a pre-existing grievance into the thread is exactly how we get repetitive flamewars. I know it feels more important, but it always feels that way, and that feeling needs to be resisted if we're to have curious discussions about new things. The art of being a good commenter involves focusing on the specific new information in an article.
andrekandre 7y ago
> Officials are also taking concrete steps to shift China’s dependence on the United States for certain goods. They have focused efforts on new trade partnerships with countries like Japan and South Korea and lowered trade barriers for other countries. They have also struck deals to import agricultural goods from countries other than the United States. This week, China approved barley imports from Russia. this is where i expect steve bannon’s idea of favoring bilateral deals instead of large trade blocks (ASEAN, TPP etc) to backfire in the end china will probably just find other ways to adjust and world economy starts splintering (personally, i was no fan of tpp because of the non-democratic arbitration clauses, but i also think bringing the world together under harmonious and consistent trade relations is extremely important for peace and stability)
- H8crilA 7y ago
  How many things are as good for world's prosperity than low or no tariffs? That's only beaten by lack of armed conflicts. Wishful thinking, but still true.
  - nine_k 7y ago
    Tariffs are a way to force local businesses to produce something that's more cheaply available elsewhere. Usually it's exactly in an anticipation of a conflict (even armed) which would sever vital supplies of that stuff. Open markets work best when there is a common peaceful order, and an enforcer of it. US used to be, and largely continues to be such an enforcer, but not in the China's area of influence.
  - toyg 7y ago
    Free and abundant healthcare and education trump anything commerce-related, in my book. You can argue trade can help in those areas too, but strictly speaking it’s not a prerequisite (often it’s even a problem).
- Fjolsvith 7y ago
  Where will China get the money to buy their agricultural goods? Their food prices jumped 7.7% in June, likely caused by the outbreak of the African swine fever in the country’s pig herd [1]. China has some serious pressure being applied to them, and no wiggle room. 1. https://www.counterpunch.org/2019/07/19/china-and-the-swine-flu-outbreak/ https://www.counterpunch.org/2019/07/19/china-and-the-swine-...
baybal2 7y ago
> The question is how. China’s imports from the United States only a fraction of the trade going the other way, so it cannot match Washington tariff for tariff. Much of that trade consists of agriculture goods like soybeans, as well as specialized products like Boeing jetliners or the American-made chips for the smartphones China makes. The question monetary value, but where widgets are physically made made. This simple realisation eludes so many "China Experts" in the West. Were Beijing to pull an inverse Huawei ban on any company in the West, that company would be dead in a few months no matter what it is. It can crash US stock market, pension funds and assuredly secure the non-election of Trump for the second term. China is fully capable of economic retaliation against US and can genuinely make it hurt, but it chooses not to because people in Zhongnanhai have no guts for that. What surprised me most in recent months is that out of all people, the criticism of Xi's overly conciliatory tone with Washington is now coming from people whom you can call Chinese industrialists class. This criticism is quite strong worded, emotional. I never ever saw somebody so up on social ladder here being so openly critical of Xi before.
- baybal2 7y ago
  On BBK's internal mail list, there was a letter from Duan saying that Xi's indecision lets USA to slowly bleed Chinese industry while American companies have sweet time relocating out of China at easy pace, and show US politicians how easy is China for picking, and that doing so is a totally repercussions free way to gain political capital. And that assures that China's troubles will not end with Trump now. Another sentiment from a forum quite popular by industry oldtimers is beyond unflattering, pretty much a personal rant on Xi, so I can't say the source. The point was that Xi, a very insecure man, and the elites of his generation, were unable to resist influence of Trump's powerful ego, and that they are plainly frightened by him. From my own view, this is indeed the case. It is hard to explain to somebody who live in the West how it works, but I'll try my best here: See, that generation of people were risen in the culture dominated by the social class of "Big Men," and all of their social programming and mental processes work around one attaining, securing, maintaining, extracting benefits from, giving or forcefully taking that "Big Man" status from somebody. In eyes of such people, somebody like Trump may indeed look like a very "top dog" person, more so than even Xi himself. And it is Xi's insecurity that pushes him to seek engagement with Trump, to show his peers that he "can talk on equals even with a big bad boy like Trump." If he were to break off that engagement, and if he would've lashed out on Trump, many of his peers would've seen that as him going on defensive, and admitting his inferiority to Trump, as if he was skulking away from Trump's intimidating presence.
baybal2 7y ago
Quote from the article: > “We don’t know how to deal with this either,” Tu Xinquan, the president of the China Institute for W.T.O. Studies at the University of International Business and Economics. > “Is he a sane person at all?” Professor Tu said of the latest move by Mr. Trump. “It’s quite surprising. Didn’t the White House just announce that the trade talks were constructive?” I'm afraid that Beijing still did not realise that all of the above is pretty much planned. Trump will keep "nightmaring" them, keeping them tense, showering them with unending negative publicity of them keeping failing the trade talks time and time again, while propping up his profile. Things like this keep showing just how inept and naive are the people making the Chinese elite class. In a sharp contrast, Chinese business elites are the real sharks, all very sharp people. Sooner or later, this will end up in conflict in between the two.
- Fjolsvith 7y ago
  > Sooner or later, this will end up in conflict in between the two. Could it be that Trump knows this and is pushing for it?
  - AnimalMuppet 7y ago
    I think that Trump has a particular negotiating style, which is to be all over the map. You're a wonderful person, and he's delighted to have the opportunity to do something wonderful with you; then you're the dirt under his shoe and there will never ever be a deal with someone as wretched as you; the terms of the deal will be one thing, then something else much less favorable to you, then the deal is off, then it's back on but the terms are different. I think it's a schtick that he's used in real estate for a very long time, to get the best deal he can out of people who get tired of being yanked around and just want a deal to get done. I think it's very much improvisational and seat-of-the-pants. What you're asking (whether Trump knew this as a consequence and pushed for it) would be much more like deep strategic thinking. I don't think that's his style.
    - toasterlovin 7y ago
      Exactly. Previously the US has been run by people who are the scrupulously honest, diligent, forthright types. And anybody who was willing to get a little aggressive walked all over us. Trump totally flips that dynamic around. He is the guy who is aggressive, belligerent and unpredictable. As much as he may be a reprehensible human being, I’ve been on the other side of the table from people who negotiate like this and it’s refreshing to have one of them in America’s corner.
xmly 7y ago
Tariffs hurt US customers as well. We pay a higher price for sure. It hurts China, but it does not mean China has to retaliate because it would hurt China customers as well. If China's leaders are wise, they would focus on the economy boost instead of playing this child game with another Child.
- mc32 7y ago
  On the other hand, it's a great way to drive people away from disposable consumption and guided into more expensive but better built and longer lasting alternatives less damaging to the environment. But I'm afraid this skirmish will not last long enough to shift behavior.
- toasterlovin 7y ago
  It doesn’t raise consumer prices by much. The tariffs are on cost of good sold, not retail price. For most of the goods you buy at Walmart, the cost of goods sold is a fraction of the retail price. Most of the retail price is paying for shipping, retail presence, etc. So a 25% tariff might only result in 5-10% higher prices for consumers. And that’s only on non-grocery goods, which make up a small fraction of most households’ expenditures. Not really a big deal, in other words.
- andy_bandy 7y ago
  >We pay a higher price for sure. If we lived in a one variable world, yes. But in the real world there are multiple variables and depending on those variables this may or may not be the case. Always or just some of the time? If you are making widgets in China and I am making widgets in Vietnam are you going to pass the tariff costs on to consumers and let me steal all your business? Or are you going to eat the costs and plan to move production to Vietnam? On the other hand maybe you have contracts with big companies so they have to buy your widgets and that means that costs will be passed on at least for the term of contracts. The point is - it depends.
hourislate 7y ago
What I found dealing with Chinese Factories is that they will reduce the price of goods as much as they can to reduce the impact of tariffs for the customer. Most factories receive a Government subsidy for all goods that are exported (BOL from shipping lines). In some industries it can be as high as 15% of the price charged to the customer, which allows them to be more competitive or in the event of tariffs allows for price adjustments. Eventually if the tariffs get to a point where there is no profit left then any additional cost will be passed on to the customer and could be passed on to the consumer. I feel this is what is occurring now in the USA. The Chinese are eating the tariffs and will continue until there is no more room to maneuver. At that point US companies will probably eat some of the tariffs by reducing profit. Eventually the consumer might have to pay a little more but that isn't a guarantee. The consumer could luck out and pay what they were always paying. During the 2008 melt down, all our factories agreed to work at cost as long as we continued to buy so they could keep the work force employed. The Chinese are very tough and very willing to do whatever it takes to stay in the game.
- toasterlovin 7y ago
  The problem is that margins in manufacturing are usually in the single digits. So you can’t really sustain eating a 10% tariff, to say nothing of a 25% tariff, for that long. Money doesn’t grow on trees. You either have to borrow to cover the tariff or pay out of savings. At some point you run out of money or your creditors come to think that you will.
  - grizzles 7y ago
    It depends on the industry but margins in manufacturing are often enormous. I once worked in a factory making action figures. We could make a few dozen for under a penny in energy and material costs. Those sold for ~$19.99 each. It turns out that all the cost is in marketing and distribution. And for asian manufacturers the internet era has decreased those costs a ton. They can outsource them to eg. western youtube price arbitragers and focus completely on volume to maximize their government subsidy.
    - 7y ago
Proven 7y ago
The Donald realized this years before the NYT.
m3kw9 7y ago
Its all about huiwei and the technology, that’s the ultimate bottom line. They are fighting for the long shot prize. Retaliation is only to show face. Unless they can spin non retaliatory action as something better. Ultimately they seem to be fixated at 5G deployment

62 points by ycombonator 7y ago

Regrettably, that didn't stop us here in the US.

Again [1] this narrative of the protectionist US vs. free-trade champion China. Yet China has been heavily protectionist since long before the US started firing back [2]. I cannot imagine these journalists lack this very basic knowledge, which makes me think they are being deliberately deceptive in their framing. [1] https://www.reuters.com/article/us-imf-worldbank-china/china-denounces-protectionism-in-swipe-at-u-s-trade-policy-idUSKCN1RP0HU https://www.reuters.com/article/us-imf-worldbank-china/china... [2] https://www.forbes.com/sites/douglasbulloch/2016/10/12/protectionism-may-be-rising-around-the-world-but-in-china-it-never-went-away/ https://www.forbes.com/sites/douglasbulloch/2016/10/12/prote...

DeonPenny 7y ago
yeh its a crazy misunderstanding of the facts. It makes think someone getting paid to make this narrative happen.
dang 7y ago
That's clearly not what this article is about. Please focus on what's new and interesting about an article instead of hauling in old links to restart old flamewars. Repetition is the enemy of curiosity. We want the latter. Edit: one can see this problem in the very first word of your comment: "Again". "Eschew flamebait. Don't introduce flamewar topics unless you have something genuinely new to say. Avoid unrelated controversies and generic tangents." https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- deogeo 7y ago
  But the framing is interesting. I agree that "they started it!" won't make for a very interesting discussion, but talking about which facts the press focuses on, and which it ignores, could be.
  - dang 7y ago
    That is simply not a significant aspect of the article. In fact, I didn't see it there at all, though I only skimmed it.
    - deogeo 7y ago
      That it (Chinese protectionism) is not there at all is precisely my point.
      - dang 7y ago
        In that case your post was an example of what that guideline asks you to avoid: flamebait and generic tangents. Shoehorning a pre-existing grievance into the thread is exactly how we get repetitive flamewars. I know it feels more important, but it always feels that way, and that feeling needs to be resisted if we're to have curious discussions about new things. The art of being a good commenter involves focusing on the specific new information in an article.

andrekandre 7y ago

> Officials are also taking concrete steps to shift China’s dependence on the United States for certain goods. They have focused efforts on new trade partnerships with countries like Japan and South Korea and lowered trade barriers for other countries. They have also struck deals to import agricultural goods from countries other than the United States. This week, China approved barley imports from Russia. this is where i expect steve bannon’s idea of favoring bilateral deals instead of large trade blocks (ASEAN, TPP etc) to backfire in the end china will probably just find other ways to adjust and world economy starts splintering (personally, i was no fan of tpp because of the non-democratic arbitration clauses, but i also think bringing the world together under harmonious and consistent trade relations is extremely important for peace and stability)

H8crilA 7y ago
How many things are as good for world's prosperity than low or no tariffs? That's only beaten by lack of armed conflicts. Wishful thinking, but still true.
- nine_k 7y ago
  Tariffs are a way to force local businesses to produce something that's more cheaply available elsewhere. Usually it's exactly in an anticipation of a conflict (even armed) which would sever vital supplies of that stuff. Open markets work best when there is a common peaceful order, and an enforcer of it. US used to be, and largely continues to be such an enforcer, but not in the China's area of influence.
- toyg 7y ago
  Free and abundant healthcare and education trump anything commerce-related, in my book. You can argue trade can help in those areas too, but strictly speaking it’s not a prerequisite (often it’s even a problem).
Fjolsvith 7y ago
Where will China get the money to buy their agricultural goods? Their food prices jumped 7.7% in June, likely caused by the outbreak of the African swine fever in the country’s pig herd [1]. China has some serious pressure being applied to them, and no wiggle room. 1. https://www.counterpunch.org/2019/07/19/china-and-the-swine-flu-outbreak/ https://www.counterpunch.org/2019/07/19/china-and-the-swine-...

baybal2 7y ago

> The question is how. China’s imports from the United States only a fraction of the trade going the other way, so it cannot match Washington tariff for tariff. Much of that trade consists of agriculture goods like soybeans, as well as specialized products like Boeing jetliners or the American-made chips for the smartphones China makes. The question monetary value, but where widgets are physically made made. This simple realisation eludes so many "China Experts" in the West. Were Beijing to pull an inverse Huawei ban on any company in the West, that company would be dead in a few months no matter what it is. It can crash US stock market, pension funds and assuredly secure the non-election of Trump for the second term. China is fully capable of economic retaliation against US and can genuinely make it hurt, but it chooses not to because people in Zhongnanhai have no guts for that. What surprised me most in recent months is that out of all people, the criticism of Xi's overly conciliatory tone with Washington is now coming from people whom you can call Chinese industrialists class. This criticism is quite strong worded, emotional. I never ever saw somebody so up on social ladder here being so openly critical of Xi before.

baybal2 7y ago
On BBK's internal mail list, there was a letter from Duan saying that Xi's indecision lets USA to slowly bleed Chinese industry while American companies have sweet time relocating out of China at easy pace, and show US politicians how easy is China for picking, and that doing so is a totally repercussions free way to gain political capital. And that assures that China's troubles will not end with Trump now. Another sentiment from a forum quite popular by industry oldtimers is beyond unflattering, pretty much a personal rant on Xi, so I can't say the source. The point was that Xi, a very insecure man, and the elites of his generation, were unable to resist influence of Trump's powerful ego, and that they are plainly frightened by him. From my own view, this is indeed the case. It is hard to explain to somebody who live in the West how it works, but I'll try my best here: See, that generation of people were risen in the culture dominated by the social class of "Big Men," and all of their social programming and mental processes work around one attaining, securing, maintaining, extracting benefits from, giving or forcefully taking that "Big Man" status from somebody. In eyes of such people, somebody like Trump may indeed look like a very "top dog" person, more so than even Xi himself. And it is Xi's insecurity that pushes him to seek engagement with Trump, to show his peers that he "can talk on equals even with a big bad boy like Trump." If he were to break off that engagement, and if he would've lashed out on Trump, many of his peers would've seen that as him going on defensive, and admitting his inferiority to Trump, as if he was skulking away from Trump's intimidating presence.

baybal2 7y ago

Quote from the article: > “We don’t know how to deal with this either,” Tu Xinquan, the president of the China Institute for W.T.O. Studies at the University of International Business and Economics. > “Is he a sane person at all?” Professor Tu said of the latest move by Mr. Trump. “It’s quite surprising. Didn’t the White House just announce that the trade talks were constructive?” I'm afraid that Beijing still did not realise that all of the above is pretty much planned. Trump will keep "nightmaring" them, keeping them tense, showering them with unending negative publicity of them keeping failing the trade talks time and time again, while propping up his profile. Things like this keep showing just how inept and naive are the people making the Chinese elite class. In a sharp contrast, Chinese business elites are the real sharks, all very sharp people. Sooner or later, this will end up in conflict in between the two.

Fjolsvith 7y ago
> Sooner or later, this will end up in conflict in between the two. Could it be that Trump knows this and is pushing for it?
- AnimalMuppet 7y ago
  I think that Trump has a particular negotiating style, which is to be all over the map. You're a wonderful person, and he's delighted to have the opportunity to do something wonderful with you; then you're the dirt under his shoe and there will never ever be a deal with someone as wretched as you; the terms of the deal will be one thing, then something else much less favorable to you, then the deal is off, then it's back on but the terms are different. I think it's a schtick that he's used in real estate for a very long time, to get the best deal he can out of people who get tired of being yanked around and just want a deal to get done. I think it's very much improvisational and seat-of-the-pants. What you're asking (whether Trump knew this as a consequence and pushed for it) would be much more like deep strategic thinking. I don't think that's his style.
  - toasterlovin 7y ago
    Exactly. Previously the US has been run by people who are the scrupulously honest, diligent, forthright types. And anybody who was willing to get a little aggressive walked all over us. Trump totally flips that dynamic around. He is the guy who is aggressive, belligerent and unpredictable. As much as he may be a reprehensible human being, I’ve been on the other side of the table from people who negotiate like this and it’s refreshing to have one of them in America’s corner.

xmly 7y ago

Tariffs hurt US customers as well. We pay a higher price for sure. It hurts China, but it does not mean China has to retaliate because it would hurt China customers as well. If China's leaders are wise, they would focus on the economy boost instead of playing this child game with another Child.

mc32 7y ago
On the other hand, it's a great way to drive people away from disposable consumption and guided into more expensive but better built and longer lasting alternatives less damaging to the environment. But I'm afraid this skirmish will not last long enough to shift behavior.
toasterlovin 7y ago
It doesn’t raise consumer prices by much. The tariffs are on cost of good sold, not retail price. For most of the goods you buy at Walmart, the cost of goods sold is a fraction of the retail price. Most of the retail price is paying for shipping, retail presence, etc. So a 25% tariff might only result in 5-10% higher prices for consumers. And that’s only on non-grocery goods, which make up a small fraction of most households’ expenditures. Not really a big deal, in other words.
andy_bandy 7y ago
>We pay a higher price for sure. If we lived in a one variable world, yes. But in the real world there are multiple variables and depending on those variables this may or may not be the case. Always or just some of the time? If you are making widgets in China and I am making widgets in Vietnam are you going to pass the tariff costs on to consumers and let me steal all your business? Or are you going to eat the costs and plan to move production to Vietnam? On the other hand maybe you have contracts with big companies so they have to buy your widgets and that means that costs will be passed on at least for the term of contracts. The point is - it depends.

hourislate 7y ago

What I found dealing with Chinese Factories is that they will reduce the price of goods as much as they can to reduce the impact of tariffs for the customer. Most factories receive a Government subsidy for all goods that are exported (BOL from shipping lines). In some industries it can be as high as 15% of the price charged to the customer, which allows them to be more competitive or in the event of tariffs allows for price adjustments. Eventually if the tariffs get to a point where there is no profit left then any additional cost will be passed on to the customer and could be passed on to the consumer. I feel this is what is occurring now in the USA. The Chinese are eating the tariffs and will continue until there is no more room to maneuver. At that point US companies will probably eat some of the tariffs by reducing profit. Eventually the consumer might have to pay a little more but that isn't a guarantee. The consumer could luck out and pay what they were always paying. During the 2008 melt down, all our factories agreed to work at cost as long as we continued to buy so they could keep the work force employed. The Chinese are very tough and very willing to do whatever it takes to stay in the game.

toasterlovin 7y ago
The problem is that margins in manufacturing are usually in the single digits. So you can’t really sustain eating a 10% tariff, to say nothing of a 25% tariff, for that long. Money doesn’t grow on trees. You either have to borrow to cover the tariff or pay out of savings. At some point you run out of money or your creditors come to think that you will.
- grizzles 7y ago
  It depends on the industry but margins in manufacturing are often enormous. I once worked in a factory making action figures. We could make a few dozen for under a penny in energy and material costs. Those sold for ~$19.99 each. It turns out that all the cost is in marketing and distribution. And for asian manufacturers the internet era has decreased those costs a ton. They can outsource them to eg. western youtube price arbitragers and focus completely on volume to maximize their government subsidy.
  - 7y ago

Proven 7y ago

The Donald realized this years before the NYT.

m3kw9 7y ago

Its all about huiwei and the technology, that’s the ultimate bottom line. They are fighting for the long shot prize. Retaliation is only to show face. Unless they can spin non retaliatory action as something better. Ultimately they seem to be fixated at 5G deployment