Tall tales won't help US win trade war
White House Chief Economic Adviser Larry Kudlow said Sunday that both the US and China will suffer when questioned about who would pay the tariffs imposed by the US on Chinese imports in an interview on Fox News. Although he also argued that the effect on the US economy would be modest, his remarks were singled out by the US media for contradicting US President Donald Trump's claim that duties are a good option that would help the US economy.
The China-US trade war is unprecedented. With everything on the table, Washington is becoming increasingly anxious at seeing no sign of China concessions. The US had hoped China would quickly surrender and didn't psychologically prepare itself for a protracted war. The way the US has opted to mobilize public support is telling untenable stories. For instance, Washington stressed that it could collect US$100 billion in tariff revenue and China would pay the tariffs. For the new tariffs, it claimed "only 4 points were paid by the US" and "21 points by China." This is nonsense.
It's well known that tariffs are paid by US importers and those importers can negotiate with Chinese manufacturers to share some of the burden. Given that the original profits of those Chinese products are quite small, it's hard for American importers to make Chinese manufacturers help and ultimately, the tariffs will largely be passed onto American consumers.
The US also claimed that its tariff hikes would force companies to leave China. China itself today is a huge market, the size of which is comparable to, and on the trend to surpass, that of the US. China's development in essence is intended to meet the demands for a better life of more than 1 billion people in the country. The consumption capabilities and market consumption potential driven by demand are what foreign companies value most when they come to China.
The White House might as well try to call on American companies such as General Motors, Ford, Apple, McDonald's and Coca-Cola to leave China. Will any of them follow?
China on Monday announced tariff hikes ranging from 5 percent to 25 percent on US$60 billion worth of US goods. This demonstrates China's determination to resolutely strike back against the US tariff moves. We believe China surely will take further countermeasures.
China has plenty of countermeasures. The US tariff moves are very much like spraying bullets. They will cause a lot of self-inflicted harm and are hard to sustain in the long term. China, on the other hand, is going to aim with precision, trying to avoid hurting itself.
The Chinese government has been blunt about the difficulties and losses that the trade war will bring to the Chinese economy. This is in sharp contrast to the US government seeking to beautify the trade war.
The Chinese side is obviously more realistic while the US is falsifying. This will, to a large extent, influence how the two countries digest the trade war impacts.