Friday, August 9, 2019

Krugman Explains China's Trade War Strategy

Chinese President Xi Jinping
Paul Krugman gets this completely right:

If you want to understand the developing trade war with China, the first thing you need to realize is that nothing Donald Trump is doing makes sense. His views on trade are incoherent. His demands are incomprehensible. And he vastly overrates his ability to inflict damage on China while underrating the damage China can do in return.

The second thing you need to realize is that China’s response so far has been
fairly modest and measured, at least considering the situation. The U.S. has implemented or announced tariffs on virtually everything China sells here, with average tariff rates not seen in generations. The Chinese, by contrast, have yet to deploy anything like the full range of tools at their disposal to offset Trump’s actions and hurt his political base.

Why haven’t the Chinese gone all out? It looks to me as if they’re still trying to teach Trump some economics. What they’ve been saying through their actions, in effect, is: “You think you can bully us. But you can’t. We, on the other hand, can ruin your farmers and crash your stock market. Do you want to reconsider?”

There is, however, no indication that this message is getting through. Instead, every time the Chinese pause and give Trump a chance to rethink, he takes it as vindication and pushes even harder. What this suggests, in turn, is that sooner or later the warning shots will turn into an all-out trade and currency war.

RW note:

China is also likely playing only tiny tit-for-tat in an attempt to keep Trump from getting too aggressive while they wait out the 2020 US presidential elections to see if Trump is defeated.

Trade negotiations led by Joe Biden or Kamala Harris would be less hostile.

Harris' father is a Stanford economist emeritus and there is some indication he may have gotten to her about the importance of free trade.







1 comment:

  1. China is also likely playing only tiny tit-for-tat in an attempt to keep Trump from getting too aggressive while they wait out the 2020 US presidential elections to see if Trump is defeated.

    I would say it's more likely they're waiting for a more strategic time to pull the trigger to ensure Trump is defeated.

    And I'm guessing, if successful, there will be no investigations into China's influence on US elections if the Dems run Congress.

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