Trade Wars Easy to Win
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
Trump’s “logic” rests on the notion that China has a huge trade surplus and the US can hurt China more than China can hurt the US.
Such logic is seriously misguided.
- Trade is not a zero sum game. One does not gain by losing less. Losing is losing.
- Yes, Trump is correct that the US can place more tariffs on Chinese goods than China can place on US goods. However, Trump cannot ignore US farmers, but the unelected leaders in China can suppress all dissent.
- The US dollar floats, the Renmimbi (Yuan) doesn’t. Thus, China can manipulate it currency, albeit with risks of capital flight, to mitigate some or all of US tariffs.
Currency charts can be confusing. Sometimes up is down and sometimes down is up, It depends on which currency is first. The lead chart shows a 7.4% decline in the yuan vs the US dollar since April 16.
Meanwhile the dollar index itself has advanced.
US Dollar Index
The Euro has the biggest weight in the index.
- Euro (EUR), 57.6% weight
- Japanese yen (JPY) 13.6% weight
- Pound sterling (GBP), 11.9% weight
- Canadian dollar (CAD), 9.1% weight
- Swedish krona (SEK), 4.2% weight
- Swiss franc (CHF) 3.6% weight
Euro Impact
Because the euro floats and the Yuan doesn’t, Europe is caught in the fight. This is precisely why the EU asked Trump to join with it to fight China. Trump rejected the idea.
Germany, one of Trump’s hot button, is in a bad bind, especially given the rising threat of a hard Brexit.
The EU can scarcely afford to be in a simultaneous trade war with the US, China, and the UK.
Yet, that is precisely where we are.
One Question
Is anyone winning?
Clearly, not.
As I have noted, No Matter What Any Other Country Does, the Correct Action is to Reduce Tariffs.
But if the current path continues the EU will be the biggest loser. The US and China can change tactics overnight. It takes the EU a decade to do anything.
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Mike “Mish” Shedlock
Forget it. Will not be allowed to happen.
That’s great, you can use it to pay the tariffs.
The EU needs to be completely dismantled.
Well, my cash horde just got 6% more valuable, so I guess I’m winning….
Wouldn’t be surprised if Trump agreed with Mish on tariffs given his use of the phrase, “fair trade.” But I suspect he knows tariffs are easier to implement than free trade deals that largely benefit everyone but the US, and has opted for doing something over nothing.
Junker recently drunk again on camera. Tells you everything about Brussels.
Say no more.
What’s in it for the EU to have a deal with Japan when Japan can do whatever Germany can do? Take Japanese investment out of UK into EU? German car manufacturers etc will be up against Japan and how much French cheese will ship to Japan?
If Japan and Canada get a deal then why not UK?
UK Gov – prepinng for no deal. Camel, straw etc as 2nd net Geman marke goes off-line.
Bad for all.
Big war level prep called for on Uk food etc.
Missing the mark here…Water running downhill will find its bottom…eventually. How much water gets there is the outlier. Trade wars/currency wars can become shooting wars. In the Cyber Age….I would proffer that we are already AT WAR. If we lose the Cyber war…no need for bullets..yet. The Western World has no answer for the EAST but trade. When you pull the plug on trade, guess what? EAST MEET WEST (FIST MEET FACE). Russia goes South, EU goes nuts…and the US…FALLS.
So the EU suffers collateral damage as a result of the US finally fighting back against China’s long running trade war? As the man said — Frankly, my dear, I don’t give a damn.
Gold is down 11% versus the dollar in recent months as well.
Yes, the Yuan is depreciating but not so much for the USD. The US dollar index is marginally higher (1%) from a year ago.
Does this mean China is going to increase their US debt holdings? May be a good thing since we’ll be running record deficits for the foreseeable future.
In a bear market, the winner is not necessarily the person who makes the most money, but the one who loses the least. Two hikers encounter a bear in the woods. One of the hikers take the sneakers out of his backpack and replaces the boots on his feet with sneakers. The other hiker asks, “What are you doing?!” The first responds, “I may not be able to outrun a bear, but I can outrun you.”
EU trade deal with Japan. Probablly to garner more inward invetment in eastern states.
Abe happy.
“Yuan has effectively declined 13.8%.”
China also cannot allow its currency to depreciate forever. There will be a full fledged capital flight that would need clamp downs etc.
We will have to see who blinks first.
“Is anyone winning?
Clearly, not.”
That is OK. You cannot win from day one in a trade war! Both losing is better than one losing!
Because when there is one winner the other guy is a perennial loser but if both are losing at some point it will lead to a realization that it might be better to find a middle path so that both do not end up as losers. That this is not happening now does not mean it will not happen in the future. Given that politicians are the slimiest of human beings and have chameleon characteristics that enable them to change colors at the blink of an eyelid (without feeling any shame — advantage of having a thick skin – goes for central bankers too — who shamelessly heap praises on themselves for saving the world, by putting savers, prudent people and retirees under the bus and keeping them there for a decade, by sleeping at the wheel and creating the very fire they claim to have put out) they will change track as and when they want. It is also probably what Trump means when he says we will get a deal. It helps Trump that even today if US sneezes the world will get a cold (and that includes China too!).