How dangerous would Trump's China policy be for the world economy?

Analysis by Paul Denlinger, involved in China economics with ccmments read on quora.com

It would be more dangerous for the US than for China.

This is because it would lead to:

Wider adoption for the Chinese yuan against the US dollar, which would mean that the US would have to raise interest rates to attract capital inflows;
Higher interest rates in the US would mean greater slowing of the US economy, since the December 2015 rate changes have shown that the US economy is very sensitive to interest rate hikes;
Higher interest rates would lead to higher US unemployment. This would lead to more anger and social instability, setting the stage for changes in the 2018 Congressional elections, and the 2020 presidential election.

This would benefit China because:

More countries would see the US as an unreliable partner because Trump is likely to act against them in different ways, such as trying to force Mexico to pay for a wall on the border;
These other countries would turn to China, and China would likely ask that their trade be denominated in yuan, not dollars. As this becomes a trend, there will be less US dollar demand.
As the US bloc of trade influence shrinks, then China, as the world's largest manufacturer, would see increased influence.

To sum up, a President Trump would appear to be against China's interests on the surface. However, over time, it would be an absolute gift to China as it would help Chinese influence to grow. The US economy would continue to shrink, and US influence worldwide would be diminished, and China would be poised to assume the place the US used to have

Comments

Yu-Hsing Well versed on history of China, and follows its politics a bit

As Paul Denlinger correctly noted, if he simply unilaterally sanctions China and let it run for awhile, in a vacuum that is almost certainly going to hurt the US much more than it does China, for one thing, a lot of 3rd countries would just rip the US off, selling say, their own steel to the US for 5 bucks then buy steel for 3 bucks from China, in this situation China doesn't lose much but the US lose a lot.

If he tried to somehow impose a global sanction on China, not only would it be literally impossible and could easily start a new cold war, but a even more likely outcome is that most of the world's smaller countries simply keep black mailing the US, requesting ever more goodies to go along with this master plan.

HOWEVER, I feel the bigger point is that if someone is crazy enough to even begin going down this path (which BTW, it's called Mercantilism , it's not something new, it's basically what all the Imperialist Europeans did in the 18th and 19th century and was literally one of the direct cost of the world Wars.), the most logical next step once he doesn't get his way and / or realize things isn't going the way his delusion suggest it would, would be WAR.

This is certainly what most people outside of the US (who has any understanding of international and US politics .) suspect. if they don't get their way, they will MAKE their way by force. that's certainly the only possible way I could see them making Mexico pay for that wall while deporting millions of Mexicans and everyone that look like a Mexican (or muslim, they can't tell the difference.) and it's hardly out of character of recent US foreign policy, even among the Democrats let alone the Republicans.

I hate Hillary Clinton's foreign policy, let me be loud and clear about that, her track record is literally Dick Cheney in skirts posing as a Democrat and she will be hated in the middle east for generations to come in the most OPTIMISTIC situation , HOWEVER, she's the lesser of the two evil here which is mind boggling and worries me to no end.

Robert Leo

Yu-Tsing raised an important point, China will just export through other 3rd world countries.

And this is nothing new, there used to be a quota system, under which Hong Kong exports pretty close to the entire China. I had a few talks with folks who were doing trading in that system, surprisingly they don't like the system after WTO, not just the middlemen are hurt, prices have been drastically lowered and so is quality. However, it does keep the Chinese export growth and dollar reserves on steroids.

Drastically raising tarriffs will hurt the low skill laborers in China, as businesses will move elsewhere, but it is only speeding up the trend which China is undertaking right now anyway. US working class will have to deal with higher prices and believe it or not worse quality, just what they need in addition to stagnant income. And of course US companies that rely their growth on China - Apple/GE/GM/... will be good short candidates, too bad US has already done enough protectionist measures that well established Chinese companies can't count on US to be their #1 market.

It might be a good thing, through mutual destruction and benefits of third party countries, it may quiet down the buffoons who keep thinking hurting the biggest trade partner will be the solution to their problems.

Stuart Baran Human Capital Acquisition and Strategy Consultant, Banking

Trump does not have a "China policy". Such a policy would need to be coordinated with the departments of State and Defense, Energy, Agriculture, and Finance would probably have a role in it as well. Trade relationships are developed over the course of decades, not month or even years. We have a commerce departments that is responsible for developing a comprehensive, long term trade strategy. He could not possibly have a plan at this point.

Kumar Barain Trader, SW Engr. Wide ranging investing expert.

Sorry, sticking to a short answer on this .... China is too important now to mess with, Mr. Trump's shots and rhetoric notwithstanding.

Even though developed world's middle class is reeling due to massive outsourcing of manufacturing, any massive realignment of trade policies is not simply in the realm of what a POTUS can effectively bring about.

We can however expect some big words and small actions on US trade policy, if Mr. Trump indeed delivers on all he says.

Any bigger action will require a buy-in from corporations (capitalists) and legislature and many don't see how that would come about.

Charlie Fortin, MBA & Entrepreneur

Trump's idea is to negotiate the particulars of every trade situation. Previous administrations have negotiated the politics of each nation. The approaches are quite different and worth exploring.

The record of these political trade relationships are terrible. Just look at the Trump voter for consensus on that.

Source: quora.com

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