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weeveeship's avatar

What would the ramifications be for a trade war between US and China?

Asked by weeveeship (4614points) September 15th, 2010

There has been news of US discontent with China. Geithner seems rather unhappy with the low yuan. On the other hand, the Chinese are concerned about the value of US treasuries. The Chinese are also quite reliant on exports and would be unwilling to appreciate the yuan significantly.

If there is a trade war (define: growing protectionism that hinders trade between the two countries), what would the ramifications be on:

1. The US market (i.e. Dow and S&P 500)
2. The US economy
3. The Chinese markets (i.e. Shanghai Index and Hang Seng I know this is Hong Kong)
4. The Chinese economy

Note: Please do not flame. This is not a forum for racist or bigoted views regarding either the Americans or the Chinese. This is meant to be a purely academic discussion.

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9 Answers

toaster's avatar

Hopefully it would mean more self-reliance on both countries part, and not escalate into a full blown war. Although a trade war would refute the trends of globalism I think more self-sufficient practices would ultimately benefit both countries. ie: more domestic manufacturing in the US, and a more expansive middle class with consumer spending in China.. then maybe we can see more eye to eye…

Cruiser's avatar

HS!! Where have you been the last 30 years?? Why do you think China owns almost 900 billion in US treasuries?? We are beholden to China and now owe them a thirst and hunger for Chinese products like never before and our trade policies reflect that stranglehold that China and other nations have over our economy! You think that Obama and/or the Republicans are the reason for the for economic demise??? Think again!! Trillions in IOU’s are what is driving our domestic and international policies and bending over and cracking a smile is all you can do!

weeveeship's avatar

@Cruiser Ok, then, how do you think the Chinese will react if the US starts getting more protectionist?

toaster's avatar

True we are debted past the eyeballs but everyone fails to see the trillions invested into china supplying practically their whole manufacturing infrastructure. Basically the westernized world saw, and developed this gempiece. The Chinese have prospered and despite debts, have realized they made an immensely good long-term decision… It is overly evident though at the fact that the powers of the world have been transitioning for the last decade plus, and that the American rust dinosaur is yet another even shorter chapter in the eras of world supremacy.

cazzie's avatar

China could sell off it’s US holdings cheaply, leaving the stock market in the ditch somewhere. But honestly, it’s a push-me/pull-you relationship now. Almost like the new ‘Cold War’ where threats and poor trading practices on each side would lead to mutual destruction (not total annihilation, but certainly some hard times…) Both sides rely on each other and it’s always going to be a balancing act. The US has to re-define what it’s good at. Building cars? nah. Making steel? nope. Technology? You betcha. Entertainment? of course… Advertising… that too. The world doesn’t need two Chinas or two Americas. America needs to do what America does best and forget about trade barriers. China has positioned itself to be able to protect the value of it’s currency against it’s major trading partner: the US. Clever. America had better position itself accordingly and not play chicken.

CyanoticWasp's avatar

The US and Chinese economies are far too dependent upon each other for mutual support for either of them to engage in something as stupid and utterly defeatist as a “trade war”. Yes, as trading rivals as well as partners, they will each always have something to bitch about the other. But attempting some kind of unilateral action such as “protectionist barriers” for the US or “selling Treasuries” for China would have disastrous implications for… the one firing the shots.

For China to sell off US Treasuries would ruin its own balance sheet, even if only temporarily, and would have the same effect on its own economy that US trade barriers would have: trade would dry up. And since (I’m pretty sure) the US is China’s biggest customer, and likely to remain so for decades, that would be hard to make up. When the US economy hit the skids a couple of years ago, whole Chinese manufacturing complexes the size of good-sized American cities were vacated and people laid off in the tens of thousands. China can’t afford that!

And for the US to erect trade barriers against what some perceive as too-cheap Chinese goods would hurt consumers in the US who want those things… and would be sure to take time off from their new jobs (assuming they could get them, as the Chinese retaliated, whether they wanted to or not) to vote out the stupid politicians advocating such ruinous policies.

Cruiser's avatar

@weeveeship Truthfully I do not know enough about the dynamics of our trade policies to give even a bad answer here…

But what I know is there is a huge trade deficit between us and China and it works in a crude way as we need China as a source of low interest rates on our treasuries and China is willing to offer these low rates as long as we continue to buy up their excess goods. We need China to continue to buy up our steel and electronics we send them so our manufacturing base continues to employ a lot of people whose very jobs depend on these trade agreements. This Congressional Report will tell you the real facts behind our trade policies. It has all the nitty gritty facts and details. Here is a snip,,,,

The Rationale for U.S. Policy and Initiatives
Allowing trade with China to develop is part of the overall U.S. strategy of
engagement with the PRC. The rationale behind engagement is that working with
China through economic, diplomatic, informational, and military interchanges helps
the United States to achieve important national security goals such as preventing
nuclear proliferation, defeating global terrorism, defusing regional conflicts, fostering
global economic growth, and championing aspirations for human dignity.1 These
goals are aimed at achieving U.S. national interests of security and prosperity for all
Americans and projecting U.S. values abroad.

Forbes here has a real nice op ed that give an over view on what these trade agreements mean to us today and in our near future…read that to get a feel for why this is so important to our economy and political future.

wundayatta's avatar

For the US economy, it would mean that items made in China would cost more. Therefore the US consumer would either buy less, or switch to the next lowest price manufacturers or both. I’m not sure anyone would really notice the changes—not at the consumer level. The impact would be at the corporate level.

In terms of the market, I can not say. There will be winners and losers, and overall, the economy will see a little dampening, but whether this dampening is noticeable, I don’t have any idea.

The Chinese markets would probably respond more dramatically. They tend to do that. You might see a sudden drop when the tariffs were imposed. The Chinese will not be happy.

The overall economy is also hard to predict. We are not China’s only trading partner, even if we are their largest (and I don’t know if that is true). Chinese businesses appear and disappear all the time. The poor flock the cities. There might be an effect, which would be to slow the economy slightly, but you’d never be certain that the tariffs were the cause.

What is more interesting is what the Chinese govt will do. I know they will get quite upset, and threaten their own sanctions against the US. Aside from that, I don’t know.

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