Thursday , August 22 2019
Home / S. Sumner: Money Illusion / China’s best friend?

China’s best friend?

Summary:
I’m not sure what’s funnier, Trump’s claim that China’s 6.2% GDP growth shows his trade war is working, or his belief that the Chinese government’s GDP data is not fake news. (I don’t believe it is fake news; I just find it funny that Trump is one of the tiny number of pundits who (like me) trusts the Chinese government’s figures.) In fact, China’s RGDP growth has been slowing gradually for a decade, just as I predicted, and over the next 5 years it will slow some more, to roughly 5%/year. Nothing has changed. If anything, Trump’s trade tweets might be helping China: But Helfenbein does not see retail companies leaving China anytime soon. “The administration is sending us a signal, they would like us to vacate China. That’s the signal we get, but then they’re also blocking

Topics:
Scott Sumner considers the following as important:

This could be interesting, too:

Tyler Cowen writes Wednesday assorted links

Tyler Cowen writes Warsaw notes

Tyler Cowen writes Tuesday assorted links

Tyler Cowen writes Monday assorted links

I’m not sure what’s funnier, Trump’s claim that China’s 6.2% GDP growth shows his trade war is working, or his belief that the Chinese government’s GDP data is not fake news. (I don’t believe it is fake news; I just find it funny that Trump is one of the tiny number of pundits who (like me) trusts the Chinese government’s figures.)

In fact, China’s RGDP growth has been slowing gradually for a decade, just as I predicted, and over the next 5 years it will slow some more, to roughly 5%/year. Nothing has changed.

If anything, Trump’s trade tweets might be helping China:

But Helfenbein does not see retail companies leaving China anytime soon.

“The administration is sending us a signal, they would like us to vacate China. That’s the signal we get, but then they’re also blocking all the roads out,” he said. “You look at the places that we would go, number one is Vietnam, number two is India, number three is Indonesia, Bangladesh, and Mexico. All have been under some sort of threat. So what are my retailers doing now? They’re starting to throw their hands up in the air and say maybe I’ll just tough it out in China.”. .

Vietnam saw U.S. imports jump 36% this year, according to U.S. Census Bureau. But just last month, Trump threatened Vietnam with tariffs, telling local media that the country is “almost the single worst abuser of everybody.”

Of course Trump’s attacks on Vietnam are just as silly as his attacks on China, but when you are a politician who believes that “bilateral trade deficits” actually mean something, then any country with a trade surplus with us is at risk.

I’m increasingly inclined to believe that Trump is China’s best friend. Xi has recently hardened his stance on the trade negotiations, even as Trump has been furiously backpeddling on Huawei and other issues:

In a meeting with his Chinese counterpart at the g20 summit in Osaka he agreed to extend trade negotiations with China—but only after making concessions, including the reversal of his decision to blacklist Huawei, a Chinese telecoms firm his administration accuses of spying. President Xi Jinping also adopted a less conciliatory public tone than he had before the two leaders’ previous meeting, last year in Argentina. The prospects of a substantial China settlement appear remote. Mr Trump’s subsequently arranged trip to meet Kim Jong Un on the front-line between the two Koreas looked like an effort to divert attention from this climb-down.

Perhaps the Chinese now believe that they have more leverage than the US, something I’ve been suggesting for quite some time.

Even worse for Trump, his group of rapid rabid nationalists don’t seem to know what they want. One group has been demanding that China open its capital markets to the rest of the world, while others are demanding exactly the opposite:

On July 2nd the prime minister, Li Keqiang, said that foreign investors would be allowed to take full ownership of investment banks and insurers in China from 2020, a year earlier than previously promised. Over the past two decades they have been limited to minority shares, and only last year were they permitted 51% stakes.. .

Meanwhile the trade war looms over all. Some hawks in America want to sever financial ties with China. Marco Rubio, a Republican senator, has challenged MSCI over its inclusion of Chinese shares, accusing it of helping authoritarians. A headhunter in Hong Kong reports that American fund managers slowed their hiring after trade talks between China and America broke down in May. With talks set to resume, they can breathe a sigh of relief—for now. The worry is that, just as China clears away some of the obstacles in their path, America will replace them with new ones.

If we must have a nationalist president, let’s at least give thanks that we have such an incompetent one.  I shudder at the thought of a President Rubio.

PS.  Don Boudreaux has an excellent piece explaining why China’s so-called “IP theft” does not justify US tariffs.


Tags:

 
 
 
Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment".

Leave a Reply

Your email address will not be published. Required fields are marked *