Is Donald Trump pre-empting a shooting war with China?
The article "China's Next Ten Years" by Roy C. Smith of NYU's Stern School of Business in the summer 2018 Independent Review brings together the well documented economic and societal problems of China, which has similarities with the Japanese economy from thirty years ago.
Thirty years ago, Japan's borrowing was out of control, expanding factories and building at an insane pace. A single plot of land in Tokyo was worth more than the entire state of California. Their educational system was flawless, and their exports became ever more sophisticated. We in the West were stunned by Japanese successes and wanted to emulate them.
Then, in 1989, the Japanese economy imploded. Real estate prices went into the toilet, zombie corporations all owned each other, the Nikkei dropped from 40,000 to 7,000 and stayed there, and stubborn deflation marred a generation. Young people were not able to get jobs, to marry, or to have kids.
Today, China, the factory of the world, is financially leveraged to the hilt. There are banks and shadow banks, and no one seems to know how much has been borrowed or how many loans are in default. Regional potentates arrange for development with money that they don't have. Decisions on what is produced and ideals that are to be pursued (like the touted turn toward "high tech") are made by political bosses who get their clues from the doctrinaire NYT and Economist. The CCP is deeply worried about joblessness and the miserable prospects for the 300 million rural peasants and the other 300 million illegal immigrants to their major cities. These are already restive.
If things went south, these leaders would impose rigid and authoritarian solutions (like the Keynesian ones that Japan employed) which would hamper the market's self-correction of the financial unpleasantness.
Is Donald Trump greasing the skids to make the inevitable Chinese internal market collapse occur sooner than later? He may, probably consciously, be arranging the cash flow crisis, factory closures, and joblessness that will destroy the Chinese economy.
Let's assume that President Trump imposes an incremental 25% tariff on Chinese goods imported to the USA. Our retailers would buy cheaper goods, many produced by automation in the USA. Chinese factories would have to close, and workers would be laid off. Cash flow would dry up and mortgages go into default. Armies would have to be deployed to impose order on unemployed starving peasants and to tame the middle class bankrupted after the stock and housing markets have collapsed.
In the U.S., the cost of manufacture is about 10% of the retail price of goods. We would have to make stuff ourselves, and the protected producers could raise prices of manufactured goods by the 25% of the tariffs since that's the extent to which they will be protected from market forces, but the increases are only on the manufacturing costs and should raise the retail prices by a measly 2.5%. The impact in the USA should not be that severe. The increased costs would be cheaper than any shooting war in the Far East.
So Trump is waging war by simply changing rules at our borders; we decide what (if any) Chinese merchandise gets into our Walmarts. If we want to target our tariffs more closely, we can specify which factories will close in Shanghai, Chongqing, and Wuhan. The CCP will be kept busy just surviving, beating down its workers and peasants, and will have trouble finding the funds to pay for the Silk Road project and nine dash line, much less wage a shooting war outside its borders.
Given the unstable, overheated Chinese economy, a little nudge should be enough to start the downward spiral going. Poverty and chaos will follow from the loss of the U.S. cash flow. That is not a kind thing for Donald Trump to do.
But the Chinese will have no reason to reach for their nukes or missiles, and that will save all of us, the Chinese included, real problems.
Erwin Haas is a former city commissioner in Kentwood, Michigan and is running for Michigan's 26th Senate district. He blogs at http://Kentwoodblog.Wordpress.com.