Trump winning China trade war by following Art of the Deal tactics

President Trump is winning the trade war with his Art of the Deal tactics as China's leadership lashes out in a last-ditch effort to regain a stronger negotiating position.

Donald Trump in a June 2016 campaign speech blamed politicians for negotiating away many Americans' means for "supporting their families."  Trump successfully sold voters on the concept that as president, he would launch a trade war based on his 11-Step "Art of the Deal" (AOD) negotiating tactic to declare "America's economic independence."

China's and India's combined share of global gross domestic product remained stable at 50 percent from 1500 to 1820.  But the percentage plunged to 29 percent in 1870 and didn't bottom until 1998 at about 16 percent, according to McKinsey & Company.

But a combination of the United States losing its competitive energy cost advantage for manufacturing in the 1980s, China devaluing its currency exchange rate by 68 percent in the early 1990s, and President Clinton's support for China to join the World Trade Organization made China hypercompetitive.  China leaped forward to reach 15 percent of world GDP in 2012 and almost 18 percent by 2016. 

President Trump entered office in January 2017 already focused on AOD Step 1, "Think Big," to directly challenge the geopolitical economic and military strategy that fostered China's gains at the direct cost to the United States.

Contemplating AOD Step 2, "Protect the Downside and the Upside Will Take Care of Itself," Trump had to plan for the vicious blowback he expected from U.S. Fortune 500 companies that in the past two decades had enjoyed a sizzling 161-percent rise in earnings, mostly due to outsourcing labor to China and expanding Asian trade.

To protect his downside, Trump eliminated a tremendous amount of business-debilitating regulations and delivered one of the biggest corporate tax cuts in U.S. history.  The moves spiked 3 percent GDP growth and sent stocks to new record highs.

To implement AOD Step 3, "Maximize the Options," Trump restructured the North American Free Trade Agreement to level the playing field with Mexico for American manufacturing workers and give U.S. multinational corporations a supply chain option.

To prevent supply chain chaos across Asia from a U.S. trade war with China, President Trump opened Vietnam as an option for electronic manufacturers and shrinking a $39.5-billion trade deficit, by negotiating a $20-billion deal with Vietnam to buy 110 Boeing jets and 215 GE joint-venture engines.

Closing the deal in a February trip to Hanoi, President Trump told President Nguyen Phu Trong: "We are going to be signing some very big trade deals" and Vietnam was going to be "buying a lot of different products from the United States."

When Trump started his escalating China trade war tariffs in mid-2018, he had already met the requirements for AOD Step 4, "Know your Market"; AOD Step 5, "Use your Leverage"; and AOD Step 6, "Enhance your Location."

President Trump is now moving into AOD Step 7, "Get the Word Out."  Trading Economics reported that the U.S. "goods" trade deficit with China decreased to a five-year low of $20.7 billion in March, down from $24.8 billion in February. 

According to Geopolitical Futures, China's 2018 average per hour manufacturing labor rate was about $5.50, versus $4.20 in Mexico and $2.80 in Vietnam.  Transit costs in 2018 to ship a 40-foot container from Shanghai, China or Haiphong, Vietnam to Los Angeles varied between $1,000 to $2,000 and took 12 to 29 days, while shipping to New York cost $2,000–$3,750 and took 27 and 33 days.  Shipping the same container from a Mexican Maquiladora border factory cost between $75 and $140 and usually took one day.

Changing competitiveness in 2018 caused U.S. tire imports from Vietnam to spike by 141.7 percent, while Chinese imports fell by 28.6 percent.  U.S. furniture imports from Vietnam rose by 37.2 percent, while China fell by 13.5 percent.

Mexico enjoyed 2018 U.S. volume gains of 3 percent for ores and passenger vehicles; 2.5 percent for headgear; and 1 percent gains for leather goods, aluminum products, steel, and fertilizer.  China suffered losses of 3 percent for leather goods, 2.5 percent for aluminum products, and 2 percent for fertilizer and knitted fabrics.

According to Diana Choyleva of Enodo Economics, April trade data reveals that China has been forced to slash U.S. import prices to maintain market share, rather than raise prices to pay for up to 25 percent U.S. trade war tariffs.

Choyleva' commented that China's government for decades was able to recycle the nation's 51 percent of GDP domestic savings rate into new export factories, building 64 million vacant apartments, and buying trillions of dollars in U.S. Treasury bonds.  But falling domestic saving rates for China's corporate, household, and government sector will cause China in 2019 will run its first current account trade deficit in 25 years.

President Trump understands that the trade war is about to move to AOD Step 8, "Fight Back," with China's leadership lashes out in several very unpleasant directions, hoping for a last-ditch opportunity to regain a strong negotiating position.

When unpleasantness fails to improve China's negotiating position, President Trump will move to AOD Step 9 to "Deliver the Goods" by closing a grand trade deal.  But once a deal is signed, Trump will remain vigilant under AOD Step 10 to "Contain the Costs" for both parties moving forward.

Having honored his 2016 "Make America Great Again" pledge, President Trump will finish with "Art of the Deal" Step 11, a "Have Fun" victory lap to win a 2020 re-election. 

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