China threatens tariffs on $60 billion

[Ajan Bosnjacki + 27]

China on Friday said that it would impose retaliatory tariffs on $60 billion worth of American imports if the Trump administration goes through with its announcement that it would raise an additional series of tariffs on $200 billion of Chinese goods from 10 percent to 25 percent

[JohnAtronis + 78]

However, note that significantly less than $200$ of US goods are exported to China which means that China could have to turn to creative measures to order to retaliate properly 

[李伟王芳 + 77]

Just now, JohnAtronis said:

However, note that significantly less than $200$ of US goods are exported to China which means that China could have to turn to creative measures to order to retaliate properly 

tech and oil?

[Meanwhile + 49]

it is going to be Pyrrhic victory for US

[Cokiga Damke + 53]

Xi has a lot more power over his people and economy than Trump does. He can do whatever 

[Hajga Loma DK + 47]

and there is this thingy. Are the Chinese people satisfied working in factories with suicide nets and sending their children off to work making cheap products for spoiled Americans 

[JohnAtronis + 78]

1 minute ago, Hajga Loma DK said:

and there is this thingy. Are the Chinese people satisfied working in factories with suicide nets and sending their children off to work making cheap products for spoiled Americans 

the cheap products made in china can be made in America when the tariffs make them too expensive and that creates jobs here and china loses in the long term.

[Hajga Loma DK + 47]

Just now, JohnAtronis said:

the cheap products made in china can be made in America when the tariffs make them too expensive and that creates jobs here and china loses in the long term.

then expect 10 times higher prices

[Dan Warnick + 6,100]

3 hours ago, Hajga Loma DK said:

then expect 10 times higher prices

Not really.  Prices for many/most of the things we buy from China now used to be made in the U.S. (or other 3rd world countries) and the price was about the same as it is now.  The only thing that changed was that the greedy corporations got to take a larger % of profits, thus driving up share prices.  CEOs with compensation packages based on share price cash in and leave after 2-3 years nowadays, and this new norm actually is being felt around the western world but many people don't realize it.  Many people think CEOs are overpaid, but they haven't connected the dots, yet.

There is another aspect to the tariff question: most of what China sells to the U.S., the U.S. can pretty easily do without; most of what the U.S. sells to China, China needs.  China's population needs to eat, and oil and gas needs to fuel all industrial and consumer goods production, including the consumer goods that they sell to the U.S.  Chinese food production was running at full capacity 30 years ago and they had to look to the outside world to help fill their needs.  Look at South America and Africa where China is stripping out all of the natural resources they can get their hands on, not to mention buying up food/agricultural businesses anywhere they can.  Their appetite is huge.  

Just some things to consider.

[jaycee + 348]

27 minutes ago, Dan Warnick said:

Prices for many/most of the things we buy from China now used to be made in the U.S. (or other 3rd world countries) and the price was about the same as it is now.  The only thing that changed was that the greedy corporations got to take a larger % of profits, thus driving up share prices.

Not the same in Europe oddly the price of most things have got cheaper since we started importing from China and UK businesses could not compete and went under they did not shift production to China. I did not notice that many American companies going to China the tech ones yes Apple etc but manufacturing etc no maybe the US was different. The problem with taking everything back now though is the companies have built those profit margins into their accounts and to rip them out in some cases may bankrupt them as other things will be being funded with the profit plus there will be a large initial costs opening up factories in the US plus the increased labour costs. These companies will off course come back to sell to Americans but I would not bet the price remains the same. Apple again you can take out the equation they are just the exception to all rules

32 minutes ago, Dan Warnick said:

China's population needs to eat, and oil and gas needs to fuel all industrial and consumer goods production, including the consumer goods that they sell to the U.S.

There are other suppliers of food and fuel they are not difficult to source. China uses American food and fuel as they need to keep the trade deficit down, the tariffs will encourage them to ignore that and use other sources, that would include Iran I suggest for fuel.

[Dan Warnick + 6,100]

5 minutes ago, jaycee said:

UK businesses could not compete and went under they did not shift production to China.

If I may, could it be possible that many of the goods you are talking about were already made outside of the UK?  Also, once some companies shift production, then the others have to shift as well in order to compete.  I get that.

Apple going to China?  Apple has never manufactured a phone in the U.S.  Apple makes its money from the technology and coding, not the hardware.  Chinese companies assembling their products, now India.  A big result of Apple and 1,000s of other companies sending their assembly/manufacturing to China is that China immediately, in all cases (I saw it with my own eyes for 9 years), starts to reverse engineer their products.  You may have seen the recent headlines about Apple slipping to #3 in the phone market?  China UP to #2?  Now how did that happen?  What I don't get here is the loyalty of Apple customers who believe they have the most American product money can buy, built in China and now India.  Like I said, the technology is U.S. but not much else, and Apple and many other tech companies are fast learning they have now ceded not only their designs but the actual technology secrets to their Chinese "partners".

About taking everything back, I agree that the original companies would be less able to cope, so let them go out of business (others will be happy to step up and open new businesses) or file for bankruptcy to get themselves righted once again.  However, I would point out small and medium sized companies that produced furniture and other similar products.  Those companies can be restarted from existing buildings quite easily.  Larger companies can easily receive incentives and tax concessions, not to mention actual real estate to build on, in order to get the business in states and suburban/rural areas.

As to labor, as I pointed out, the cost to the consumer never really changed that much, it is the corporations telling their tales of woe when really all they were doing was increasing their margins, nothing more.  So to go back to U.S. laborers (even at reduced wages as I pointed out) would not be difficult at all.  Announce you will be opening a factory, the location, and the labor rate, and people will be lined up to get the jobs.  People are desperate for jobs and they will be there on opening day.

As for food, the U.S. government has always and will continue to take care of farmers/agriculture.  BTW, farmers have been forced to consolidate or forfeit for as many years as I can remember.  Family farms are rare these days and they struggle, yes, but they are taken care of or sell out when it gets too hard to handle.  Corporations once again.  I grew up in the middle of that.  Farmer's own kids went to college and came back and formed the business that drove their own families out of business.  Not all of them, of course; some of those kids came home and saved the family farm because their education gave them the acumen to do so.  Call it success, I guess.

I can't answer whether we need to sell fuel to China or not, so I'll have to leave that answer to someone else.

[jaycee + 348]

36 minutes ago, Dan Warnick said:

If I may, could it be possible that many of the goods you are talking about were already made outside of the UK?  Also, once some companies shift production, then the others have to shift as well in order to compete.  I get that.

No afraid not. An example. I am heavily involved in rugby and regularly buy rugby kits for teams so deal directly with the manufacturers. All the manufacturers have closed their UK production facilities and import strips made to order direct from China. I should add that the reason they closed was not Chinese companies stepping in by small UK companies who had no manufacturing facility buying direct from China and selling under their brand. A lot of companies started up very rapidly and forced the traditional manufacturers to use China too to compete on price.

In this example only the production facilities went the company remained but it is now just a sales office similar for a lot made in UK good which are now made in China.with a sales office here.

36 minutes ago, Dan Warnick said:

About taking everything back, I agree that the original companies would be less able to cope, so let them go out of business (others will be happy to step up and open new businesses) or file for bankruptcy to get themselves righted once again.

As I said I am sure they will come back, or as you say others will do it, but unless you pay the workers the same price as a Chinese worker how will the costs match up? The companies in the UK the went out of business could not compete with the labour costs in China. Would American workers work for Chinese wages or would more likely prices go up, then we come back to my inflation argument from another thread. I am dubious of your claim that the costs of items never changed much, I think it maybe a perception thing but I am not in America and cannot say but nowhere else has that happened. A question though if a company transferred making furniture to China from the US why did someone not buy the facility and keep the staff? If the prices are the same then they could continue to make a profit, less than the company the left obviously but a profit is a profit. Why did the workers not buy the plant and continue working? Something does not add up.

 

36 minutes ago, Dan Warnick said:

As for food, the U.S. government has always and will continue to take care of farmers/agriculture. 

That costs everyone and if they have no market to export to it will cost even more. Subsiding an industry that cannot compete long term is not a good idea its storing up problems for the future

Edited August 3, 2018 by jaycee
clarified my first point

[Dan Warnick + 6,100]

I give up.

[jaycee + 348]

3 minutes ago, Dan Warnick said:

I give up.

I am not trying to win an argument just understand how things will work in the US as you paint a picture that is not like Europe. I hope the relocation of jobs to the US works out as they will set a trend I hope Europe can use and keep me employed.

[Jan van Eck + 7,558]

15 minutes ago, jaycee said:

I am not trying to win an argument just understand how things will work in the US as you paint a picture that is not like Europe. I hope the relocation of jobs to the US works out as they will set a trend I hope Europe can use and keep me employed.

The "Trumpian" argument is that the tariffs, and now the mere hint of a threat of tariffs, will act as a powerful incentive to US vendors of both industrial and consumer goods to keep their product lines domestic.  Suppose you are a producer of beds and you have outsourced your production to a furniture factory in China.  And that happens: for example, Raymour & Flanagan, a multi-State regional furniture sales company, formerly sourced a good portion of its bedroom furniture from the Ethan Allen Co. in far NE Vermont.  R&F then started bringing in China product, to the point that it was the source of some 35% of their product sales.  The Ethan Allen plant closed  (it was bought for a pittance by a Boston hedge fund which is setting up a mushroom grow operation in the old plant).  Now if you are the purchasing agent at R&F and you have container loads of furniture inbound from China, which you have already paid for by Letters of Credit, and while they are underway Trump announces a 40% tariff on Chinese furniture, voom! there goes your sales of bedroom sets, every single one you retail will be at a loss.  And a stiff hit, to be sure. 

And it gets worse.  Since you have not cultivated an alternative source of domestic supply, you have no back-up plan to source domestic bedroom sets.  Other furniture chains have scooped you. Ethan Allen, your former supplier, is not doing that any more, the old plant up in the woods, conveniently near the sawmills, is gone.  OK, there are some guys down in North Carolina, but their lines are fully booked.  You now have no source, at least not that you can sell and stay in business. 

So, the mere threat of an unpredictable Trump as a loose cannon, which is his image, is forcing these purchasing agents to re-source their supplies.  Nobody can take the chance that their product is not going to get whacked with a steep tariff or even a quota wall, or an outright prohibition  (and if that happens and your boat has not landed, your goods will go to the burn yard). So those purchasing agents are getting the big push to go find domestic suppliers, to beat the tariffs that loom.  Since that will be the case in every product category, all that work will come whooshing back into the USA, everything from auto alternators to tires to drywall to door hinges.  Nobody can risk getting trapped. 

[Clarity2See + 10]

On 8/3/2018 at 3:50 PM, jaycee said:

As I said I am sure they will come back, or as you say others will do it, but unless you pay the workers the same price as a Chinese worker how will the costs match up?

There are many geniuses on this site, especially contributors like Jan who is endowed with an amazing intellectual capacity.  

I would like to add a comment here if I may in regards to Jaycee's labor cost advantage argument as I have  background in banking and as well as international outsourcing and manufacturing for large S&P 500 and DOW companies.

Labor cost advantages gained from outsourcing of jobs should not be turned into the center pillar argument for more competitive advantage, as labor costs are but only one of the cost factors of a corporation and as such it does not automatically grant a company competitive advantage over others.  Other factors that come to mind are energy, debt financing costs, local taxes, innovation curve, R&D, premium-ness in build quality, human resources, infrastructure etc.,  These are all different elements of a company that come together to give a firm competitive advantage.  Having said that certain industries will be unequally impacted by outsourcing, industries that are labor intensive, repetitive and low skill industries like garments, toys, rugby kits and other trinkets. Focus on labor cost advantages should be the last factor to consider by multi-national corporations as it has real social and political costs attached to it on the flip side.  

Is it any wonder that Milton Freedman himself, father of monetarism and a staunch advocate of free market capitalism, advocated for negative income tax rates? which is also known as guaranteed basic universal income for the poor !  Because he understood the significance of taking social costs into consideration, without which we end up with a political and social backlash that we are witnessing today against Globalism leading to instability in systems across multiple governments and economies by many who are voting in droves who were left behind in the ever increasing race to Globalism and to cheaper labor.

According to a manufacturing expense study conducted by Boston Consulting Group, US has already achieved equilibrium with Chinese labor cost advantages in manufacturing as of 2017, Chinese wages kept rising over a decade.  Even though they are not nearly at American levels, it was still sufficient enough to gain even footing with US manufacturing due to other factors like availability of cheaper energy in the US.  Now you couple that with recent lower corporate taxes passed in the US and add some potential 25% tariffs, if implemented, would change the calculus of a LOT of multi-national corporations to re-shore and "in-source" jobs back to US.

 

Edited August 6, 2018 by Clarity2See

[jaycee + 348]

5 hours ago, Clarity2See said:

I would like to add a comment here if I may in regards to Jaycee's labor cost advantage argument as I have  background in banking and as well as international outsourcing and manufacturing for large S&P 500 and DOW companies.

Thanks for those numbers very interesting I have seen jobs coming back to the UK from India in IT as UK wages went down and Indian ones went up so it does tie in with my experiences however  I did say China isn't the only low cost centre I did mentioned Vietnam as possibly the next one. The West cannot compete against the labour costs of a long line of countries which are developing the only jobs that we can do have to be high end but even then I have seen those move sadly. We need to do something but relocating basic industries I suggest is not going to work. Japan industrialised the same way as China they started by manufacturing cheap disposable goods then moving up the skill chain letting other countries take over the simple stuff. I still see no solution to that apart from learning from it not trying to prove it wrong.

[Clarity2See + 10]

6 hours ago, jaycee said:

Thanks for those numbers very interesting I have seen jobs coming back to the UK from India in IT as UK wages went down and Indian ones went up so it does tie in with my experiences however  I did say China isn't the only low cost centre I did mentioned Vietnam as possibly the next one. The West cannot compete against the labour costs of a long line of countries which are developing the only jobs that we can do have to be high end but even then I have seen those move sadly. We need to do something but relocating basic industries I suggest is not going to work. Japan industrialised the same way as China they started by manufacturing cheap disposable goods then moving up the skill chain letting other countries take over the simple stuff. I still see no solution to that apart from learning from it not trying to prove it wrong.

I agree that China isn't the only low cost producer, there are others like Vietnam, Cambodia, Indonesia, Malaysia, Bangladesh, India etc.,  However, China has one thing that others don't, Strategic Labor Market depth.  Tim Cook stated in July 2018 on the China anniversary that Apple is responsible for creating around 4.4 Million manufacturing jobs in China.  And that's just one company.  You try take that many jobs and move to Vietnam and see what happens to their wages.  They will start to match US wages.  Which means that Vietnam and other smaller countries does not have the strategic depth to absorb millions of jobs effectively without raising wages in a significant way.  This is the same problem World is having with US Treasuries and US Dollars. Everyone hates it, but does not know what to hold their enormous reserves in if not US Dollars.  As none of the other currencies or even Gold provide the depth and liquidity of US dollar market.  If China took it's 2 Trillion dollars of US treasuries and dollars and converts it into Euro, it will significantly increase the value of Euro and thus make it more expensive for China to export to Europe.

This does not mean that manufacturing jobs are not going to diffuse to smaller countries in Asia, because they will, but the impact will be limited as they will be limited to manufacturing small items, toys, garments and trinkets.  Not like China that can manufacture almost anything and everything.  Because there is also a second problem of moving jobs from China, deep infrastructure, lack of navigable rivers and lack of deep sea ports.  There is a reason why China is called the engine of global cheap manufacturing growth. For the reasons mentioned above, I don't see China completely and successfully being replaced by others.

Japan did industrialize very successfully.  However, Japan had to invest very heavily in it's human capital for this successful transformation and also had to close off it's market completely after the World War II until the 70's to protect it's domestic market and also required massive investments and collaboration from the Japanese government.  Toyota, the largest automaker in the World had to guarantee lifetime employment to it's employees in Japan and innovate TPS system, which is a highly integrated manufacturing system centered on tight supply chain integration with Just-In-Time concept.  Japan has a 100% educational enrollment rate and ranks 10th in the educational quality index.  It's labor force is continuously retrained.  What Japan did was nothing short of a miracle with it's economy as it also lacked in natural resources and had to import everything.  And finally, US did not see Japan as a threat but sees China as a threat and a revisionist power.  This does not mean that China will not be successful in transforming it's economy like Japan did, as I already see China doing this with semiconductors.  However, I don't see China to be the next Japan. I see it's transformation limited and partially successful.  

EDIT: Correction: I said that it would make Chinese exports to EU more expensive if China converted all it's US reserves into Euro.  What I meant was it would make European exports extremely expensive and non-competitive internationally due to a much strengthened Euro and this would have ripples in international trade and monetary system if the second largest exporter and trading block in the World cannot export due to much strengthened currency.  Not to mention China not being able to buy oil to power it's economy as it would lack the Petro-dollar in which 90% of the total contracts are written including oil, 60% of the World reserve currencies are held in US dollars by the World, hence the King dollar. Not even Euro can come close to the liquidity and depth of US dollar market.  

"America’s most powerful weapon of war does not shoot, fly or explode. It’s not a submarine, plane, tank or laser. America’s most powerful strategic weapon today is the dollar." 

However it is living its numbered days in glory, mainly because it's a victim of it's own overwhelming success and also because of reckless wasteful spending at home.  However, when the dollar collapses, it will take the World with it. Unless a group of countries support an alternative global monetary system before dollar's collapse.

 

Vietnam Labor Market Snapshot

Edited August 6, 2018 by Clarity2See
Correction of a statement

[jaycee + 348]

6 hours ago, Clarity2See said:

However it is living its numbered days in glory, mainly because it's a victim of it's own overwhelming success and also because of reckless wasteful spending at home.  However, when the dollar collapses, it will take the World with it. Unless a group of countries support an alternative global monetary system before dollar's collapse.

Thanks you a very well written reply. I think you maybe underestimating some aspects of how it will play out and favour more my interpretation but I am not going to split hairs there are many variables and I see your point.

I agree regards the $ has benefited immensely from it and they have taken too much advantage of it and there will be a problem if it fails. I did not suggest the Euro was going to take over just that other currencies will and already the Chinese have the Petro Yuan perhaps the time of one universal currency is over or a new independent one may arrive or it will split between 2 or 3. It will be slow transference a sudden change benefit no one. It is clear the $ being the only currency is causing problems for some states who the US is trying to control with it so there is a desire for change.

 

Edited August 6, 2018 by jaycee

[Clarity2See + 10]

48 minutes ago, jaycee said:

I agree regards the $ has benefited immensely from it and they have taken too much advantage of it and there will be a problem if it fails. I did not suggest the Euro was going to take over just that other currencies will and already the Chinese have the Petro Yuan perhaps the time of one universal currency is over or a new independent one may arrive or it will split between 2 or 3. It will be slow transference a sudden change benefit no one. It is clear the $ being the only currency is causing problems for some states who the US is trying to control with it so there is a desire for change.

China does have the potential to replace dollar hegemony, but I don't see PetroYuan as their savior for a simple fact that the Chinese cannot yet control their own sea lanes in South China sea through which much of their trade and commodities flow, much less the global sea lanes necessary to appoint PetroYuan as a global reserve currency.  Historically speaking, the reserve currency nation has always been able to control the trading sea lanes thus controlling the wealth of nations via trade.  If you look at all the colonial and imperial powers of before like Romans, Spanish, French, Portugese, Japanese, Germans, Dutch, Danes, English, and now Americans.  What did they all have in common?  If you said they were all Naval Powers, you would be right.  And of all these Naval powers, none has existed before with consistent global persistence with world wide coverage at any given time.  Which is a complicated way of saying that US is not just a naval power but The only Super Naval power in a class of it's own.  Thus, Chinese cannot bring into being or sustain a PetroYuan successfully as long as Americans control every sea lane and trade choke point around the Globe.

However, I did say that the Chinese have a canary in a coal mine to undermine dollar hegemony and that canary is Gold.  I see GoldYuan as a potential displacer of dollar as a reserve currency, not PetroYuan.  For a simple fact that Gold continues to hold trust and confidence of people and has been for over 5,000 years.  And it is proven to be the most sound of money throughout the World history.  Why do you think all the MAJOR central banks in the World including US Federal Reserve, ECB, Bank of England, IMF and others still continue to hold Gold in their vaults if it wasn't important?  And guess who has been piling up gold for the last few years?  If you guessed Russia, China, Turkey and Iran, you would be right.  I call them the "Axis of Gold" against the dollar.  This has the potential to bypass the dollar payment systems completely and cut off dollar high and dry out of all international trade deals.  If implemented successfully, that would be the end of dollar hegemony and beginning of a new golden era.

Edited August 6, 2018 by Clarity2See

[jaycee + 348]

1 minute ago, Clarity2See said:

China does have the potential to replace dollar hegemony, but I don't see PetroYuan as their savior for a simple fact that the Chinese cannot yet control their own sea lanes in South China sea through which much of their trade and commodities flow, much less the global sea lanes necessary to appoint PetroYuan as a global reserve currency.......

However, I did say that the Chinese have a canary in the gold mine to undermine dollar hegemony and that is Gold.  I see GoldYuan as a potential displacer of dollar as a reserve currency than PetroYuan. 

I did say it would be gradual but they are building a navy very rapidly and are militarizing any coral reef in disputed waters they can find plus are making threating moves towards Vietnam’s oil fields so may have plans for being a world naval and perhaps oil power if they can find more oil not in the next few years but China thinks further ahead than the West. I also said it maybe more than one or be a completely independent currency that takes over and gold was one option I had in mind, a crypo currency is also out there. I do know of the Russian, China etc gold buying frenzy I read up on it year or so ago when looking at investing in gold but thought it a gold bug fantasy tale. I have been watching though and begin to believe they are upto something now though and may revisit the decision. I decided to increase my oil stocks at the time rather than gold as I understand it better and was certain it would not stay low forever. so wasn't my worst investing decision.

 I believe we are on the same page just reading it a bit differently.

[ronwagn + 6,290]

To me, it is very important to stop favoring China and letting them take advantage of us by stealing our technology. Also, we should not be a loser in the trade balance to the extent that we are.  I am against the present amount of trade with our primary world adversary. The same goes for any adversary unless it is beneficial to us. Whatever we cannot produce should be produced by one of the nations most aligned with us and our values. There are plenty, and we can have a profound effect on how the world operates. We should not allow crony capitalism to continue to run freely against our national interests or our moral values. 

https://apnews.com/a2e4a0436fba4146a156daef77885945/Christian-heartland-opens-window-into-fight-for-China's-soul

Edited August 7, 2018 by ronwagn
reference

[Cowpoke + 70]

On ‎8‎/‎3‎/‎2018 at 1:03 PM, Dan Warnick said:

Prices for many/most of the things we buy from China now used to be made in the U.S. (or other 3rd world countries) and the price was about the same as it is now. 

I can attest to this, quick short story. Bought a 2001 Olds Minivan 2 years into it,  did a brake job and needed rotors. Auto parts store had 3 sets to choose from, $35,33 & 28 ish give or take. I asked what was the diff the parts guy said. Location of origin, USA, Canada and China.  2 years go by another set of rotors for same type vehicle, only two available $36 and $32 Canada and Chinese made.

Several years later only Chinese made rotors were available for immediate purchase at said auto parts store for approx. $35.

Subsidized Chinese steel ran others out of mrkt, then price went back up. I saw it personally through my brake rotors cost.

  

[Dan Warnick + 6,100]

3 hours ago, Cowpoke said:

I can attest to this, quick short story. Bought a 2001 Olds Minivan 2 years into it,  did a brake job and needed rotors. Auto parts store had 3 sets to choose from, $35,33 & 28 ish give or take. I asked what was the diff the parts guy said. Location of origin, USA, Canada and China.  2 years go by another set of rotors for same type vehicle, only two available $36 and $32 Canada and Chinese made.

Several years later only Chinese made rotors were available for immediate purchase at said auto parts store for approx. $35.

Subsidized Chinese steel ran others out of mrkt, then price went back up. I saw it personally through my brake rotors cost.

  

You never know where a great example is going to come from.  Thanks, Cowpoke.