Thursday, October 17, 2019

Quora: How is the U.S. trade war with China going for America?

Pavel Fekula, Active in Russian-American Relations, answered.

Trump has managed to secure some concessions from the Chinese, because his moves make them nervous, however it is not likely to end up going in Trump’s favor in the end. The Chinese leadership regard Trump as reckless and inexperienced, and that makes them nervous. He doesn’t understand the complex macroeconomic and foreign policy issues that he is dealing with. As a result, the Chinese have given him some concessions out of a fear that he will do something stupid that wrecks his economy and theirs.

Between the two nations, the Chinese have more leverage in the trade war. They are the US’s main creditor after all. If they want to hurt the US economy, all they have to do is start selling dollars and buying gold. However, the Chinese don’t want to wreck the economy of their #1 export market. At that, it would be hard for the Chinese to de-dollarize without losing a significant portion of their investment as the dollar drops in value.

However, in the event that there is a total breakdown between the two nations, China will emerge quicker than the US. As the dollar declines in value, the US descend into hyperinflation, making American consumers unable to afford foreign goods. It will be a long time before American manufacturing comes online to alleviate goods shortages. However if the Chinese lose their main export market, while it will likely produce a severe recession, in the end they will simply redirect their manufacturing towards domestic consumption.

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