China Is Losing Trade War

By Richard Morris & Eileen McGann

September 6, 2019 3 min read

In the international game of chicken between the United States and China, the economic evidence is piling up that Washington is the big winner... and that President Donald Trump is, too, for staying the course.

In this battle of attrition, each side piles tariffs on the other in the hope that the damage they inflict on their adversary is less than they suffer themselves.

So far, the U.S. is winning by a mile.

Chinese exports to the U.S. have fallen by $26 billion over the past 12 months, a cut of more than 5% of the country's total exports. With China's economy one-third smaller than ours', such a drop is severe indeed.

You can never tell the health of China's economy from official statistics, but most economists agree that China is in or near a recession.

It's not hard to figure out why. China, after all, is a seller and the U.S. is a buyer. With cash, it's not hard for a buyer to find sellers; the world is full of them. But it is hard for a seller to find new buyers, especially when less developed countries like Vietnam, Thailand, Malaysia, and Bangladesh are competing for American business.

And, as U.S. firms rejigger their supply chains to exclude China — a process that takes time — the losses to Beijing are likely to mount and harden into permanence.

Meanwhile, the U.S. economy is growing by 2% and it added 130,000 new jobs in August 2019, indicating that a recession is far, far away.

Even the sell-offs in the Dow Jones Industrial Average during the summer of this year proved to be nothing but momentary corrections. After dropping to 25,479 on Aug. 14 and 25,628 on Aug. 23, the Dow finished the month with a robust 26,728 — a record high.

The only threat to the U.S. is that the cacophony of media predictions of gloom and doom will create a political firestorm to force Trump's hand in caving in to China.

But oddly, the trade war with China has a bipartisan tint. While most Democrats reflexively oppose any Trump administration policy, particularly one that is working, blue state Rust Belt Democrats cannot really oppose Trump in the confrontation with China. By contrast, a lot of free trade Republicans are skeptical of Trump's trade policies and would rather see the free market handle the problem.

So, barring horrible economic news or a failure of nerve by Trump (the one less likely than the other), the U.S. is winning the trade war.

Photo credit: markusspiske at Pixabay

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