When President Trump first began talking about trade deficits on the campaign trail, many were skeptical; he would, of course, be battling long-standing traditions of trade imbalance. And when he recently announced that China needed to reduce the inequality by $100 billion, all hell broke loose in the mainstream press.
But something has happened. At the Asian equivalent of Davos -- the annual meeting of global political and business elites -- Chinese President Xi Jinping let it be known that going forward, China would not only open the Financial Sector to foreign investment but that he would lower tariffs on vehicle imports.
The Background
In response to President Trump’s calls for a rebalancing ($505 billion vs. China’s $130 billion) of the huge trade deficit, initially, the Ministry of Commerce stated that it would fight against trade protectionism “at any cost.” Naturally, the U.S. media took this to mean that Trump’s actions had just destroyed the country economically.
The main action that China took was to threaten higher import tariffs on 128 American products. Yet as explained in an article earlier this week on Liberty Nation, the proposed tariffs would have little impact on American businesses or consumers.
On April 9th, Trump tweeted something very specific:
“When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE - going on for years!”
And just a day later, President Xi announces a “significant” lowering of said tariff.
The Chinese Reaction
Yes, this is a massive win for Donald Trump. It proves that trade can be rebalanced without impoverishing the nation in an unwinnable trade war. But this does not mean that the Chinese government capitulated or lost.
It is in the best interest of Chinese industry to have a more competitive market, but it is with the new, added investment that is likely to result from this decision that makes it beneficial to the nation.
Many Chinese car brands suffer not just from poor production quality; they also have a major image problem at home in the domestic market. Two of the leading Chinese brand cars are the QQ and BYD. These are low-cost cars that, even being generous, look dreadful and are thought to be no safer than an egg carton on wheels. In fact, due to the low opinion local Chinese have of the BYD, combined with its phonetic sound in Chinese, is often referred to as “the b*tch.”
With lowered tariffs and greater inward investment, China will use this as an opportunity to revitalize its automotive industry, while at the same time becoming a “fair player” in the world market. President Xi, much like President Trump, is nobody’s fool. They are both smart men who understand business and trade a lot better than the pearl-clutching journalists who write of Economic Armageddon.
The Grown Ups
These two powerful leaders are engaged in trade negotiations. They may be conducting them on a global platform, but the same rules apply. Each side is looking to do the best possible deal for long-term growth, investment,and stability.
The facile argument that one side must be the loser in a trade war displays an almost childish attitude to international negotiations and transactions. It is not all about economics; it is about culture, strength, and image. President Trump has demonstrated to his home audience that he can get things done and get the deal he desires. President Xi has shown his home audience that he is the right man to lead China into a world market that is ripe for investment opportunities.
This maturity is something that has long been missing from the political and economic stage. When will the left realize that their games and machinations will achieve nothing? When a nation has the skills, the people, the heart, and the right leadership... All is possible.
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