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Much ado has been made about President Trump’s global actions in attempting to bring down the trade deficit that exists between the U.S. and just about every other nation of note. Whilst very few would dispute the desirability of making more balanced trade arrangements, it would seem that almost no one is willing to get involved in a trade war… except, of course, the president himself.
As tensions rise, the anti-Trump media are predicting devastating losses for America and The Donald on a personal level. Yet the reality might be very much different.
The Chinese Reaction
Upon the announcement that the U.S. needs to start looking for $100 billion in tariffs to more equitably balance Sino-American trade, China was quick to retaliate publicly in a way that had money markets fluctuating. The Chinese Ministry of Commerce posted on its website that:
"If the US side disregards opposition from China and the international community and insists on carrying out unilateralism and trade protectionism, the Chinese side will take them on until the end at any cost."
Strong words indeed. But how realistic are the chances of an “at any cost” trade war? When we consider that in 2017, China exported $505 billion in goods to the U.S. and that U.S. companies only exported $135 billion the other way, it is worth asking if “at any cost” means “anything up to the $370 billion” that China presently gains.
The Real Picture
The Chinese government has announced that it will apply tariffs of its own on 128 U.S. products ranging from fruit and nuts to pork. U.S. citizens are under the impression that tariffs on these goods will lead to far fewer sales and thus to a more impoverished home economy. But this approach fails to recognize the realities of the Chinese market and consumer.
China is a nation divided into the rich and the poor. Those with wealth seek not only to spend it but to show that they have it with conspicuous consumption. The rising middle classes and the permanently well-off spend large on branded, and most importantly, foreign products; at times it is irrelevant whether domestic quality is better or worse because domestic doesn’t provide “face” (面子).
In many Shanghai and Beijing supermarkets, a foreign label is all but guaranteed to promote higher sales. This is as true of meat products as it is with beauty products. Some would argue that this only applies in the larger cities where the wealthy live, and they would be right, but in the poorer cities, U.S. imported products are not available anyway.
The Meat Issue
It is only recently that America has been allowed to export beef to China after a 2003 “Mad Cow disease” scare that saw Australia fill the market gap. China does not have cows in enough abundance to fulfill the need, and as such relies heavily on imports.
Pork products are a touchy issue in China. In 2013, Shanghai saw “rivers of blood” as over 16,000 diseased pig carcasses flooded the central Huang Pu river. The carcasses poisoned the water supply and turned city dwellers off local pork in a significant way. The pigs were found to be infected with porcine circovirus.
Just a few years ago, China was responsible for producing and eating half of the world’s pork, an estimated 50 million tons. For many in small towns and cities, they will continue to get their pork from local suppliers, but for the wealthier citizens, this is a bridge too far and forever burned.
Behind Closed Doors
The reality is that China does not want an all-out trade war… they have too much to lose regarding the trade deficit. Chinese leaders will want to project a strong will to their people at home and around the world, but they will come to an accommodation.
The 128 products for which they plan to apply tariffs will not be significantly impacted. It will show everyone they are serious, yet at the same time help Donald Trump bring down the trade deficit. It is a win-win situation that will take years to acknowledge by those of the American left who would rather be on the losing side.
