Why is the China Trade War a good thing?

September 6, 2019

 

I’d like to discuss a topic that many tell me I should stay away from, economic politics.  I have great clients.  There’s not a single one that I don’t like.  And everyone has their own opinion regarding President Trump.  I’m not here to argue the pros or cons of his personality, his personal moral behavior or his seemingly unnecessary tweets.  I want to discuss, just for a moment, his policy position on China.  I recently read a financial newsletter from someone I deeply respect that was very critical of the tariffs Trump has placed on the goods coming from that country.  The writer said he believes in “free trade,” which means having trade between countries with no barriers or restrictions.  On that point I agree, as I believe any entrepreneurial free enterprise capitalist would.  However, it is clear to me that’s not what we’ve been getting from China for decades.  We’ve been running a half trillion dollar trade deficit with them for years and years.  We’ve allowed them free access to our markets without getting free access to theirs.  They have stolen our intellectual property for decades, allowing them to leapfrog on U.S. technology without the hard work, investment or time we spent developing it.  When you don’t have to spend your own money on R & D you can make the products resulting from it much cheaper and undercut the original developers.  All-in-all, it appears that China has for many years been playing us for chumps.  And our political class has let them!  For whatever reason, they have let them.  Then Trump comes on the scene, making POTUS his first elective office.  He has his own money, so he can’t be bought off.  He comes from the rough and tumble world of New York City real estate development.  His skin has grown to the thickness of a rhinoceros, so he doesn’t really care what people say about him.  While the status quo doesn’t like that, he bulls ahead and announces tariffs on China until they grant us entry into their markets and stop stealing from us.  Then China starts raising the tariffs on the goods we sell to them.  Our news media goes into panic mode, predicting the downfall of the U.S. economy.  The status quo politicians in both parties urge the media on, hoping the population will panic and stop the tariffs so they can maintain their comfortable and personally profitable relationships with China.  In truth, tariffs hurt China much more than they do us.  We export $120.3 billion of goods to China each year (less than 1% of our output), whereas they export $539 billion of stuff to the U.S. each year (almost 7% of their output).  “But our farmers are really hurting,” you might say.  The media has played that story up a lot.  In reality, China buys only $5.9 billion of our farm products each year.  If China gets their farm products somewhere else it will hurt our farmers, but we will make enough on the tariffs to take care of them.

Folks, there’s no doubt that China wants to leave their one-sided relationship with America the way it is and has been for a long time.  Nobody likes having to work harder and compete for business.  I’d like to be the only financial advisor in town, but having to compete for your business makes me, as well as all the other advisors out there, better.  I know there will be some short-term pain involved with making China into a responsible trading partner.  Enforcing fairness is tough.  Anybody who has ever had two or more kids knows what I’m taking about.  But in this case IT MUST BE DONE!  I believe this president is the right one to do this because he does not come from the political class.  Most likely America will never elect another non-politician to the nation’s highest office.  So if his tactics get China to open up their markets to America, and stops them from stealing our military, industrial and technology secrets, and gets them to stop sending their illegal drugs across our southern border, that will be worth all the dumb tweets and political fighting we normal Americans have had to put up with.  And that is My View.

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