Trade War with China

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localizer

Colonel
Registered Member
I wrote "in our lifetimes", not "in my lifetime". And I did that on purpose as there is no way to give out a single, clear time span for something as vague as we're talking about here. If you really, really press me for translating that "in our lifetimes" phrase into a time period, i'll go with 50 years. Which could be 40 or it could be 100 but what the heck. So I rather went with a vague statement than giving out a broad set of years like that. That's assuming there aren't many underage members here, assuming a 20-30 average age and adding 50-ish years to get to average lifespan expected.

None of that means much either as we've got no way to define "power" or "influence", so even when the year 2069 comes rolling, we still won't be able to properly deduce much and I'm sure there'll be plenty of Americans saying "US is more influential" and plenty of Chinese saying "China is more influential".

Future uncertain right now
US doing everything it can apart from war to undermine China’s growth. They know they’ve wasted too much time in the mid east and is trying to wrap up.
 

gelgoog

Brigadier
Registered Member
If the US is successful in preventing Chinese trade with the West then China may chose to strengthen its currency and pay for its goods in something other than USD and thus further weaken the dollar, if China becomes a consumption led rather than export led economy it won't need to have a trade weighted currency!

As we're talking influence rather than my GDP is bigger than yours, once GDPs are comparable economic influence becomes comparable, regardless of whether Chinese GDP exceeds US GDP in the next decade they will be in the same ball park.

With respect to "Influence" the thing that's eroding US influence is the fact that there is an alternative development model on offer that has so far proven to work, you can draw as many graphs as you like but if a dirt poor China of the '1950s can bootstrap itself to a first world economy 2020s no amount of US marketing or spin is going to be able to counter it as a viable means of getting poor countries to become richer and the whole edifice that's the post war liberal democratic order as the only way forward is shattered.

For the US to hold on to its influence it needs to debunk the Chinese model as a failure much in the way Communism was, hence the concentration on Chinese debt traps, lack of democracy, Chinese economy imploding, Chinese Inability to innovate, Chinese IP theft the list goes on.

The recent problem to this has been that the current US government took aim at its toe and pulled the trigger, dissing friend and foe alike in a mass orgy of how to lose friends and alienate people, plays well to a section at home does little to win hearts and minds abroad!

China already is trying to move away from the USD as much as possible. One way they have done this was with bilateral currency swap agreements.
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Another way they are working on it is with using CIPS as an alternative payment system to SWIFT.
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Then there is the simple fact that as China becomes more embedded into the world's economy the allure to use the yuan as a trade currency will increase.
 

duncanidaho

Junior Member
What does personal information about a person stating his opinion has to do with the stated view? Nothing. Lets not go to ad hominem comments.

A nifty calculator where one puts in growth and it draws up graphs:
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(updated for 2017 actual GDP)

I would say LesAdieux has a better understanding of interpretation and calculation of economic data than Bloomberg. There is a big flaw in Bloombergs calculation. They mixed up net growth with gross growth (net growth + inflation rate) by their interpretation of the chinese GDP growth.

For example: Chinas GDP in Trillion Yuan from 2016, 2017 and 2018.

2016: 74.413
2017: 82.71 (gross growth 11.11%)
2018: 90.03 (gross growth 9.2%)

As you see the absolute growth is always bigger than the net growth of 6.9% for 2017 and 6.6% for 2018
 

weig2000

Captain
In any case, likelihood of China going past US in nominal GDP in 2020s is, in my personal opinion, under 5%. Likelihood of it doing the same in 2030s is perhaps 30% or so. And likelihood of China doing it in 2040s is 50% or so. With remaining 15% being for 2050s, 2060s, or any other later date. These percentages are mostly taken out of thin air, based a bit on the data above, but also trying to take the more unpredictable events like burst economic bubbles into consideration.

Since we're talking about opinions, everyone had got one. Here is mine: Likelihood of China NOT going past US in nominal GDP in 2020s is, in my personal opinion, under 5%.

And this is not an opinion that has just formed after reading your post. It's based on decades of observing, both directly and indirectly, China's economy and its growth trajectory, by that I don't just mean GDP growths curve.

You're obviously deeply influenced by the avalanche of negative Chinese economic news coverage of late that has filled the western media, which has been cyclic, as well as the Huawei containment mastered-minded by the US. I'm not accusing you of anti-China or anything like that, but I understand the MSM brainwashing can take its toll on innocent people. I agree with you that projecting far into the future is highly unreliable - in both direction. So it makes little sense to go into too many details, here are some of my points:

  • China's GDP real growth rate will be 2-3 times of that of US in the next one or two decades, but will be definitely substantially higher than the US for even longer. As China's nominal GDP closes in on that of the US's, the incremental growth in absolute value increases significantly. The catching-up effect will become much evident. China's per capita GDP currently only around $10,000, slightly below global average. Growth at the said rates for decades is hardly unprecedented, not for East Asian economies.
  • Export is not a key driver of China's growth anymore. In fact, export's contribution to economic growth had even become negative in several years of last decade. Over 70% of growth last year came from consumption. A lot of people in the West somehow still believe China is an export-oriented economy. As the world's largest exporting country, it's difficult to believe China can still rely on export to drive its economy growth.
  • The trade dispute with the US has some impact on China's real economy, primarily psychological, but the real effect is rather small. Chinese economy is in a down cycle now, which has happened about every ten years. Even if all Trump tariffs take effect, China's economy may take some initial hit, but will adjust gradually both psychologically and in real economy. $500 billion export out of $2.5 trillion total export, for a $14 trillion economy growing at 6-7% a year is not a huge number. In any case, the US is not likely to suddenly cut off all imports from China.
  • I think you're reading too much into the Huawei saga. That the US and its "allies" exerting pressure on China's economic growth is way exaggerated. Telecom and 5G is a more special and sensitive area; that's why the US government is playing the intelligence card. Just because some western countries expressing concerns in this area does not mean they're trying to contain China in broad economy. China is the world's second largest economy with a huge and increasingly affluent domestic market. It's not like these western countries are doing China a favor to have economic exchanges with China, to put it mildly.
  • The current US trade war and tech war against China will have positive effects on China's economy in the longer term. It will accelerate China's transition towards a more consumption- and innovation-driven economy, which has been happening in the last five years regardless.
 

Hendrik_2000

Lieutenant General
I don't know why any one doubt China cannot once again be the biggest economy in the World when for the good part of up to 18th century China was the largest economy in the world
As to soft power Japanese still use Kanji until today and Korean Hangkul is derived based o Chinese script Both Japanese and Korean, Vietnamese language borrow extensively Chinese word
Chinese civilization bring enlightenment and humanity to so much of Orient
There is world out there beside Europe and North America As America effort to disrupt or retard Chinese growth It is exercise in futility The time has long passed . 20 years ago maybe but now ?The horse hs left the barn. China can maintain growth even if the western world boycott it It is not the first time they try it China was under full embargo until Nixon come in 1974 No it is not Western world that help China Overseas Chinese help China get out of isolation long before there is even diplomatic contact between China and the rest of the world Here is a timely article to rebut Totoro post And why China will continue to grow inspite of road block

Will China be the next Japan or South Korea?

Source: Global Times Published: 2019/2/10


2eac2dda-7c8b-4320-8f5c-96a05377a87e.jpeg

Illustration: Xia Qing/GT

Economic development hardly has a universally successful model. An economic model that successfully catches up is not a model that maintains sustainable growth. The real difficulty is to distinguish whether it is necessary to alter the development model.

All high growth economies have experienced a high growth stage which then fell back to medium or low growth. Some countries or regions experience volatile change from shifting from fast gears to slow ones, while others are smoother.

Japan is an example of a rocky road. Its GDP growth deceleration is a sudden jolt. South Korea is better than Japan - its economic growth slides have been gradual since the 1990s.

So, people are wondering will China be like Japan or South Korea? Will its next stage of economic development be smooth or rocky?

Economies that experience high growth usually adopt a catch-up model - industrialization driven by exports. All economies in East Asia have adopted this model. China in the past 40 years did not fully utilize its huge market. It took the path of a piecemeal reforms and opening-up, which is fundamentally no different to the East Asia forerunners.

Next phase, development policies ought to focus on maximizing advantages from a giant marketplace.

A major characteristic of the next phase is convergence. The potential growth rate will slow down. The return on traditional investment has significantly decreased.

When there are exogenous shocks to the economy, loosening monetary policy to maintain demand is less effective. It is what is happening in China right now. This is a reminder to the government that the Chinese economy is making a transition to the next phase.

China is currently at the end of the catch-up model. Here are some indicators. First, the international market share of China's products has been at an unprecedented high. Second, real wages have continued to go up. Third, the return rate on capital is declining. Last, the total factor productivity decreases.

Entering into the convergence model, the technology advancement will only become slower. Without independent research and innovation the economy may quite easily slip.

China is currently at the end of the last phase, so how can it transition to the next phase? There will be risks involved during this transition and huge fluctuations on the macroeconomic level.

When the US started to create problems for Japan in the 1980s it began with a trade war. Japan didn't realize its economy was transitioning to the next phase.So, they still tried to fix problems with the old methods, which led to huge asset bubbles and long-lasting deflation. The biggest risk during the transition is macro-economic readjustment. China also faces an additional problem to fit its institutional system into the picture. The institutional system used to support the "catch-up model" including the governance method will need a rudimentary change.

As the development phase changes, the line of thinking has to change as well. Expanding domestic demand has been brought up for a while. Boosting domestic demand does not depend on credit and loans. Instead, opening the protected industries is the way to go.

To deal with the convergence phase, institutional reforms are also required. In the future with a medium to low growth rate, more innovation entities are necessary. The resource allocation is decentralized. The pattern of risk control needs to progress as well. As do the traditional top-to-bottom governance model and relations between government and businesses.

China has advantages in market scale. First of all, starting the new phase, one factor to consider is the size of the Chinese market. If top management disregards it, using policy combinations for small open economies, it will cause severe problems. China may be less dependent on the US market down the road and the importance of trade within the Asian region will be elevated.

Second, China eventually will have to trade with itself. The future growth with high-quality is inseparable from trade among its own regions where they can fully utilize their comparative advantages. Regional integration is crucial for future economic development.

Third, service and non-trade sectors need to maximize their advantages. Many small economies would rather not open their service and non-trade sectors because of low productivity, but a closed economy tends to make its labor productivity even lower.

China's market is big enough to accommodate global competition - an open economy will not bring down productivity.

Fourth, China needs to make the most of its complete supply chain and city conglomerates. Our current policies are following the old models. That has to change in the future.

The article was compiled based on a speech made by Zhang Jun, dean of the School of Economics of Fudan University, at a forum on January 9. [email protected]

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Bob Smith

Junior Member
Registered Member

Video from Davos given a few weeks ago. Skip to around the 11:50 mark for a projection of the US and China GDP's with and without decoupling. The Lowy Institute claims it won't have much of an impact on China's ascent to overtake the U.S. nominal GDP by the early 2030s. The panel includes the German defense minister so the research here is likely sound.
 

LesAdieux

Junior Member
What does personal information about a person stating his opinion has to do with the stated view? Nothing. Lets not go to ad hominem comments.

Of course, none of that is precise. There are variables that can't be easily predicted. Currency exchange rates influence GDP sums greatly. But there is no significant historical precedent that i see suggesting Yuan will drop under 6 for a dollar without impacting own economy.

In any case, likelihood of China going past US in nominal GDP in 2020s is, in my personal opinion, under 5%. Likelihood of it doing the same in 2030s is perhaps 30% or so. And likelihood of China doing it in 2040s is 50% or so. With remaining 15% being for 2050s, 2060s, or any other later date. These percentages are mostly taken out of thin air, based a bit on the data above, but also trying to take the more unpredictable events like burst economic bubbles into consideration.



notwithstanding the financial motto: past performance is no guarantee for the future performance. when it comes to prediction, the only real thing you can count on is what has happened.

see the graph below, China's GDP only amounted to 6.7% of that of the US back in 1990, and it's 65.6% in 2018.

upload_2019-2-14_14-28-12.png

it seems you've done extensive work on this topic, you can do your "back testing" by applying your model to the real data rather than make a whole array of assumptions and predict all the way into the oblivion.

the exchange rate will play a big part, the RMB has been significantly undervalued. the world bank and the IMF put the ppp exchange rate at 3.5-3.8, that's no reason to believe the RMB will remain permanently undervalued.
 

gelgoog

Brigadier
Registered Member
...

Will China be the next Japan or South Korea?

Source: Global Times Published: 2019/2/10


2eac2dda-7c8b-4320-8f5c-96a05377a87e.jpeg

Illustration: Xia Qing/GT

Economic development hardly has a universally successful model. An economic model that successfully catches up is not a model that maintains sustainable growth. The real difficulty is to distinguish whether it is necessary to alter the development model.

All high growth economies have experienced a high growth stage which then fell back to medium or low growth. Some countries or regions experience volatile change from shifting from fast gears to slow ones, while others are smoother.

Japan is an example of a rocky road. Its GDP growth deceleration is a sudden jolt. South Korea is better than Japan - its economic growth slides have been gradual since the 1990s.

So, people are wondering will China be like Japan or South Korea? Will its next stage of economic development be smooth or rocky?

Economies that experience high growth usually adopt a catch-up model - industrialization driven by exports. All economies in East Asia have adopted this model. China in the past 40 years did not fully utilize its huge market. It took the path of a piecemeal reforms and opening-up, which is fundamentally no different to the East Asia forerunners.

Next phase, development policies ought to focus on maximizing advantages from a giant marketplace.

A major characteristic of the next phase is convergence. The potential growth rate will slow down. The return on traditional investment has significantly decreased.

When there are exogenous shocks to the economy, loosening monetary policy to maintain demand is less effective. It is what is happening in China right now. This is a reminder to the government that the Chinese economy is making a transition to the next phase.

China is currently at the end of the catch-up model. Here are some indicators. First, the international market share of China's products has been at an unprecedented high. Second, real wages have continued to go up. Third, the return rate on capital is declining. Last, the total factor productivity decreases.

Entering into the convergence model, the technology advancement will only become slower. Without independent research and innovation the economy may quite easily slip.

China is currently at the end of the last phase, so how can it transition to the next phase? There will be risks involved during this transition and huge fluctuations on the macroeconomic level.

When the US started to create problems for Japan in the 1980s it began with a trade war. Japan didn't realize its economy was transitioning to the next phase.So, they still tried to fix problems with the old methods, which led to huge asset bubbles and long-lasting deflation. The biggest risk during the transition is macro-economic readjustment. China also faces an additional problem to fit its institutional system into the picture. The institutional system used to support the "catch-up model" including the governance method will need a rudimentary change.

As the development phase changes, the line of thinking has to change as well. Expanding domestic demand has been brought up for a while. Boosting domestic demand does not depend on credit and loans. Instead, opening the protected industries is the way to go.

To deal with the convergence phase, institutional reforms are also required. In the future with a medium to low growth rate, more innovation entities are necessary. The resource allocation is decentralized. The pattern of risk control needs to progress as well. As do the traditional top-to-bottom governance model and relations between government and businesses.

China has advantages in market scale. First of all, starting the new phase, one factor to consider is the size of the Chinese market. If top management disregards it, using policy combinations for small open economies, it will cause severe problems. China may be less dependent on the US market down the road and the importance of trade within the Asian region will be elevated.

Second, China eventually will have to trade with itself. The future growth with high-quality is inseparable from trade among its own regions where they can fully utilize their comparative advantages. Regional integration is crucial for future economic development.

Third, service and non-trade sectors need to maximize their advantages. Many small economies would rather not open their service and non-trade sectors because of low productivity, but a closed economy tends to make its labor productivity even lower.

China's market is big enough to accommodate global competition - an open economy will not bring down productivity.

Fourth, China needs to make the most of its complete supply chain and city conglomerates. Our current policies are following the old models. That has to change in the future.

The article was compiled based on a speech made by Zhang Jun, dean of the School of Economics of Fudan University, at a forum on January 9. [email protected]

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I do not 100% agree with that Global Times analysis. China still only has roughly the average world GDP per capita. In an economy as focused as China's this will not stand still for ever. I think the GDP per capita in China will at least double before we see a significant major slowdown.

Also a lot of people misdiagnose the causes for the Japanese economic slowdown. One of the reasons was they simply hit the ceiling. Once Japanese GDP/capita reached the level of advanced countries then growth diminished significantly. Yes many economic mistakes were made and they had some down cycles. Which if you examine more closely are nearly all related to major earthquakes in Japan.
For example the Japanese economy was recovering under Abe. Then the last major earthquake happened and they turned off all nuclear reactors post-Fukushima. Surprise, surprise, they had to import loads of fuel and that cost their economy dearly. Then there are the reconstruction costs. The Asian Financial Crisis in the late 1990s? Another earthquake which stopped a lot of factories.

A lot of financial analysts basically ignore that while Japan has 1/2 the population of the USA, the USA has like 1/4th the population of China. So yes the current perspective that China will somehow magically stop growing once it attains US GDP levels is risible in my opinion. Even simply assuming that China will have twice the GDP of the USA over the next decade, which is conservative, like I did, means that China will only have half the GDP/capita of the USA. Japan has gone way above that!

China is much larger than Japan. While it has earthquake prone areas like Sichuan the economy is large enough it can absorb regional disaster events like that more easily. Only a national disaster would prevent China's rise and if that happened it would probably be a global disaster.

I also disagree that Chinese brands have reached their peak in the market. It was only in the last 5 years that we have seen companies like Huawei, ZTE, Oppo, Xiaomi, DJI, become important in the market. However there are still loads of consumer goods products where China still hasn't had the same degree of global impact. China still does not have enough quality cars or enough capacity in civilian airliner manufacture for example. South Korean cars were the butt of jokes even a decade ago. Now? They are not. US cars are worse than South Korean cars on average. Before that the same thing happened with Japanese cars. It will still take China some time to reach those kinds of standards. Which is not to say China has not had some successful wins here and there in the car sector but they are still way, way, less than I would expect given their potential. So I can see China still growing over the next two decades at least.

If there is someone in Asia who might hit the ceiling next unless some event happens, like reunification, is South Korea. I also think a lot of people severely underestimate the potential of the Vietnamese economy going forward. Fact is low skilled labor businesses have been moving from places like China to Vietnam for over a decade already. China is moving up the value chain as a result.

What China must not allow is the same thing that Europe did. Ever so often we got European technology business champions. But these get bought out and destroyed by US corporations with more access to capital. That is one of the main dangers of allowing the Western corporate capital model into China in my opinion.
 
now that's interesting:
China January trade data beats forecasts, but sustainability in doubt

Updated 36 minutes ago
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China’s exports unexpectedly returned to growth in January after a shock decline the previous month, while imports fell much less than expected, but analysts said the strength was likely due to seasonal factors and predicted renewed trade weakness ahead.

Investors and policymakers are closely watching to see how quickly activity in China is cooling, or if support measures announced last year are starting to take hold, which could lift some of the gloom hanging over the global economy.

But data on Thursday left many China watchers none the wiser about the current state of the world’s second-largest economy, as a March 1 deadline looms for Beijing and Washington to de-escalate their bitter trade war.

January exports rose 9.1 percent from a year earlier, customs data showed, defying economists’ expectations for a 3.2 percent drop and a marked turnaround from December’s 4.4 percent decline.

Imports fell 1.5 percent, much better than forecasts for a 10 percent slide and narrowing from December’s 7.6 percent drop.

That left the country with a trade surplus of $39.16 billion for the month.

While the readings appeared positive at first glance, analysts warned that data from China early in the year must be treated with caution due to business distortions caused by the long Lunar New Year holidays, which started on Feb. 4 this year.

Many companies rush out shipments or replenish their inventories of raw materials ahead of the holidays.

“Clearly, the numbers surprised the market on the upside. But given the deceleration of global (factory readings) and weak Korean trade data, it might be pre-mature to conclude that the trade prospect has improved based on the January number alone,” said Tommy Xie, China economist at OCBC Bank in Singapore.

“I suspect that the recovery may be partially due to the Chinese New Year effect as this year it is slightly earlier as compared to last year.”

Economists had widely tipped that China would see weaker exports early this year.

Factories have reported shrinking overseas orders for months and warehouses in America are packed to the rafters with Chinese goods that retailers stockpiled last year in anticipation of more U.S. tariffs.

Trade has also been faltering globally amid rising protectionism and a loss of momentum in some major economies, most notably in Europe.

Net exports actually dragged on China’s growth by 8.6 percent last year, according to Reuters calculations.

Factory surveys have also show weakening domestic orders, and broader economic weakness is taking a toll on both business and consumer confidence. Retail sales during the Lunar New Year holiday rose 8.5 percent from a year earlier, still solid but the slowest pace since at least 2011.

China’s economic growth slowed to 6.6 percent in 2018, weighed down by rising borrowing costs and a clampdown on riskier lending that starved smaller, private companies of capital and stifled investment.

THE IDES OF MARCH
Pressure on China’s economy could spike if Beijing and Washington do not reach a deal soon to end their year-long trade dispute, which is estimated to have cost both countries billions of dollars already and is taking a growing toll on other export-reliant economies from Asia to Europe.

The U.S. is set to sharply raise tariffs on $200 billion worth of Chinese imports in early March, though President Donald Trump said this week he could let the deadline “slide for a little while” if a deal appears close.

A U.S delegation led by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are in Beijing to hammer out a trade agreement.

China’s trade surplus with the United States narrowed to $27.3 billion in January, the lowest since May 2018, Thursday’s data showed. Exports to the U.S. declined 2.4 percent on-year, while imports fell 41.2 percent.

“Based on the positive signals regarding the U.S.-China trade negotiations, we think it is likely that further tariff hikes will be suspended,” Louis Kuijs, head of Asia economics at Oxford Economics, said in a research note.

“An agreement and prolonged tariff suspension would be an obvious plus and imply an upside risk to growth of China’s exports and economy more generally.”

DEEPER ISSUES FOR CHINA
While a trade deal would boost business confidence and financial markets globally, analysts say it would be no magic bullet for China’s broader economic woes.

Some economists predict China’s growth rate could drop below 6 percent in the first half of this year before a series of policy measures start to stabilize activity around mid-year.

The latest quarterly business survey by consultancy Oxford Economics showed 38 percent of respondents thought a hard landing in China was a very significant risk to the global economy, almost double the level in the previous poll.

Policymakers have been fast-tracking road and rail projects, cutting import tariffs and urging banks to keep lending to cash-strapped private companies to rekindle domestic demand.

Many analysts also expect sweeping corporate tax cuts to be announced after the annual meeting of parliament in March, but all of the moves will take time to kick in.

Top officials have repeatedly said they will not resort to massive stimulus like that deployed in past downturns, though some analysts believe interest rate cuts are possible if conditions continue to deteriorate and job losses mount.
 
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