U.S. China Trade War Kicks Up Another Notch - What Happened To FREE MARKET Capitalism.?

originally posted by: AugustusMasonicus

originally posted by: Flyingclaydisk
Whenever the tariff subject comes up someone inevitably posts something about the US debt that China holds, and how any sort of a tariff will cause a disastrous domino effect with China suddenly dumping all that debt (and crushing the US economy as a result). That is patently false and will never happen. Further, those who post similar themes must not understand global economics and/or how international banking works.

True with one caveat. They could impact short term sales of bonds as they dump them, for a loss, and the United States has to match or beat the pricing to continue to sell more bonds.

What this means is we make less money in the short term as buyers snap up reduced price bonds dumped by the Chinese versus paying a higher price for the ones the Treasury is selling. However all that does is have us make less money for a finite time while they instantly lose billions.

It's like holding a gun to your head and saying you have a hostage. Can they cut off their nose to spite their face? Of course. Will they? Highly doubtful.

It's not simple. And a full on trade war would be costly. Very. I've admitted as much previously. Nevertheless, China can't weather that storm any better than the US economy, and weathering it would still be preferable to the status quo. It has a 100% chance of success because the Chinese economy needs the US market more than vice versa. That's the bottom line.

Your position is akin to believing in chemo, but not wanting to go through it because it might make you sick. Or being against child labor, but you prefer higher profit margins and lower prices for consumers to actually doing anything about it or paying the price. Your ideas to fix the economy are just words. You prefer the status quo to change; lower prices to protecting industry or "clock-punchers" no matter what your words say.

It's also disingenuous to suggest the trade balance is not a problem or is good for the country's economy. While a deficit in and of itself is not necessarily a negative, you've already admitted the current arrangement is hurting American industrial sector, and by extension American workers. So while we will never have a balanced ledger with China in my lifetime, there are scores of reasons to decrease the ballooning trade imbalance. Watching industry and the "clock-punchers" disappear is not any healthier for the prospects of the economy than a trade war which seeks to protect it.

The reason wealthy nations run higher imbalances is the same reason reasons comfortable people have higher mortgages. People weren't made wealthy by taking out huge mortgages (absent some sort of risky speculation). Countries aren't wealthy because they spend more hard currency for foreign goods; they can afford imbalances because they are wealthy. The US economy was stronger in the 50's and 60's. We ran basically a null balance. We didn't get a stronger economy in the 70's, 80's, 90's, and on as the imbalance spread. And you say other people are too simplistic?

Ironically, the sweet heart deals given to China for the last 30+ years were just that-- market speculation. We wanted access to their huge population for our goods. They just took our capital and used it to build their own industries to service their market and smiled. We're either willing to do what it takes to address it, or we're not.

Regarding the "Theft" of Intellectual Property...another reason for the Tariff punishment.

How does China acquire intellectual property?

American firms have to agree to set up a partnership, or joint venture, with a Chinese company to sell their goods in China, with technology transfer thrown into the bargain. Though this type of quid pro quo is formally disallowed by the WTO, analysts say such negotiations are usually conducted in secret.

A paper by the St. Louis Federal Reserve in 2015 estimated that half of the technology possessed by Chinese companies came from foreign firms.

It’s not clear, however, if these joint venture arrangements are successful at putting Chinese firms on a level playing field with the rest of the world. Even after the advent of joint ventures, American and German automakers still outsell their Chinese competitors, although analysts say China is catching up.

Source: www.marketwatch.com...

How is this "THEFT"? Seems like this "transfer" occurs within the framework of international business agreements.

a reply to: Cauliflower


Context?

a reply to: AugustusMasonicus

Could be a cause and effect relationship between the rising short term bond rates and the trade tariff announcements.
The simple choreography concerning the fed unwinding the quantitative easing applied after the Lehman brothers scandal may have a global trade war sequel?

You can raise rates after implementing tariffs to encourage domestic production and lower commodity prices. Without looking at specific examples, I couldn't tell you if there is real correlation in the fed numbers and tariffs, but I wouldn't bet against it.
This is actually a good time to raise rates and get rid of a lot of the high-rksk speculators affecting the market and introduce some stability, buy back some T-bonds, and also increase domestic production facing a potential trade war.

a reply to: RadioRobert

There are potentially billions of dollars at stake, so we are unlikely to accurately predict the future.


To answer the OP's question,

What Happened To FREE MARKET Capitalism?

I would say it evolved and is now a victim of hindsight bias.

a reply to: OccamsRazor04

I tried to read your link but it was broken.
So what you are saying is this.
One,
the Chinese government subsidizes it's industries hence lowering the cost of production which then translates into an ability to sell more cheaply in the US and drive US businesses out of business. So you are saying that by raising the tariffs on Chinese products as they enter the US will do what, stop Americans from buying Chinese products? And this will save American jobs? Wouldn't it just make American companies that buy Chinese products to sell on the American market just switch from Chinese goods to goods imported from other countries with low paying wages? Why should we automatically assume that the products no longer bought from China would be then made here.

Two
That the US government pays China to subsidize their industries so that they can sell more cheaply here than American industries can? Well if that is true then you are really right when you say ''some super shady stuff''. But razor, how can that be. With all the big time businesses here and all the wealthy corporations that are owned by Americans and all the rest of the powerful people who run this economy let that happen. If what you say is true, do you not think that they know about it? I have never heard of that before but then I am a low information type. I cannot imagine that all those big American corporations know about it and say nothing as their businesses are ruined like that. I just makes no sense to me.

a reply to: luthier

Gosh, it's a shame you're so curt and inflammatory, because you and i could actually have a pretty good conversation otherwise about Economics, but I'm not going to joust (debate) with a seriously bad attitude like what you appear to have.

You're "right"...no matter what, and if you feel your not you'll just bludgeon everyone else into thinking you are anyway. Yeah, my BIL was the same way...he was the Dean of Economics at Canisis. I might know a little, but I'm a physics guy, not an economist.

You have an interesting style. In some respects, I'd say it's typical. "My way...or the Highway"

If you'd like to debate some international economics, I'd be glad to, but I'm not going to play childish insult games about HS level education (because frankly, I'm well beyond that).

All due respect.

Free market economics is important, but so is upholding human rights. Having a government subsidized industry run by slave labor is not something the United States should have trade relations with. If the Chinese want access to the United States economy; their needs to be a system to balance it. Sanctions are the only way.

The problem is that American people are distant or ignorant to the problems in China, that any disruption to their cheap crap or cheap manufacturing services; becomes a terrible idea.

Trump might not be very like able, but he at least is willing to be the hated person for American interests.

a reply to: carewemust

What happened to free market capitalism?

Easy - China doesnt use that system.

a reply to: carewemust

Free Market Capitalism only works when all parties practice it.

China, obviously does not.

a reply to: TerryMcGuire

If the link didn't work Google USPS subsidy China. It makes no sense unless kickbacks were involved.

As to the USA simply buying elsewhere, maybe, maybe not. The problem is you can't find ways to compete when your rival is taking huge losses and being propped up by the government waiting for you to collapse. China not only subsidizes their business they also require US companies to hand over all their technology. So basically they put our factories out of business, force our companies to go there, then steal the technologies so they can make cheap copies.

And the US politicians have been complicit until now ... Why is that?

originally posted by: Cauliflower
Could be a cause and effect relationship between the rising short term bond rates and the trade tariff announcements.
The simple choreography concerning the fed unwinding the quantitative easing applied after the Lehman brothers scandal may have a global trade war sequel?

Possibly. I'm having a hard time expanding the image to view it more closely but it appears it could be tied to rate increases as well which wouldn't surprise me.

a reply to: AugustusMasonicus

The last time we had interest rates chasing inflation higher than 10 percent was 1980.
Inflation is bad for seniors on fixed income unless they have investments that keep up.
A trade war that spilled over into energy supplies wouldn't have the same effect today.

a reply to: OccamsRazor04

Wow. Thankyou for bearing with me. That article was informative. My main question about that whole thing was why? Why would the US government do that. Well maybe that is answered far down in the article.

The reason why it exists isn’t because the USPS wants to give a helping hand to the hardworking merchants of China, but due to what the Washington Post dubbed a “quirk in an international treaty.”

International postage rates for incoming packages are set by a U.N. agency called the United Postal Union (UPU). This is a body that was established in 1874 -- subsequently being absorbed into the U.N. -- that is currently made up of 192 countries which meets every four years to revise its policy and set new terminal fees, with each country getting one vote a piece. While the voting system of the UPU is egalitarian, the shipping rates that it sets are not. According to Nancy Sparks of FedEx Express (via eCommerceBytes.com), the rate structure of the UPU is a system where the “haves pay the have-nots.” Essentially, countries that it deems to be poorer or less developed pay less for shipping to countries that are categorized as being richer. So someone shipping from, say, China, will pay significantly less to ship to a country like the U.S. than an American shipper will pay to send that same package to China.

So it seems that it is a UN mandate for international shipping designed to give a helping hand to poor countries and Chinese manuracturers are taking advantage of a loop hole or glitch in the treaty and not because the US government is intent upon stifling US manufacturers.

As this loop hole in international treaty is being exploited by Chinese manufacturers in shipping anything worldwide and not only in shipping to the US it would seem that the UPU needs to address the loophole. In line with that it would seem a small gesture on the part of the Trump Administration to address the issue to the UN rather than these threatened major trade wars that are brewing. There must be other members in the UN from other countries that are also being excluded from this glitch in international law that all would like to have fixed.

originally posted by: Xcathdra
a reply to: carewemust

What happened to free market capitalism?

Easy - China doesnt use that system.

And apparently the US doesn't either when energy companies making obscene profits still get government subsidies paid for by the American taxpayer. And paid to not grow crops to manipulate the markets, and government funded research for profit able big pharma....

Preferential treatment for large corps and banks while small business is SOL....free market capitalism myass; it's to big to fail and bailouts for preferred big business, corporate welfare!

www.thebalance.com...

a reply to: TerryMcGuire

And then ask yourself why no one before Trump wanted to address these issues and why they are demonizing Trump for trying to.

a reply to: olaru12

And rather than demonize Trump for trying to get fair deals, they should be pressuring him to go further. They won't because Democrats and Republicans all get kickbacks and neither party wants it changed, so the liberal media will be instructed by their D overlords to not go that route.

originally posted by: Cauliflower
The last time we had interest rates chasing inflation higher than 10 percent was 1980.

I don't see interest rates getting near as that level in the foreseeable future.