US-China Trade dispute appears to be for US home consumption

beijingwalker · May 7, 2023

US-China Trade dispute appears to be for US home consumption

Sunday May 07, 2023 · 9:00 PM

Investing legends Warren Buffett and Charlie Munger on Saturday urged the U.S. and China to settle their widening differences, arguing the superpowers have a "mutual interest" in continuing cooperation.

As tensions have worsened, some observers have mulled the extent to which both countries can afford to decouple from one other, the consequences of which would cascade across the global economy.

"If there’s one thing we should do is get along with China, and have lots of free trade with China … it’s in our mutual interest," Munger stated.

"The alternative will drive them both into destruction, and increase the probability of something going wrong."

This article got me thinking about the fact that we hear a lot about US-China trade war and tensions, but we are experiencing record trade volumes between the US and China. The big decoupling is good supply chain management that should have been in place from the start of our offshoring of manufacturing, well distributed sourcing. Of course, capitalism dictates 100% to the lowest bidder, so China got it all.

Instead of crafting a well-designed strategy for diversifying US offshore manufacturing, we slap 7.5-25% tariffs on scheduled items, insult the Chinese and continue to do business with them. Some security related production has been on-shored to the US and some moved to friendly nations, but this proved to be relatively insignificant amount compared to our total imports from China
A highly detailed account of US exports and imports can be found here.

The result of this grand plan is US consumers are paying higher prices for goods that we continue to buy from China, and the goods we relocated to a higher price alternate source. We then label the resulting cost increase from disruption to the supply Chain inflation. To tame inflation, the Feds added a 5% increase to domestic interest rates and blame it on an overheated labor market. Housing demand tanks, regional banks go under, and unemployment continues to drop to historical lows. A labor crunch, likely caused by tighten of our immigration enforcement, squeezing new immigrants out of the US labor market. US GDP grew 1.1% in the first quarter, hardly overheated, I would say. GDP potential growth is projected at 1.8% and 5% is often considered full employment.

The results of this are China that is using our unilateral trade moves on them and the US sanctions associated with the war in Ukraine to label the US as a bully, unfair trade partner and a warmonger, with some success among our allies and our foes. In the past three months, China has signed major trade agreements in India, Russia, Europe, South America and the Middle East in the name of fair trade and world peace.

I don’t believe diversifying or sourcing or better managing our border immigration are stupid, but I do believe we are doing a terrible job of both and serious reforms are due in both arenas.