Will a Trade War Turn into a Shooting War?
Kevin Felts 08.24.18
With the United States and China going tit for tat on tariffs, will the trade war turn into a shooting war? The answer is typically no, but things are slightly different this time,
Since the 1970s China has become such an economic power house, the only direction they can go is down. China imposing tarrffs on food, that shows how little they have to bargain with. China can not afford social unrest.
Chinas business model is based stealing property rights, and exploiting cheap labor. Trump is working to put an end that model, which scares the communist leaders of China.
Why would this scare the Chinese communist leaders?
Historically, government reform happens when people are not desperate, such as times of economic hardship. On of the corner stones of communism is maintaining a tight control on the government and people.
That said, China’s economy has changed significantly in recent years, and these sorts of responses are more counterproductive than ever for them. The trade war has put those changes on display, as the Shanghai Stock Exchange has seen a 17-percent drop in three months while the yuan dropped 3.7 percent in June — its largest one-month loss ever.
As China has consciously begun the shift from an export-based economy to a finance capitalist economy the same monetary changes that used to benefit their productive sector now prompts capital flight from their securities to those priced in dollars. U.S. fiscal policy has also dramatically expanded debt, almost all of which has been bought by domestic holders, diluting China’s potential impact on bonds and interest rates.
If an uprising were to start – such as Tiananmen Square, 1989 – the Chinese government would probably respond with military action. Unlike in 1989, people today have smart phones and could live stream the military response.
Then again, China has got into the business of loaning money. However, loaning money does not put people living in rural areas to work. Cheap factory labor provides China with access to cutting edge technology from companies such as Apple, IBM, Dell, Cisco…. etc. Financing developing nations does not provide such access.
One question which needs to be answered, if companies such as Cisco, Dell, Google, Apple… were to start manufacturing their products in the USA, how would China react? As it stands right now, China has access to cutting edge technology starting on the factory floor. Disrupting such access would probably destabilize the entire Chinese economy, something the government does not want.