Don’t Sweat a Trade War with China

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Many people are wondering what is going on between the U.S. and China. It all started when President Trump announced he would slap some tariffs on steel and other products coming from China. China responded by saying they would slap on some tariffs of their own, and they promised their tariffs would hurt the sections of America that voted for President Trump. For example, a proposed tariff on American soybeans could be devastating to certain farmers located in states that overwhelmingly voted for President Trump.

All of these threatening economic exchanges leave many Americans wondering how it will all play out. However, if you are one of those Americans, there are reasons to take heart. For example, many economists argue that it is in China’s best interest to keep playing nice with American markets. In fact, it has even been said the Chinese retaliatory responses are just fancy ways of saying, “Surrender, or I will shoot myself in the foot.”

The numbers support this view. For example, consider the tariffs. China exports about 4.25 percent of its GDP to America. The U.S. exports only 0.65 percent of its GDP to China. This means that President Trump’s tariff’s on China will hurt more of the Chinese economy rather than the other way around.

This logic is compounded when considering China’s international ambitions. A trade war with the U.S. will slow down the Chinese economy, an economy Beijing leaders want to see on the world stage with the yuan as international currency. The fallout from a trade war would distract China from making investments in emerging Asian markets, and it will lead the country away from its global financial goals.

Also, the Chinese threat of cashing in on U.S. Treasuries will almost certainly hurt the emerging global markets China wants to court. Those countries also hold U.S. Treasuries. If China decides to wreck U.S. Treasuries, those emerging countries will also be punished, and it is unlikely they will wish to do business with China after suffering such a spiteful blow.

What does all of this mean? The answer is fairly simple. China is free to exchange economic threats with President Trump as much as they want. However, the cold reality is that any retaliatory measures will ultimately hurt China more than President Trump and his soaring economy. The Chinese know this. It’s time the American people stop worrying and understood this reality, too.

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