More to lose. Who has more to lose? We keep hearing that question again and again. So far, the answer is so clear. Yet I don't hear many people say it: The Chinese have more to lose in this now-hyperactive trade war because we are a society based on spending -- in fact, a voracious amount of spending -- and they aren't.
If the president were simply willing to say that American companies can send us product from China with a 10% duty but the Chinese have a 25% duty, it would encourage a massive switch out of China by our businesses to other countries where things are cheaper to make -- including Mexico, which has a great work force and is part of the new NAFTA, or at least the one we are expected to get.
Of course, we want those factories back in the U.S. but we have such a developing labor shortage in much of the country it is only economic to build factories in certain portions of the country with almost total automation.
It can be done, and slowly some are coming back. But that's not the issue. The future is the issue -- as in, why continue to build factories in China or use Chinese labor?
It had become so much more expensive than most of the Southeast Asian countries long before this war that it just may not be worth it, for goods that can be put on a container and shipped here, just to appease the Chinese with the hopes that they will let us sell there.
Why is this not talked about?
One, I think, is ideological. A lot of the thought leaders who speak to the media really despise President Trump and are in awe of President Xi. Many seem to feel that because he is an all-powerful president for life and Trump has to contend with term limits and real elections, like the upcoming mid-terms, that he can't win no matter what.
- Has Everyone Become This Complacent in Just One Week?
- Tyson Foods Shares Retreat on Monday On CEO Change, Trade Concerns
I have news for them. Have these people noticed that Trump has no regard for any of the niceties of the presidential process? He's not listening to anybody, I think, except a tight-knit group of people around the White House who truly hate the Chinese more than any country on Earth, and he has an electorate that seems to have the same orientation. Sure, not everyone. But enough to make him feel that he's winning every time he attacks them.
Plus, the numbers bear him out: We are importing in excess of three times more than we are exporting to China. Their leverage consists of blocking attempts of U.S. companies to do more business in China -- at the exact same time that we have a president that wants our companies to do less business in China and more business elsewhere.
And one more thing, the companies that were doing big domestic business in China are still doing so. New companies know not to go there if they can avoid it, especially companies that export goods to the United States. With employment strong, with consumers having the best balance sheets perhaps ever -- a statement from many of the banks I deal with -- and with companies flush with cash from lower taxes, it is much easier than expected to avoid China. So future American employment in China is at risk because of our tariffs -- and that's something China cannot afford.
Now I do wish we were more clever about winning the war. What in heck was the president thinking when he let ZTE sell goods here after all of the law breaking it did and not get a deal to allow Qualcomm (QCOM) to buy NXP Semi (NXPI) ?
Why does he still allow endless Chinese companies to raise capital here, hurting many of our investors? They are more capital constrained that most of the pundits realize. They need access to our financial markets and our consumer markets. Why not do what the Chinese do, and say "if you are going to come public here you have to have a joint venture partner here that gets 49% of your profits"? What's the penalty there on us? We don't raise money there.
We have the leverage; they don't. We just never used it because so many of our companies, our banks, our manufacturers, pretty much owned Washington. Like it or not, they don't anymore. So, go fret about us losing the trade war. Most U.S companies aren't going to risk the wrath of the president. They are the ones that would have caused us to lose. They are silent.
That's the real reason why we are winning. Washington is no longer captured by our companies that want to feast off of China. It's a big change. Get used to it, because it is the key to Trump's strategy. And it is working.