I have been considering this trade war, and it is playing out much like I anticipated: however, I am not sure exactly how it goes. China did not want to give up what they considered a long-term advantage and did not take the low risk option of compromise. While it seemed like good long-term planning, I believe it will probably be a mistake on China’s part for reasons I will explain. However, Trump may have also made mistakes.
Trump’s jawboning has already had the effects he desired with a minimal of actual consequences. This has been a great strategy because companies must create contingency plans. Many people think that the jobs cannot come back to America because of the cheap outsourcing. However, it misses the advances and opportunities opening in 3d printing and robotics.
All of the uncertainty may create new opportunities for those technologies to establish footholds. More over, companies that move manufacturing outside China may not return.
But, we have to get to the real heart of the matter: the U.S. sees China as a growing threat that needs to be contained. Depending on your views on that and the importance of it, is probably more important then the economics.
The questions to ask now are what’s new and what’s changed? On that I am not sure yet but it looks like China may have upped the ante.
Trump’s mistake may be his assumption he can revert things back to normal if he loses. While both countries need a compromise deal and it makes sense that one will be reached. In the worst case scenario, China may decide to punish the U.S. to decrease the chances of Trump being re-elected.
China’s risk is that if manufacturing leaves China then it may not come back. As well, if new advances in 3d printing and robotics leads to new industry in America then it won’t go to China. So too, if Chinese companies start producing their own operating systems and new chips then that local industry may eventually become global competition.
I think eventually a compromise deal will be reached and Trump will likely be able to claim a win– which remember is not really about any one issue but more about ideological differences and perceived gross inequality. The bigger unknowns are what the costs will be.
As for very tentative but plausible actionable ideas,
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