What will be the impact of increased US trade barriers?
A:
Does anyone notice that the inflation that happened almost coincided with the Trump tariff? We know the US wanted to bring manufacturing back onshore since Obama, with little progress. Tariffs are only one of the tools. The US has been successful in blocking imports from China in such a way that the clothes of made-in-China are reduced but made-in-India increased. The net effect is that the US cannot bring that sector of manufacturing back to the US. This illustrates that if the tariff is for bringing manufacturing back to the US, it should be applied to all imports, not a specific country. Now we understand that bringing manufacturing back to the US is just an excuse or narrative. The real object is to contain China, discriminately blocking China while the market is still open for other countries.
Made-in-China is competitive. Many countries use tariffs to protect their industry. When the US imposes tariffs only on Made-in-China, it means the price of consumer goods will increase. An additional 10% tariff on Made-in-China means additional inflation. Even if the US is real in bringing manufacturing back the the US, it still means the prices of consumer goods will increase because the market allows less competitive goods to circulate in the market.
The trade friction between the US and China has been there for two decades. Both Obama and the other presidents following Obama know that the world economic order of made-in-China-consumed-in-the-US is not sustainable. China realized this too. After the financial tsunami of 2008, both the US and China wanted to change this world economic structure. So the US tried to manufacture more, and China tried to consume more. China is successful, and the US is not. There is more manufacturing in the US but not as much as the increase in consumption in China.
The reason is obvious. The US is changing from no need for labor to laboring more while China is from consuming less to consuming more. The first is from a luxury lifestyle to an indigent lifestyle. The second is from low living standard to high living standard. We observe many strikes in the West due to inflation. Who wants to work more and earn less? Chinese in China of course would enjoy the increase in living standards. In this regard, I would say Xi has an easier job than Obama, Trump, and Baiden.
Then why does the US not keep the made-in-China-consumed-in-the-US world economic structure? Because the US doesn’t want China to grow stronger. So the tactic, at least at the beginning, is to discriminate against China still imports from third countries such as India and Vietnam. It has been the design after WWII that the global north exploits the global south. The US enjoys this world economic structure as long as each and every country in the global south is poor and weak.
One can observe that it is the US that breaks the present world economic structure. The so-called rule-based order is that the US has no respect for international laws. China grew within the world order the US built after WWII. Globalization was promoted by the US and China accepted it. Now the US goes to isolationism. The US built the WTO system, and now the US breaks all the WTO rules, such as the Trump tariffs. The US promoted free market competition and China accepted it. But now the US using its power to bring down the world supply chains. The US cannot compete with Huawei, so it sanctions Huawei. The mainstream media and Western politicians now do not talk about the free market economy they promoted so eagerly before. The US is destroying the world order it established because China can grow within the world order.
China is rising. The US is falling. It means socialism is working, but capitalism is not working. If we put the world in a free market, the US cannot compete with China. That’s why the US abandons the free market and goes isolationism.
According to the Marxist theory, production force advances constantly. Marxism is one of the classic economics. Classic economics is about the production and distribution of wealth. When the production force advances to some extent, the old superstructure cannot accommodate it. The superstructure of a society is the culture, law, and ideology. Marx predicted that when the production force advanced to a certain level, the capitalist superstructure could not accommodate it.
The US leads the information revolution and many high-tech advancements. The 2008 financial tsunami indicates that the capitalist superstructure cannot accommodate the production force empowered by the information revolution. Since the information revolution at the end of the last century, western society has stagnated despite the high speed of technological advancement. Both China and the US benefit from the technology advancement, but China grows faster, while the US grows slower if it grows. The reason is that socialist superstructure can accommodate the tech advancement but capitalist superstructure can not.
If we understand this underlying economic logic of China rising and the US falling, we know this is a historical trend that cannot be reversed by whatever Trump will do on China. The harder Trump hit China, the faster the historical trend. Because the change of the world needs time. The more a violating change in the world, such as the Trump abrupt tariff hike, the faster the historical trend advances.
Trump’s isolationism is a counter-reaction to the historical trend. It is the modern-day Luddism. Biden waged the chip war against China which accelerated China’s chip industry and weakened the US chip industry. The more the US suppresses China the faster China rises and the US falls. The underlying economic logic has not changed. Only the shake-off accelerates the trend. As the Internet says: No zou no die. Luddism was not working because it was a counter-reaction against the historical trend.
Only socialism can make America great again. Luddism suck.
