Oh What A Lovely Trade War

saltycat (55)in #economy • 6 years ago (edited)

Imagine two restaurants. One is busy the other not so. One looks a success, the owners are doing well, look at the cars their driving, how much their house costs, the holidays they take. Of course they can borrow money easily. Yet, look a little closer. One is constantly giving out free coupons. Indeed the restaurant's business model is that they are losing money per customer. Sure, they are providing jobs -but not enough staff and they aren't paid well enough to meet the expenses of living. Not to worry, as they are subsidized by the government, who borrows the money too. The other restaurant provides cheap eats, and houses its workers in the back room. It's getting by, but they are not happy with the competition. Now, imagine if restaurant two had lent restaurant one money who now want to pay them back in free coupons. What if restaurant two says no.

We have entered the dual universe. On the 26th March 2018 China launched the Petro-Yuan. This is a hugely significant development in the process of dethroning the King Dollar. It may well be that this dual universe exists for a decade or more as this paradigm shift occurs. Most observers point correctly to developments in the 1970s when basically the Western elite packed their bags and deliberately de-industrialised their economies. The slack was picked up by emerging countries, especially China who has gone on to develop a centrally planned economic powerhouse.

These things have not happened without reason. Yes, you can't deny the role of the Rockefellers, et al. However there are also underlying processes at work relating to stagnating returns in the West. China stands accused of forcing American companies to give up intellectual property rights in return for access to cheap labour. England suffered a similar fate in the nineteenth century when European rivals were stealing her ideas and innovations. Empires don't last. The US has had its moment in the sun.

For a long time now the trends researcher Gerald Celente has been repeating the mantra - "Currency Wars, Trade Wards, Hot Wars". Where are we at? Well, currently the trade wars are hotting up between the US and China. Trump came to office promising to put America first. In early March Trump announced tariffs on steel and aluminium. These caused much consternation amongst allies, and led to a bizarre situation in which there was some back tracking and the resignation of Gary Cohn, Trump's economics advisor. Although Trump has stood by them calling them "easy to win".

Later in March China supposedly retaliated with a list of agricultural products that China was considering putting a tariff on. These have been down played as only a small part of the total export market. The New York Times reported that the US may take action against this under World Trade Organisation Rules. The White House then released its own list of Chinese exports which they will be imposing tariffs against covering some $50 billion worth of goods. China therefore has initiated a World Trade Organisation dispute procedure against the US and imposed tariffs as threatened.

The press are using these tit-for-tat tariffs as such an excuse. Although these trade wars are symbolic and clearly show two super powers fighting for dominance in an increasingly polarised world, they are not, however, to blame for falls and the current volatility in the stock market. This is what they want us to believe. The narrative has China the sneaky, stealing enemy. China was also accused of being a currency manipulator. America, the poor put upon nation that's been treated unfairly.

The reality is that the West gave up their industrial base. Decades long of a lack of investment and poor labour relations (Germany excluded). Going back to the 1970s, it was Nixon who visited China in 1972. It was also Nixon that closed the gold window in 1971. So began the path to where we are at now. Having relinquished a legitimate income source the West now resorted to debt and speculative bubbles. Basically China lends the US the money to buy their products.

Furthermore, this dispute should be seen in the wider context in which China has been going round the world securing agricultural and energy connections with other countries. One of the biggest commodities that the US export to China is soya beans. The end of last year witnessed a 24% drop in trade. In January alone exports fell by 14% compared to last year. China has made deals with Brazil. Brazil's soya bean exports to China have risen by 720% compared to a year ago. China also signed a large energy deal with Russia. Now we have the Petro-Yuan, now countries can and will deal directly with China.