Lindsey Graham was right.
On Friday morning, China’s Finance Ministry announced new tariffs on approximately $75 billion worth of US imports. US financial markets managed to hold their own until late morning when Trump responded with the following tweet which sent prices into a death plunge.
Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA.
We don’t need China and, frankly, would be far better off without them.
He wasn’t finished yet. After the markets had closed for the day, Trump announced he planned to increase existing tariff’s on Chinese imports into the US. I posted about this here.
This steep escalation in the US/China trade war has many on both sides of the aisle questioning the President’s wisdom. An extended trade war with China would be a drag on US economic growth and would cause financial pain for many Americans.
On the other hand, China has taken advantage of the US for decades and this will continue until they are stopped. So far, knowing that a trade war will guarantee a short-term hit to US economic growth, no one has been willing to do what’s necessary to end it.
But there are times when economic pain is the price that must be paid for greater economic gains in the longer term.
On Friday night, Sen. Lindsey Graham (R-SC) offered some very sage advice to nervous Americans. He told Fox News’ Martha MacCallum that he is impressed by Trump’s determination to get China to change their behavior. Graham said, “Will we feel this as consumers? Yes.” However, he added, “if Donald Trump doesn’t do it, who else will? And if we don’t do it, we’re gonna lose the world to China.”
In a weekend appearance on CBS News’ “Face the Nation,” Graham said, “Every Democrat and every Republican of note has said China cheats. The Democrats for years have been claiming that China should be stood up to, now Trump is and we’ve just got to accept the pain that comes with standing up to China.”
Even Senate Minority Leader Chuck Schumer (D-NY) “has urged Trump to fight China aggressively.”
Trump’s hard line against China appears to have gotten their attention. As Asian markets continued to drop on Monday morning and the yuan (see note below) hit a nine-year low, Chinese Vice Premier Liu He, top advisor to Chinese President Xi Jinping, signaled that China is willing to negotiate an end to trade tensions.
According to the Chongqing Morning Post, Liu spoke at a Chongqing tech conference on Monday. Here’s what he had to say.
China is willing to resolve its trade dispute with the United States through calm negotiations and resolutely opposes the escalation of the conflict. We believe that the escalation of the trade war is not beneficial for China, the United States, nor to the interests of the people of the world.
U.S. companies are especially welcome in China, and will be treated well.
We welcome enterprises from all over the world, including the United States, to invest and operate in China.
We will continue to create a good investment environment, protect intellectual property rights, promote the development of smart intelligent industries with our market open, resolutely oppose technological blockades and protectionism, and strive to protect the completeness of the supply chain.
As rough as an extended trade war with China would be for the US, it would be worse for China.
The New York Times, naturally, reported that Trump appeared to be “wavering” on his hard line against the Chinese at the G-7 Summit in France this weekend. However, White House officials “rejected suggestions the president was wavering and insisted that his only regret was not implementing even more tariffs on China.”
Note: Several weeks ago, the US Treasury Department “formally designated China a currency manipulator” and indicated they would work with the International Monetary Fund to correct the “unfair competitive advantage created by China’s latest actions.”
Mitul Kotecha, an economist at Toronto-Dominion Bank, told Bloomberg News, “The gloves are coming off on both sides and as such yuan depreciation is an obvious cushion against US tariffs.”
Fox News‘ Greg Re writes:
There are several reasons why China’s central bank would want to allow the yuan to drop, including to help struggling local exporters who want their products to be less expensive for international purchasers. People’s Bank of China Governor Yi Gang, however, has insisted China does not “engage in competitive devaluation.”