Showing posts with label tariff. Show all posts
Showing posts with label tariff. Show all posts

Saturday, April 12, 2025

12: Trade War

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Friday, April 11, 2025

How China Manages Its Trade Surpluses

Trump’s Trade War

Trump’s Trade War

How China Manages Its Trade Surpluses

Anatomy of a Global Economic Strategy

Introduction

China’s meteoric rise from a low-income agrarian economy to a global manufacturing superpower has been driven, in large part, by one powerful engine: trade surpluses. For decades, China has exported far more than it imports, accumulating trillions in foreign reserves and reshaping the global economy in the process.

But how has China maintained these trade surpluses for so long—especially when economic theory suggests they should self-correct through currency appreciation and rising imports? The answer lies in a mix of policy, planning, and power plays.

The Strategy Behind China’s Surpluses

China’s trade surplus is not an accident—it’s a strategic outcome engineered by government intervention, institutional control, and long-term economic planning.

Here’s how China has done it:

1. Undervaluing the Yuan (RMB)

A fundamental lever has been China’s management of its currency:

  • Rather than allowing the yuan to float freely, China maintained a tight peg to the U.S. dollar for many years.

  • By keeping the yuan undervalued, China made its exports cheaper and more attractive on the global market.

  • At the same time, imports remained more expensive for Chinese consumers, discouraging domestic consumption of foreign goods.

Although China has gradually moved toward a managed float, intervention in foreign exchange markets still occurs when the yuan rises too fast.

2. Massive Foreign Exchange Reserves

China's central bank, the People's Bank of China (PBoC), has bought trillions of dollars in foreign assets—especially U.S. Treasury bonds—to absorb excess dollars from trade.

  • This suppresses upward pressure on the yuan.

  • It also provides a war chest of reserves to defend the currency in times of global uncertainty.

As of 2024, China still holds over $3 trillion in reserves—an unparalleled stockpile.

3. Export-Oriented Industrial Policy

From the 1980s through the 2010s, China's economic model was deliberately export-led:

  • The government built Special Economic Zones (SEZs) offering tax breaks, infrastructure, and cheap labor to foreign firms.

  • Subsidies and incentives were channeled into manufacturing, not services or consumption.

  • State-owned enterprises (SOEs) and local governments were mobilized to hit export growth targets.

This approach turned cities like Shenzhen into global supply chain hubs—and turned China into the "world’s factory."

4. Suppressing Domestic Consumption

China historically discouraged excess consumer spending through:

  • A high savings culture, partly driven by lack of a broad social safety net (healthcare, pensions, etc.).

  • Financial repression, including caps on interest rates and restrictions on consumer credit.

  • Channeling capital into infrastructure and real estate instead of domestic services or imports.

This meant less demand for imports and more savings available to fund export expansion.

5. Strategic Trade Relationships

China built strategic bilateral trade relationships around the globe:

  • It flooded Western markets with affordable manufactured goods.

  • Simultaneously, it imported raw materials from the Global South to power its factories, running surpluses with the U.S. and EU, and deficits with commodity exporters.

By maintaining control over both supply chains and export markets, China minimized the pressures that usually erode trade surpluses.

6. Moving Up the Value Chain

In recent years, China has evolved its surplus strategy:

  • “Made in China 2025” aimed to shift from low-end goods to high-tech exports like electric vehicles, semiconductors, and AI.

  • This reduces dependency on raw material imports while keeping China competitive in value-added exports.

  • The result? Continued surpluses, even as wages rise and traditional labor cost advantages shrink.

7. Capital Controls

To prevent its surpluses from leading to currency appreciation or domestic overheating, China maintains tight capital controls:

  • Outbound capital is heavily regulated, limiting investment abroad by individuals and companies.

  • This ensures that the inflows from trade are not offset by financial outflows, keeping pressure on the yuan in check.

In contrast to open economies like the U.S., China can insulate itself from speculative currency movements, maintaining tighter grip over trade dynamics.

Challenges and Tensions

While this system has worked for decades, it’s not without friction:

  • Trade tensions with the U.S. and Europe over "unfair trade practices" and "currency manipulation."

  • Overcapacity in key industries like steel, solar, and EVs, leading to dumping accusations.

  • A growing push for “dual circulation”—balancing export growth with domestic consumption—to reduce reliance on global markets.

China is slowly rebalancing, but the adjustment is complex and politically sensitive.

Conclusion: A Masterclass in Mercantilism?

China’s trade surplus management is often described as a modern form of mercantilism—where national strength is built through sustained export surpluses and strategic accumulation of wealth.

While most countries follow market-led trade patterns, China has shown how state-led capitalism can bend the rules of classical economics—at least for a time.

Whether this model is sustainable in the face of geopolitical pushback, slowing global demand, and demographic challenges remains to be seen. But one thing is clear: China didn’t just stumble into trade surpluses. It designed them.


Trump’s Trade War

Trump’s Trade War

Trump’s Trade War

What Happens When a Country Runs a Trade Surplus with the World?
The Best Possible Outcome for the US-China Trade War — And How to Get There
The Trump–Xi Trade Saga: From Tariff Wars to Economic Brinkmanship
Hillary's Self-Goal, Kamala's Self Goal
The Silence Around the Trade War Is What Worries Me Most
Why Can’t the U.S. Build Bullet Trains?
How Does China Do What It Does? Unpacking the Secrets Behind the “World’s Factory”
Trump’s Tariffs and the Coming Great Disruption
The Coming Storm: What Happens Now That Trump Has Slapped Tariffs on the Entire World
The Emperor and the River: Why Manufacturing Jobs Aren’t Coming Back Why the U.S. Has Trade Deficits (And Why That Might Be by Design)
WTO Minus One: Trump’s Tariff Chaos and America’s Self-Inflicted Decline
China And Trade
Trumponomics: A 1600s Idea in 21st Century Clothing
Economic Theories That Disagree with Trump's Tariff Policy
$8 Billion Is Insufficient to End World Hunger
The Structure Of Trump's Victory
Only The Kalkiist Economy Can Fully And Fairly Harvest AI
मैं कपिल शर्मा शो का बहुत बड़ा फैन हुँ

How BYD Is Beating Tesla at Its Own Game
Revolutionizing Email: From Chronological Chaos to Smart AI Agents
The Next Smartphone Will Have IOT Elements
Building Tools Versus Solving Big Problems

Trump’s Trade War

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11: Tariffs

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What Happens When a Country Runs a Trade Surplus with the World?

Trump’s Trade War

Trump’s Trade War

What Happens When a Country Runs a Trade Surplus with the World?

Understanding the Long-Term Effects of Persistent Trade Surpluses

Introduction

What if a country manages to run a trade surplus not just with a few trading partners, but with most—if not all—countries? In the short term, this might seem like a sign of economic strength. But zoom out, and you’ll find the situation becomes more complex. Economic theory provides insights into what such persistent surpluses mean for global trade balances, currency valuation, domestic consumption, and even geopolitical dynamics.

What Is a Trade Surplus?

A trade surplus occurs when a country exports more goods and services than it imports. It earns more foreign currency than it spends, and the difference adds to the country's current account surplus.

When this surplus is widespread—with most trading partners—it means the country is essentially supplying the world with more value than it consumes from it.

Why Would a Country Want a Trade Surplus?

  • Boosts Domestic Industry: More exports can mean stronger manufacturing and job creation.

  • Foreign Currency Reserves: Surpluses add to a country’s stockpile of foreign currencies, which can be used to stabilize its own economy.

  • National Strategy: Some nations—most notably China, Japan, and Germany—have used trade surpluses as a strategy to accelerate economic growth.

But while there may be short-term benefits, long-term imbalances are not without consequences.

What Happens in the Long Run?

1. Currency Appreciation

According to classical balance-of-payments theory, a sustained trade surplus increases global demand for the surplus country's currency—because buyers need to convert their own currencies to pay for its exports. This causes the surplus country’s currency to appreciate.

As the currency appreciates:

  • Its exports become more expensive to the world.

  • Its imports become cheaper.

  • Over time, this should naturally reduce the surplus and bring trade into balance.

This is what’s supposed to happen in theory.

2. Currency Manipulation & Intervention

To prevent the currency from appreciating and to maintain the surplus, some governments intervene in currency markets:

  • Buying foreign currency (e.g., U.S. dollars) to suppress the value of their own currency.

  • Imposing capital controls or other monetary measures to resist appreciation.

This delays the balancing mechanism, but it introduces distortions that build up pressure over time—often ending in sharp corrections or international trade tensions.

3. Global Imbalances & Deflationary Pressures

A country that consistently exports more than it imports is, by definition, absorbing less than it produces. This means:

  • Other countries must run deficits to absorb the surplus.

  • Global demand is artificially suppressed, creating a deflationary drag on the world economy.

  • Trade partners may retaliate with tariffs, currency wars, or import restrictions.

These imbalances are part of what triggered major shifts in trade relations, like the U.S.–China trade war.

4. Domestic Economic Challenges

Ironically, a persistent surplus can hurt the surplus country:

  • Underconsumption: Citizens may be encouraged to save excessively and not spend, dampening domestic demand.

  • Dependence on Foreign Demand: The economy becomes vulnerable to global downturns.

  • Asset Bubbles: When trade surpluses are recycled into foreign assets (like U.S. Treasury bonds), it can inflate financial bubbles abroad and stoke inequality at home.

Japan in the 1980s and China post-2008 both illustrate these risks.

What Does Economic Theory Say?

In macroeconomics, trade imbalances are unsustainable in the long run. The "Marshall-Lerner condition" and Purchasing Power Parity (PPP) principles suggest that exchange rates and trade flows will adjust over time to restore equilibrium—unless policies interfere.

In essence, a persistent global surplus is a signal of distortion—not strength. Markets seek balance. If policy distorts those market signals, eventual corrections can be more painful.

Conclusion: The Illusion of Endless Surpluses

Running a trade surplus with most of the world might seem like winning the global economic game, but it's more like holding your breath underwater. Eventually, you have to surface. The global economy is an interconnected system—one country’s surplus is another’s deficit.

While surpluses can stimulate development and industrial growth, they must eventually give way to domestic consumption, currency revaluation, and rebalancing. If not, the pressure builds—until markets or politics force a reset.

In the end, economics has no free lunch. Even a surplus can turn into a liability if it’s maintained by force rather than balance.


Trump’s Trade War

The Best Possible Outcome for the US-China Trade War — And How to Get There
The Trump–Xi Trade Saga: From Tariff Wars to Economic Brinkmanship
Hillary's Self-Goal, Kamala's Self Goal
The Silence Around the Trade War Is What Worries Me Most
Why Can’t the U.S. Build Bullet Trains?
How Does China Do What It Does? Unpacking the Secrets Behind the “World’s Factory”
Trump’s Tariffs and the Coming Great Disruption
The Coming Storm: What Happens Now That Trump Has Slapped Tariffs on the Entire World
The Emperor and the River: Why Manufacturing Jobs Aren’t Coming Back Why the U.S. Has Trade Deficits (And Why That Might Be by Design)
WTO Minus One: Trump’s Tariff Chaos and America’s Self-Inflicted Decline
China And Trade
Trumponomics: A 1600s Idea in 21st Century Clothing
Economic Theories That Disagree with Trump's Tariff Policy
$8 Billion Is Insufficient to End World Hunger
The Structure Of Trump's Victory
Only The Kalkiist Economy Can Fully And Fairly Harvest AI
मैं कपिल शर्मा शो का बहुत बड़ा फैन हुँ

How BYD Is Beating Tesla at Its Own Game
Revolutionizing Email: From Chronological Chaos to Smart AI Agents
The Next Smartphone Will Have IOT Elements
Building Tools Versus Solving Big Problems

Trump’s Trade War

Trump’s Trade War

Trump’s Trade War

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11: Tariff Chaos Continued

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Thursday, April 10, 2025

10: Tariff Chaos Continues

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The Best Possible Outcome for the US-China Trade War — And How to Get There

Trump’s Trade War

Trump’s Trade War

The Best Possible Outcome for the US-China Trade War — And How to Get There

🌐 A Trade War with Global Consequences

The escalating trade tensions between the United States and China are no longer just a bilateral issue—they’ve become a threat to the global economy. With tariffs soaring, markets trembling, and supply chains rattled, the rest of the world watches nervously. But it doesn't have to end in economic wreckage. A better path is possible—one that benefits both Washington and Beijing, and stabilizes the broader international system.

So what would the best case scenario look like? And what steps must be taken—by both nations—to move from confrontation to cooperation?

✅ The Best-Case Scenario: Mutual Gain through Fair Trade and Strategic Cooperation

  1. Restoration of Predictable Trade Relations

    • The U.S. and China agree to reduce tariffs to pre-2018 levels.

    • Both commit to transparent trade practices monitored by neutral third parties like the WTO.

    • The Phase One trade deal is either revised or replaced with a long-term trade agreement grounded in measurable, enforceable goals.

  2. Technological Competition Without Decoupling

    • The two powers agree on frameworks for fair competition in technology sectors without forcing a global tech “cold war.”

    • Joint forums are created to discuss ethical AI, data governance, and semiconductor supply chains.

  3. Global Supply Chain Stabilization

    • The U.S. and China coordinate on diversifying but not severing supply chains.

    • They build resilience against future disruptions without resorting to zero-sum policies.

  4. A New Economic Dialogue Framework

    • A high-level, recurring U.S.-China Economic Cooperation Council is established with rotating working groups on trade, technology, and sustainability.

    • Academic, business, and civil society leaders are included to depoliticize and broaden the conversation.

  5. Global Impact: Economic Recovery and Stability

    • With the world's two largest economies cooperating, global markets stabilize.

    • Developing countries no longer suffer collateral damage from trade volatility.

    • Innovation and investment pick up as uncertainty fades.

🤝 How the US and China Can Deescalate

What the United States Can Do:

  • Tone Down the Rhetoric: Shift from nationalist framing to pragmatic problem-solving.

  • Lift Excessive Tariffs: Targeted tariffs may be necessary, but broad-based ones hurt American consumers and businesses.

  • Rebuild Multilateral Coalitions: Work with allies to ensure a united, rules-based global trading system.

What China Can Do:

  • Open Up Its Markets: Reduce barriers for foreign firms and improve legal protections for intellectual property.

  • Curb Industrial Subsidies: Gradually wind down support that creates global distortions in sectors like steel and solar panels.

  • Enhance Transparency: Especially in data governance, cybersecurity rules, and business operations of state-owned enterprises.

🌏 A Call for Global Leadership

At a time when climate change, pandemics, and geopolitical risks demand unified responses, a prolonged U.S.-China economic war is a distraction the world cannot afford. Both nations must show the maturity to see beyond short-term political wins and recognize their shared responsibility as global stewards.

The best outcome isn't one in which one side "wins"—it's one where both sides rise. Economic peace between the U.S. and China would not only lift both economies, but also signal to the world that cooperation, even between rivals, is still possible.

Conclusion: The U.S.-China trade war has shown us what fracture looks like. It's time to show the world what repair looks like. The stakes couldn’t be higher—and the opportunity, no less profound.

Trump’s Trade War

The Trump–Xi Trade Saga: From Tariff Wars to Economic Brinkmanship
Hillary's Self-Goal, Kamala's Self Goal
The Silence Around the Trade War Is What Worries Me Most
Why Can’t the U.S. Build Bullet Trains?
How Does China Do What It Does? Unpacking the Secrets Behind the “World’s Factory”
Trump’s Tariffs and the Coming Great Disruption
The Coming Storm: What Happens Now That Trump Has Slapped Tariffs on the Entire World
The Emperor and the River: Why Manufacturing Jobs Aren’t Coming Back Why the U.S. Has Trade Deficits (And Why That Might Be by Design)
WTO Minus One: Trump’s Tariff Chaos and America’s Self-Inflicted Decline
China And Trade
Trumponomics: A 1600s Idea in 21st Century Clothing
Economic Theories That Disagree with Trump's Tariff Policy
$8 Billion Is Insufficient to End World Hunger
The Structure Of Trump's Victory
Only The Kalkiist Economy Can Fully And Fairly Harvest AI
मैं कपिल शर्मा शो का बहुत बड़ा फैन हुँ

How BYD Is Beating Tesla at Its Own Game
Revolutionizing Email: From Chronological Chaos to Smart AI Agents
The Next Smartphone Will Have IOT Elements
Building Tools Versus Solving Big Problems

Trump’s Trade War

Trump’s Trade War

Trump’s Trade War

Trump’s Trade War

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10: Tariff Pause

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Wednesday, April 09, 2025

90 Day Pause

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9: India

most labor economists now believe that immigrants don’t do much head-to-head competition with native-born workers; they bring different skills and take different jobs. And the past few years, with elevated immigration, have also been an era of exceptional growth in wages for the worst paid.......... immigration is more or less neutral in its effects on inflation: Immigrants expand supply, but they also contribute to demand. In the aftermath of the pandemic, however, the huge sums spent on aid pumped up demand; this burst of demand was easier to accommodate without sustained inflation because immigration made it possible to achieve rapid growth in employment. .............. Adult immigrants tend to be working age, which means that they will spend years paying taxes before they become eligible for Medicare and Social Security, which constitute a large part of federal spending. And while this point is a bit brutal, undocumented immigrants are especially good for the budget, because they pay payroll taxes (which are collected by employers) without being eligible for future benefits. .........

the scare stories don’t match the facts.

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Tuesday, April 08, 2025

Trump’s Tariffs and the Coming Great Disruption

Trump’s Tariffs and the Coming Great Disruption

In the 1920s and 1930s, a wave of protectionism swept the globe. Countries raised tariffs against each other in a self-defeating spiral that deepened the Great Depression. Today, the world faces a very different landscape. While President Donald Trump’s trade policies echo that earlier era of economic nationalism, the global context has fundamentally changed. That’s both a reason for cautious optimism—and for serious concern.

Unlike the interwar period, today’s world is more economically integrated. The rise of regional trade blocs like the European Union, ASEAN, Mercosur, and the African Continental Free Trade Area creates strong counterweights to unilateral trade wars. Countries are more likely now to lower tariffs among themselves to offset the impact of US protectionism, preserving access to markets and supply chains. The global economy has matured, and many nations have learned from history.

Moreover, while the US is still a giant consumer market and the dollar remains the de facto global currency, America no longer holds the same unchallenged dominance. Other economies are better positioned to adapt, realign, and reforge new trade relationships that sidestep the US if necessary. In this environment, Trump’s return to tariffs is unlikely to trigger a Great Depression—but it could very well ignite a Great Disruption.

This disruption may not tank the global economy, but it could seriously damage the US’s long-term position. Tariffs imposed under Trump’s trade agenda are not supported by much mainstream economic theory. Protectionist policies tend to raise prices, hurt consumers, and disrupt global supply chains without delivering long-term competitive advantage. More often than not, they provoke retaliation.

The danger is not only economic but geopolitical. As the US retreats from global trade leadership, other powers—particularly China and the EU—are stepping in to fill the void, reshaping the global order in ways that may not favor American interests. Allies may grow weary of an unpredictable US trade policy and seek greater self-reliance or deeper regional ties.

Trump's tariffs might not collapse the global economy, but they could mark the beginning of the US’s gradual marginalization in a multipolar world economy. That’s not a Depression—but it’s still a major disruption. And whether the US comes out stronger on the other side is far from certain.


The Coming Storm: What Happens Now That Trump Has Slapped Tariffs on the Entire World
The Emperor and the River: Why Manufacturing Jobs Aren’t Coming Back Why the U.S. Has Trade Deficits (And Why That Might Be by Design)
WTO Minus One: Trump’s Tariff Chaos and America’s Self-Inflicted Decline
China And Trade
Trumponomics: A 1600s Idea in 21st Century Clothing
Economic Theories That Disagree with Trump's Tariff Policy
$8 Billion Is Insufficient to End World Hunger
The Structure Of Trump's Victory
Only The Kalkiist Economy Can Fully And Fairly Harvest AI
मैं कपिल शर्मा शो का बहुत बड़ा फैन हुँ

How BYD Is Beating Tesla at Its Own Game
Revolutionizing Email: From Chronological Chaos to Smart AI Agents
The Next Smartphone Will Have IOT Elements
Building Tools Versus Solving Big Problems

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Monday, April 07, 2025

7: Tariff Chaos

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