The trade strategy with China is different than other nations
President Donald Trump’s administration has been up front about its strategy on trade…
Tariffs can be negative. They can cause problems between two different countries or multiple countries, depending on who’s involved. But they’re also for a stated purpose. And with the latest tariffs, the Trump administration is simply using a carrot and stick as an incentive to get a change in behavior.
Essentially, Trump is saying, “You guys are doing things that we don’t like.” And in many cases, that’s tariffs that we would like other countries, the EU, or Canada to eliminate.
But in the case of China, it’s a whole host of bad activity as a trading partner – including the theft of intellectual property and the ongoing cyber pilfering of information.
Information today is value, and China’s been stealing as much of it as possible. The country has pillaged the intellectual property of companies that set up shop in China, and has for decades suppressed its currency artificially, then put tariffs in place to make it hard for the U.S. and other countries to compete in certain markets.
Today, I think President Trump sees this and thinks ‘now or never.’
China’s been doing some really bad stuff, and we want it to stop.
These tariffs are simply the first round. And they’re likely to result in a more serious series of negotiations after they go into effect. But it’s also way too early for people to panic about a full-blown trade war.
This is one of the areas where Trump has been consistent for decades as a matter of policy.
We talk about “free trade” as though we’re living in a free trade system and President Trump is the kid showing up in the classroom and stealing all the toys and making a lot of noise. The reality is something quite different. For example, the EU has a mass of different tariffs in place on U.S. agricultural goods. And Canada – a country close to us in proximity, politics, and overall connectivity to the whole world – also has tariffs in place.
So right now, President Trump is using political capital at a time when he has the economic wind at his back so he can do something.
As for whether the negotiations will work or not, we’ll see.
But today it’s a “batten down the hatches” situation. There’s going to be a bit of pain. It’s like working out: It’s tough, there’s soreness and some difficulty… But afterward you hope you’re a little bit stronger. That’s the Trump administration’s approach.
China has had explicit and exploitative tariffs in place for a long time. While it did those things, its GDP took off like a rocket ship in the ‘80s, ‘90s, and 2000s. When things are good, the expectation that most folks have – both in China and in the U.S. – is don’t rock the boat. Today, I think President Trump sees this and thinks “now or never.”
Right now, China is looking to be the global trading power of much of the world, because it’s also looking to go from being a regional to a hemispheric to a global super power. And it understands that especially in the advanced technological age we live in, having economy and technology to back all of that up is essential.
China has the population. It has the geographic positioning to be dominant. And it’s taking a mercantilist approach to the rest of the world… It’s going in, getting what it needs, and striking deals for raw materials and resources.
And China is looking at its expansion in geographic terms through a long-term, strategic view. It’s pushing deeper and deeper into the Indian Ocean. It’s building island bases in the South China Sea. And it’s trying to be a near-peer competitor with the U.S.
This story was originally discussed on The Investors MarketCast with Scott Garliss, John Gillen, and Greg Diamond, some of Wall Street’s most plugged-in analysts. For the full story on China, as well as much more – like the fundamental flaw in the EU, why Germany was actually a catalyst for Brexit, and how the Iranian deal was engineered by the Obama administration, click here.
