New US Tariffs are Anti-Maker and Will Encourage Offshoring

A repost of my comment from few months ago:

When it comes to trade war topic these days, most Western commentators completely miss that a trade war is what China was preparing for the last three decades. They well expected somebody like Trump eventually coming, as well as economic pressure on a scale even bigger than what the West puts on North Korea and banana republics. They totally understood that the West will not play nice with them forever, nor that the unprecedentedly long period of good weather in the global economy will last forever.

There is zero questions about China's economic policy being very strategic, and deliberate. Chinese state conglomerates may look to just littering around the world with money, but analyze it more, and you see a pattern, one that is very much like a game of Go - victory by limiting enemy moves.

They buy ally countries, strategically - they buy resource supplying countries, often with major holds on markets of vital commodities.

Their tech purchases - mostly underappreciated market leaders with industry wide influence. Kuka - the only company you can say to be Tier 1 in robotics, all other competitors combined will not be an equivalent for it. I has almost complete dominance over major heavy industries. Lattice Semi - the one and only FPGA company that can threaten the Xilinx-Altera duopoly. And so on and on and on.

Their domestic tech development - even more so. People talk about China dominating consumer goods manufacturing without realisation that it has even bigger hold of manufacturing machinery industry - manufacturing can't really leave China with Chinese made manufacturing equipment being locked down.

The whole industry you can call "Manufacturing machinery 2.0" is a domestic Chinese development. Biotech - China quietly ate the market for genetic engineering reagents, as well as much for complex organic chemistry. There are megatons of biotech startups in the West, but they all feel that they will eventually have to move to China to have any chance to scale - effectively they are already a Chinese property.

Military allies - well, there things are even more obvious.

Major trade agreements - same. Their idea is to bind any major developing market niche to Chinese economy before the West even realizes its emergence.

Their idea - to make it so that if somebody wants to do anything any much big being impossible without involving a Chinese company or state institution at some part of the process - to make it "You can't do that without China"

This trick is only working randomly

I don't think anybody is fighting against helping their fellow man. What they are angry about is having the big guns of government pointed at their heads while the rewards of their labor are siphoned away under the guise of charity. Once you help someone at another person's expense, you've crossed the border between charity and extortion.

"I'm not a libertarian but The Wealth of Nations by Adam Smith states that all country will have certain expertise they are just good at. Whether it is because the geography that enable them to be better than other or other things, because they're good at certain thing, countries should play to their strength and trade for what they need."

And I am not against free trade (well, with reservations), but I think this idea has been proven wrong historically. I think countries that try to do a bit of everything, be self-sufficient, and perhaps specialize only in some very specific areas are generally more successful.

Just look at the U.S. as an example - if they followed Smith's advice, they would still continue to trade cotton. This advice will never let countries to build up an industrial base. (Or funny you mentioned LG - they were originally a textile corporation but the government forced them into electric industry.)

In my view, a country should have as many diverse industries as much it can keep all the specialists busy (the same is true for companies, by the way). That means to try to produce locally everything that is sufficiently consumed locally.

The reason why is that there are strong network effects in diversification. It's great if you e.g. produce agricultural machinery and you can talk directly to the farmer, who is going to use it. If you sell this machinery to people on the other side of the planet, with a cultural barrier, this gets much trickier.

Can other countries trusy Trump administration at all at this point? It seems obvious, to deal with Trump, you have to prepare for the worst, since he is not predictable and tends to whatever he wants and whenever he desires.