US decoupling itself from China would have an avalanche of effects, including huge inflation on most consumer goods, and outright product shortages. China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing.
The us decoupling itself from China would be an unmitigated disaster for the us as China would align itself with Russia.
Russia has the population of Nigeria and the GDP of Italy.
The cold war ended a while ago. Worrying about them today makes about as much sense as worrying about Autria in 1930 because Austrohungaria used to be a world power.
The US Fed would simply buy the dumped treasuries as an emergency measure. The Fed already owns twice as many treasuries as does China, so it could also just pause the balance sheet reduction program. It wouldn't dramatically hurt the US long term.
But what happens to all that cash they would use to buy the treasuries with? Where is that $1.1 trillion going to flow into?
Whoever sells the treasuries gets the money. That's how buying and selling works.
China reformed their currency. See the historical exchange rate for RMB: https://www.macrotrends.net/2575/us-dollar-yuan-exchange-rat... It went from 6 RMB/dollar to just less than 9 overnight. It was basically a crazy rate (no one would use that rate unless forced) before the reform. Before that there was even a dual system of foreigner money and local money, only foreigner yuan could be used at the friendship depar…
I visited in 1991 for three months as a 14 year old. I don't recall a dual system (unless it was voucher based?), but I remember the friendship department stores and loads of other interesting things - Russian-styled hotels in Xian, Pudong being basically farmland, snakeboats on the Huangpu, etc. It had changed a lot by the time I next visited in late 2003. I don't think they yet had a McDonalds, but there was a three-storey KFC on Tiananmen that was popular. Yangshuo at the time was a very basic village which made it very charming. I remember staying at a guesthouse used for diplomats near Beidaihe - the mattresses we kids slept on were about half an inch thick. At the end of the trip, we left on a slow-boat from Shanghai to Hong Kong, and the elderly Chinese in the gaming room taught us Mahjong on the multi-day trip.
> "...but only one of them would see its financial system collapse." Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose. While China has certainly developed in the last couple decades they are still relatively used to living with less. On the other hand, Ameicans lose their minds when Facebook goes down for an hour. That is, there would be be…
>Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose. Nothing is ever certain and that's not how people make decisions. What are you waiting for Chinese to use manipulated currency to buy local factories all over the world? It's already nearly too late.
> Nothing is ever certain.
That's exactly my point. I was pointing out that unless the previous comment was absolutely true (i.e., China would be wrecked and the USA would not be) then even if both fare badly the USA would __relatively__ be hurt more.
> China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing. Before that happens, the capital exodus demanding to liquidate their Yuan for USD would have burned through the country's USD reserves and they would be insolvent. This is quite similar to what happened in South Korea in 1997 and it took IMF intervention to stabilize the country…
> "...but only one of them would see its financial system collapse." Unless that is an absolute certainty then and this is a game of high stakes chicken, then I would say the USA has more to lose. While China has certainly developed in the last couple decades they are still relatively used to living with less. On the other hand, Ameicans lose their minds when Facebook goes down for an hour. That is, there would be be…
America has free markets and a decentralized, bottom-up system that results in entrepreneurs and private entities deciding how to allocate capital. There may be temporary pain but wherever there is opportunity an entrepreneur will step in.
China has zombie enterprises, their financial statements are lies, and cities built by bureaucratic maneuvering over market need.
I will always bet on the American private sector over the government-run towers of lies.
Wouldn't a more effective US strategy against China been to get the EU, Japan, and South Korea in on the tarrifs as well? Might as well throw in Canada and Mexico as well on account of being NAFTA partners. That would account for all of Chinas major trading partners. Japan and SK might have been difficult, but a combined North America + EU might have done the trick. Maybe the Trump Administration tried this, but I fi…
US decoupling itself from China would have an avalanche of effects, including huge inflation on most consumer goods, and outright product shortages. China is also a huge foreign debt holder, and if presumably no longer a buyer due to decoupling, will send US interest rates skyrocketing.
The us decoupling itself from China would be an unmitigated disaster for the us as China would align itself with Russia.
I mean they sorta already are? Xi Jinpeng was calling Vladimir Putin his "closest, most dearest friend" just a month or two ago. They already oppose the US (along with Russia) on every major international issue.
Okay, no, Germany can't manipulate its currency as they don't have their own, they use the Euro. Germany does have large influence over Brussels being the economic powerhouse of the Eurozone currency union, and the European Central Bank is in Frankfurt but really accountable to no-one, being led by an Italian man from Goldman Sachs. And yes, these 'currency manipulator' designations are a point of political convenien…
> Okay, no, Germany can't manipulate its currency as they don't have their own, they use the Euro. But they use the Euro as an umbrella that doesn't behave like a single currency for Germany would. While implementing the Euro they put massive pressure on wages while other EU countries kept increasing wages. Germany is violating export-surplus rules of the EU, but no one seems to care. https://upload.wikimedia.org/wik…
Actually the German surplus has been brought up for discussion many times in the EU parliament.
A trade surplus of over 6% triggers a so called IDR, one EU acronym among many, which means (Macroeconomic) In-Depth Review. If the review shows an excessive balance, that triggers the EIP. Excessive Imbalance Procedure!. If a country fails to follow the recommendations coming out of the EIP, that can in theory lead to sanctions, including fines.
You can read the last IDR on Germany here: https://ec.europa.eu/info/sites/info/files/2018-european-sem...
This IDR concluded that a EIP was not necessary. So far an EIP has never been launched by the commission.
Whether this system was designed to ensure Germany is never sanctioned, or if it is simply a huge slow-moving bureaucracy, I leave as an open research question ;)
The long story to this is that the Chinese dont like what Trump is doing, he is the first to stand up to their tactics. The thing is, if Trump doesn't get reelected, a democratic candidate will most likely not continue the trade war. China has every incentive to place pressure on the us stock market in the hope that it ruins Trumps chances at reelection. So they play this long waiting game, in the chance that Trump d…
I'm not so sure. The democrats have been largely silent about the trade war (beyond using it as ammo against Trump).
I think no matter the administration, a lot of the existing executive branch would like to see this through.