So I previously wrote that perhaps tariffs aren't that bad because, if you have to have a tax, what better to have it on than imports. Of course, that leaves open the possibility for a devastating "trade war," right?
But that's assuming that if the United States and China had a "trade war" that it would be a war. It wouldn't. It would be a massacre, a trade massacre.
With regards to trade, the side that is "losing" actually has all the leverage. The United States has a $566 billion trade deficit, and $375 billion of that is with China. What this means is that China trades a lot more to us than we do to them. While this may mean cheaper goods for us (and more expensive assets as China gets dollars for buying American goods, so often turns around and buys American stocks, bonds and real estate) but it also means they need us and we don't need them. We can all afford to pay and extra $1.25 for a hammer or whatever if need be.
If we shut all trade, our industry would remain pretty much the same. Of course our export sector would be hurt and yes, some companies that rely on imports would be hurt and retail would have to raise prices, but indeed, manufacturing would improve as we would have to buy from local firms rather than foreign ones. On the other hand, China relies very heavily on exporting goods. They would be devastated.
In other words, the United States has all the leverage. So why not play hardball for a better deal?
The only real risk is that China could flip the board over and fire sell our treasury bonds, which of course, they got so many of because the United States ran up so much debt and had such a high trade deficit that gave China the dollars to buy US assets with in the first place. This is a risky play on their part though, as they would be taking a hit by firing selling those bonds and unless the market collapsed, investors seeking to make a buck on the arbitrage would buy those bonds up and cause the price to return to previous levels. I think they'll threaten this, but I don't think they'll pull the trigger.
So in the end, the punditry has it wrong (again) and if the US wants a better trade deal with China, it holds all the cards in a negotiation.
"Every day is a new life to the wise man."
The Righteous Mind
Star Slate Codex
Consulting by RPM