Writing in the Journal of Foreign Affairs Weijian Shan, Chairman and CEO of HK based PE firm PAG and author of the recent book ‘Out of the Gobi: My Story of China and America’ concludes America will be the loser from the trade war if it’s protracted.
The main point he makes is the trade war to date has not achieved America’s #1 goal of reducing its deficit with China, nor will it. In fact, the trade deficit with China has gone up. In 2018 America increased its purchases from China by U$34bn while China cut back purchases from America by U$10bn. Talk about shooting yourself in the foot!
The reason for this own-goal is that what America imports from China they can’t get elsewhere; but what China imports from America (in large part) can be alternatively sourced.
Moreover China’s economy has never been less sensitive to external trade as it continues to shift to a consumption led model. America though can’t get off the consumption drug and for that China is an essential supplier to satisfy that habit.
My two-pennyworth. No doubt, America, China and the rest of the world all lose if something can’t be worked out but with America’s leader up for re-election shortly and China’s in the job for life if this turns into a war of attrition who do we think is likely to blink first? {And yes, I of course saw the news on Friday but that’s a long, long way off a lasting solution]
Mr. Shan’s thoughts in full can be accessed via the following link The Unwinnable Trade War.
Happy Sunday.