Logo
Cover

Bad Loser

The response to the opening of Costcos (American wholesale chain) first specialist market in China last week was not expected. As reported in the mass media, the snakes waited for three hours before they were admitted, and two more hours at checkout.

Cosco's China

The company had to close the doors on the first day at 13.30 and hastened to regulate the onslaught on the second day.

This response to the simple, normal people clearly refuted Trump’s claim that China’s economy was failing. In addition, she sadly demonstrates the ignorance and misjudgment of his China team.

You have to pay tribute to Costco for having analysed the market in China well and precisely hit the buyers ‘ nerve in Shanghai. And this nerve is promising, but the purchasing power of middle income households in China is three times that of the US.

How can Trumps China Team be so deceived in the assessment of China’s economy? Because there is a complacent feeling that the US remains unique, that China only knows how to steal and copy, and that China will wink for mercy if it is threatened with customs duties. But this Team is wrong in every respect.

Trump is misled by his advisers

Robert Lighthizer, commercial officer and trained lawyer, has not much idea of Economics. He believes that the trade deficit with China can only be reduced by customs duties on imports from China. Trumps China consultant Peter Navarro has never known much about China and is willing to admit not much about economics.

So he can flatter Trumps Ego with the nonsensical statement that a trade war with China is easy to win.

The China team Trumps never tried to figure out what’s going on in China. If they had done so, they would have found that the total amount of foreign direct investment in China increased by 1.5 percent in the first half of 2019 compared with the previous year.

In other words, companies do not withdraw, but invest further in China, because they regard the country as an attractive business location.

China’s GDP rose last year by 6.6 percent. Of these, only 1.5 per cent were attributable to exports and exports to the United States were obviously only a fraction of them. These exports to the US were therefore not as important for the Chinese economy as Trump had imagined.

In recent years, China’s policy has been to increase domestic consumption, and today, Chinese consumer spending accounts for more than 50 percent of GDP.

The White House simply did not understand that China’s consumption economy is already much larger than that of the US. Only recently, Beijing has announced twenty new policy regulations to further stimulate consumer spending.

The new regulations, for example, promote new, continuously open minimum markets as well as car sales and shopping opportunities and support new holiday and entertainment options, etc.

China obviously has a Plan to deal with the negative consequences of the trade war. It counts on domestic consumption, through which China’s economy is to remain dynamic and resilient.

Trump’s only answer: customs duties

Trump’s only strategy to oppose China is to impose more customs duties and to threaten with even more customs duties. He has repeatedly publicly stated that imposed duties are “free” money paid by China.

Someone has to tell him that this free money hurts the US consumer because it makes the goods more expensive and empties the wallets. The money is not in vain and it also does not come from China.

U.S. retailers such as Best Buy already anxious in anticipation of a new round of customs duties on consumer goods on 1 September. They know that import duties on goods produced in China reduce their profit margins, speed up prices for their customers and reduce the volume of customers in their stores.

Costco in China does not have this Problem. It offers Made-in-China products for its customers in China. U.S. retail stores, on the other hand, rely on cheap products manufactured in China to fill their shelves.

By lowering customs duties on imports from other countries, China can more than compensate for the increased customs duties on US imports. Thus, the Chinese consumer remains unaffected by the trade war.

At the same time, great damage is done to the US Farmer. In the first six months of this year, insolvencies have risen by 13 percent. Trump’s offer, the Farmer of the customs revenue to financially support a band-aid on a gaping wound.

Who in the White House can advise you what to plant next year, but are bankruptcy signs for more and more households?

No respect for China’s technology

Leading US politicians on both sides of the political spectrum depend on the belief that China’s technology competence is based on theft. Even Huawei’S 5G technology must have been stolen illegally and from somewhere, although no one else owns the technology that Huawei is supposed to have stolen.

Washington may be comforting to disqualify China’s technological ability, but unfortunately the US is being misled.

For example, according to recent statistics, Samsung ranks first among the market shares of mobile phones. However, Huawei has climbed to second place with 15.8 percent, while Apple has slipped to third place with 10.5 percent.

Significantly, the positions have reversed and sales of Huawei have risen by 16.5 percent, while Apple has a decrease of 13.8 percent.

About ten years ago, China bought high-speed train technology from Siemens. At that time, some of the German experts in secret thought that China would need decades to think through and incorporate all aspects of this technology.

China, however, surpassed German technology within a decade and became the world leader. China’s high-speed trains are faster and cheaper than the Japanese or European ones. This is just an indicator of how fast China can develop technological excellence.

CRRC, a part of the Chinese high-speed train consortium, has been awarded the contract for the manufacture of metro cars for American cities. It proposed to assemble the railway wagons in new factories in the US, on the one hand, this would create employment for US workers, and on the other, a state-of-the-art Design at a lower price than any competing offer.

By manufacturing internal components of the wagons in the USA, the finished product would be more than 60 percent of local components. An agreement for the profit of all parties.

But when the first car was delivered to Boston, the only comment by New York Senator Chuck Schumer was that he was worried about China being able to use the cars for espionage against the United States. Recently, Congress member Harley Rouda went even further, as he supported legislation that would prohibit the purchase of CRRC-rail cars with Federal funds.

Rouda said, “US taxpayers’ hard-earned money should not encourage Chinese companies to undermine industries that are essential to our national security.“He is either confused or simply hostile to foreigners, because US Americans for decades no longer produce metro wagons.

If this is indeed an industry that is important for the national security of the US, it should hurry better and revive the companies in the graveyard.

Or Rouda knows it better, of course, but is profiting just to easily acquire a few political pluses. Everyone in Washington knows that the best way to shine in the media is to deal with China.

It can be seen that China has a short-term Plan for dealing with the trade war, while the Trump White House is completely unsuspecting. However, the long-term effects are even more harmful.

Trade war will cause major damage to the US

Whether soybeans from Iowa, lobster from Maine or wine from California, once the Chinese have ceased to buy American sellers, the markets will not recover so quickly. China has already found replacement sources.

The longer the trade war lasts, the more established the new suppliers become and the more difficult it becomes for US exporters to distribute them and regain their market share. Provided, of course, the trade war will ever end.

In the technology sector, the situation is just as bad. Trump thought he had the upper hand when he ordered U.S. semiconductor companies to stop selling key electronic components to China’s top manufacturers of Smartphones such as ZTE and Huawei.

However, China is such a large market that US companies manufacturing semiconductor units cannot afford to do without it.

The US companies pleaded with Trump and reluctantly submitted: US companies may continue to deliver to China for a limited time, but the deadline is always extended.

The Chinese companies, however, are of major chipsets from the United States, have recognized the signs of the times, Huawei for example, has already announced its own OS for the Smartphone, which will replace the Android OS from Google. In addition, it is working feverishly on the development of its own telecommunications chipsets to replace Qualcomm and Nvidia.

If the development so far is an indication of the future, Huawei will lose more quickly than Washington suspected of American technology. Then, US high-tech companies will quickly lose market share and experience the reduction of their presence and influence in China.

If the White House really succeeds in decoupling the two economies, both countries will lose. No one will then be able to benefit from the progress of each other and from the multiplier effect of linking the two world’s largest economies.

Historians will probably once complain of the zero-sum conflict that Trump caused, and of the joint gains that would have been possible, the two largest economies would have worked together and avoided the loose-lot confrontation.