E Trump May Be Wrong About Winning A Trade War

Donald Trump may be very wrong about the USA winning a trade war. Yes, the US imports the most, so it would theoretically win a trade war if it imported less. However, the impact of all this would fall upon the consumer. Producers could win in America, while consumers will surely lose.

America's Consumer Is Weak

The consumer in America may no longer be wealthy enough to withstand a major trade war. China and other nations have consumers who consume better quality products. They are simply not as austere as Americans are in their buying habits, as their savings rate is low, and their debt is high and their wages are weak.

Americans, as the decline in prosperity on mainstreet has hit hard since the Great Recession, buy based on price. Therefore, they will balk at higher prices. Companies may not be able to make it in America and expect Americans to buy it. Companies may not be able to make it completely in America and expect the Chinese to buy it.

Source: Trading Economics

 

China Has a Strong Consumer Base

China, on the other hand, has a consumer base that buys an incredible portion of world luxury products and American products:

Chinese consumers buy more luxury products than those in any other country, accounting for about one-third of global sales. But a decade of rapid growth stalled after 2013 amid President Xi Jinping’s government austerity and anti-corruption campaigns and an economic slowdown.  However, Burberry said this month its return to expansion in Asia was driven by “high single-digit comparable sales growth” in China, and Hugo Boss’s incoming chief executive Mark Langer said China had seen a turnround in the second half of the year.

And China buys a lot from the United States and that growth has steadily increased over time as the above chart shows. Last decade, Chinese consumers bought Chinese. They are starting to buy American. That could flip in a wave of patriotism. On the other hand, Americans are aware that there is patriotism and there is a higher patriotism that Donald Trump cannot grasp. That will likely not motivate most to buy American when they cannot afford it.

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Disclaimer: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice. The ...

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Gary Anderson 3 months ago Author's comment

Cramer says China is bluffing. But why would China have to bluff. Keep in mind that in my article, Cramer said Apple could be hurt. He has, then, essentially taken both sides of the argument. The question is, why?

Gary Anderson 3 months ago Author's comment

China did indeed play the Apple hand, threatening to hold that company hostage. Apple's earnings could be in danger if Donald Trump gets too frisky with tariff madness. The man may as well howl to the moon at this point.

Norman Mogil 6 months ago Contributor's comment

Canada is the biggest importer, not China, of US agricultural exports which are now in jeopardy. This is why Trump is having so much trouble with NAFTA. His supporters in the heartland are going to lose their largest customer. Canada is playing Trump perfectly by hitting at his weakness--- his voters in the heartland.

Gary Anderson 6 months ago Author's comment

As an American I apologize to you for the idiots we choose to rule us, Prof. Since this article was written, Trump, through his minions, has insulted Trudeau in ways unimaginable. Kudlow saying Canada is stabbing America in the back is simply unacceptable. Trump should apologize for, and fire Peter Navarro, chief trade adviser, for saying there is a special place in hell for the prime minister of Canada. This is not diplomacy, and can you imagine a leader saying the same about Trump?

Norman Mogil 6 months ago Contributor's comment

Apologize accepted. I know you personally would never have approved of this behaviour!

I just do not see any way forward on the trade issue with Canada. Truthfully, the Canadian officials I know are really top notch and know exactly how trade flows between the two countries and just how to push back,, knowing that the American farmer will be on the same side. The whole mess is surreal.

Gary Anderson 6 months ago Author's comment

It is surreal. During his interview with Chris Wallace, Navarro said he was going to upset the global order. He said:

"And my job at the White House is to help the president get jobs, good jobs, manufacturing jobs to the working men and women of America, and we can't do that unless we UPSET THIS EXISTING WORLD ORDER, which basically is tremendously biased."

He previously said no country would retaliate for the trade sanctions on steel and aluminum. He thought it would be a win for Trudeau that Trump even go to Canada. What is that guy smoking? He is a very dangerous man. Very dangerous.

Then Trump says, "we have a world to run". How about he run his nation and leave others to put their nations first as well. These guys in the white house are radicals. They want to upset the existing world order. That will devastate farming in America, and will devastate the job prospects for millions of people. And it will raise prices and manifest the inefficiency of protectionism, Prof.

Norman Mogil 6 months ago Contributor's comment

Gary

You are most welcome to move to Canada. We are polite, do not want to turn the world upside and just go about a daily work. Also, the healthcare is universal and free.

Your assessment about farming and jobs is so right. When will the light go on with some of Trump supporters?

Norm

Gary Anderson 6 months ago Author's comment

My DNA mother was born in Canada, Calgary in fact! But she left prior to 1947, which means she was still a national, not a citizen, and a British subject until she married in the USA. So, thanks for the invitation, prof. Regarding Trump, I even have family members who don't understand the complexity of trade, of the possibility that there would be unintended consequences of trade wars, of the possibility that Russia may become a large supplier of wheat to Latin America. It could happen.

So, surely the combination of yield curve reversal and Trump trade wars could work to play a nasty trick on the stock market, with a shock, a big one. We hope for better, but it is clear that radicals have taken over the White House and that Bannon's ghost is still present there.