[quetzalcoatl]

A few facts are in order. China holds ~$1.2T in US Treasuries. It's GDP is ~$9.3T. This represents ~13% of Chinese GDP. I assert the Chinese are neither suicidal nor incompetent.

What can they do with this asset?

They have only two options: hold them until maturity, or sell them at market value before they mature. It's just business, nothing else. They sell US Chinese made goods, and receive US dollars in return. They choose to exchange these for US securities, because they are safe and offer a superior return to holding dollars in their account.

They have every incentive to maximize the value of this investment, not to deliberately crash it. Over time, they can decrease their holdings of US Securities, but this will hardly impact either country in a major way.

There will will be no trade war.

[B0ycey]

There will will be no trade war.

A few facts are in order. The value of dollars they have may be 13% of their GDP, but their GDP is not dependant on keeping US Dollars. There are other currencies on the planet you know. They keep US Dollars to peg the value of the Yuan to Dollars. Nothing more. Nothing less.

But what I find interesting is the last sentence on your post. China may not be suicidal or incompetent, but your President may be. He is the one using trade war language, not China. In the current economic climate, it makes no sense for China to sell US Dollars on a mass sell off. But again, we are talking about a hypothetical climate. If Trump does declare a trade war (US protectionism), do you seriously think China will do nothing? Do you seriously think China will not sell off a currency that will lose its value on an international market because it is no longer traded as much? China can afford to take a $1.2 trillion dollar loss because they are wealthy. And they will attack the US without bullets if they attack China in the same manner. China may not be suicidal, but they aren't stupid either. They have pride and take calculated decisions. So again this is no myth. You just wish it was.

[AFAIK]

The US could easily defend itself from any obvious moves like a mass sell off of bonds or securities, the attack would have to be more discrete and covert.

The US has already entered into a currency war with China using Quantitative Easing to depress the dollar and export inflation and regularly pressures Beijing to allow the Yuan to appreciate. James Rickards wrote a book about it but finance is too complicated for me to understand.

[B0ycey]

The US could easily defend itself from any obvious moves like a mass sell off of bonds or securities, the attack would have to be more discrete and covert.

There isn't much the US could to. Like any asset, it's value is dependent on what someone else is prepared to buy it for. A lot of US money men will find a big hole in their pockets if China did such a move because it would create a big bubble burst. And the US poor would ultimately suffer because imports will become more expensive. However the price of US home made goods using US suppliers shouldn't be effected as much. So it's just an inflation issue. Not really a job creation/loss issue. However being that many US jobs rely on exporting to the rest of the world, I can't see how the US can create more jobs than they lose is a protectionism environment. And the jobs they do create, are likely to be lower skilled too.

The US has already entered into a currency war with China using Quantitative Easing to depress the dollar and export inflation and regularly pressures Beijing to allow the Yuan to appreciate. James Rickards wrote a book about it but finance is too complicated for me to understand.

Of course. And when Trump needs to build this wall that has no monetary value, QE will continue to depress the Dollar to pay for it and this will help US exporters out by making their products more competitive globally. There are benefits with a low value currency. I won't deny this. But these benefits are mainly export related. If you don't export as much because nations have put barriers on your goods (because you have done likewise to theirs), there aren't so many benefits with a low value currency. So you need to put everything into perspective. Trumps ideas have holes to them. They will take more jobs away from the the US than they will create for the US. Why? Because US wealth is from globalisation not protectionism.

[One Degree]

Any barriers to US trade would be overcome by using Canada or Mexico as third parties. Both are totally reliant on US trade and have no choice except to do as the US demands. Your economic theories are meaningless when faced with the alternatives the US has available due to it's unique geography and power.

[quetzalcoatl]

...US wealth is from globalisation not protectionism.

The wealth of globalization goes, in overwhelming degree, towards a mere handful of individuals. Literally a handful. The perspective of globalization versus nationalism is really material to the oligarchy, who are its main beneficiaries.

The issue of jobs is entirely separate. The decision to have a high unemployment economy is a political one, not an economic one.

Just to be clear, I'm not a strong advocate of protectionism. It is mainly beneficial to developing economies, not mature ones. At the same time, the idea that Trump is threatening a trade war is ludicrous. The US economy is more open to imports and foreign ownership of capital than any other developed nation in the world. At worst, Trump is bringing US import-export policy into a multifaceted bilateral mode, rather than attempt a grand legal structure. And his proposals, at least what we know so far, bring the US more into line with what our Asian partners are already practicing.

[B0ycey]

Any barriers to US trade would be overcome by using Canada or Mexico as third parties. Both are totally reliant on US trade and have no choice except to do as the US demands. Your economic theories are meaningless when faced with the alternatives the US has available due to it's unique geography and power.

Eh? This post contradicts everything we are debating. Are you for or against NAFTA? If the US wack a massive tariff on Mexican and Canadian goods to prevent foreign business from exploiting the US and their workers by using these countries to build factories, how do you come to the conclusion that the US can use them as a third party for cheap goods? Where is this imaginary alternative? In a protectionism environment, you use your own resources. You don't sell to a foriegn market and they don't sell to you. Unless there is no other option. And this option has a finacial cost. The poor will not be better off in such a scenario. Things will cost more. But by all means, believe what you like. What do I care.

[One Degree]

Eh? This post contradicts everything we are debating. Are you for or against NAFTA? If the US wack a massive tariff on Mexican and Canadian goods to prevent foreign business from exploiting the US and their workers by using these countries to build factories, how do you come to the conclusion that the US can use them as a third party for cheap goods? Where is this imaginary alternative? In a protectionism environment, you use your own resources. You don't sell to a foriegn market and they don't sell to you. Unless there is no other option. And this option has a finacial cost. The poor will not be better off in such a scenario. Things will cost more. But by all means, believe what you like. What do I care.

You simply choose to view this as total isolationism rather than protectionism. The reality does not support this view, even though it is doable for the US. The arguments of a world against the US in a trade war is pure fantasy. This is why I point out Canada and Mexico. It does not matter what the current relationship is, they can not afford to turn their backs on the US for many reasons including their close proximity. You will never succeed in turning the whole world, or even the whole EU, against the US in a trade war. It would probably split Europe even further and damage them more than the US. It may be fun to bash the US, but when reality sits in, then countries know who they must support. We could narrow down which hypothetical we want to argue I guess. Total isolationism or protectionism?

[B0ycey]

You simply choose to view this as total isolationism rather than protectionism. The reality does not support this view, even though it is doable for the US. The arguments of a world against the US in a trade war is pure fantasy. This is why I point out Canada and Mexico. It does not matter what the current relationship is, they can not afford to turn their backs on the US for many reasons including their close proximity. You will never succeed in turning the whole world, or even the whole EU, against the US in a trade war. It would probably split Europe even further and damage them more than the US. It may be fun to bash the US, but when reality sits in, then countries know who they must support. We could narrow down which hypothetical we want to argue I guess. Total isolationism or protectionism?

So what kind of trade do you want the US to have? Do you want NAFTA or not? Naturally Mexico, Canada... and the whole world want to trade with the US. Why wouldn't they? They are the biggest market in the world. But you cannot have it both ways. You can't have high tariffs on imports and expect low tariffs on exports so you can keep jobs in the US. Canada/Mexico will just find new partners to trade. If they can't trade within the US they will try Asia. Perhaps TPP without the US. Exploit the Asian markets. Canada and Mexico do have other options than just accept a shit deal from the US. They just are not as good as what they have with NAFTA that's all.

[One Degree]

So what kind of trade do you want the US to have? Do you want NAFTA or not? Naturally Mexico, Canada... and the whole world want to trade with the US. Why wouldn't they? They are the biggest market in the world. But you cannot have it both ways. You can't have high tariffs on imports and expect low tariffs on exports so you can keep jobs in the US. Canada/Mexico will just find new partners to trade. If they can't trade within the US they will try Asia. Perhaps TPP without the US. Exploit the Asian markets. Canada and Mexico do have other options than just accept a shit deal from the US. They just are not as good as what they have with NAFTA that's all.

I agree with Trump's basic statements. We need to make deals more favorable to the US than we have done recently. We also need to maintain a manufacturing basis in the country to supply jobs that are suited to a large portion of our people. Cheap products need to take a back seat to providing a wide variety of employment.

[B0ycey]

I agree with Trump's basic statements. We need to make deals more favorable to the US than we have done recently. We also need to maintain a manufacturing basis in the country to supply jobs that are suited to a large portion of our people. Cheap products need to take a back seat to providing a wide variety of employment.

In other words, not NAFTA. To prevent foreign investers from using Mexico and Canada as a gateway into the US market and to (allegedly) keep jobs in the US, Trump would have to impose high tariffs on Canadian and Mexican goods. And this causes many new problems. But because I can't be arsed to repeat myself over and over again, I won't repeat them to you again now.

[Beren]

The arguments of a world against the US in a trade war is pure fantasy.

But what if America means to go against the rest of the world?

You will never succeed in turning the whole world, or even the whole EU, against the US in a trade war. It would probably split Europe even further and damage them more than the US.

I wonder if the EU could be split regarding trade. Stepping up as a union on the world market is the quint-essence of the whole organisation. It's different from foreign policy, which is still a national competence.

[One Degree]

In other words, not NAFTA. To prevent foreign investers from using Mexico and Canada as a gateway into the US market and to (allegedly) keep jobs in the US, Trump would have to impose high tariffs on Canadian and Mexican goods. And this causes many new problems. But because I can't be arsed to repeat myself over and over again, I won't repeat them to you again now.

You don't need to repeat yourself. You even quoted me where I said I am willing to pay higher prices for more jobs. Our goal should be supplying employment for our people, not in taking the most cost effective path. I can not see any real hardship coming from this.

Edit: I also object to the idea of bettering our lives off of the cheap labor of other countries. Just a side comment.

[Kaiserschmarrn]

A few facts are in order. The value of dollars they have may be 13% of their GDP, but their GDP is not dependant on keeping US Dollars. There are other currencies on the planet you know. They keep US Dollars to peg the value of the Yuan to Dollars. Nothing more. Nothing less.

If China started investing in assets denominated in other currencies, wouldn't these other countries likely start to buy US assets/debt if only to prevent their currencies from appreciating significantly? For instance, I know that Japan has done this not so long ago in response to China causing too much - in the BoJ's view - appreciation of the Yen. There are few currencies that could tolerate investments of this magnitude. The euro might be able to absorb some or most of it at a different time, but I believe currently even the ECB would intervene to prevent the euro becoming too strong, again most likely by buying US assets.

The most important consideration is the reason for US assets being dumped. If it is simply a response by China to US actions that target the country, as proposed in this thread, then it does not mean that they have lost trust in the strength of the US economy or that they are of the opinion that the US cannot pay back its debt. It is only if the performance of the US economy is in question and trust in the US is eroding that something like this would be detrimental. Otherwise it would almost certainly cause volatility and perhaps temporary disruption, due to the size of the Chinese holdings, but I would expect others to quickly jump in to buy what would be very cheap US assets, even more so in the current climate, where the world is flush with money looking for safe investments.

[B0ycey]

If China started investing in assets denominated in other currencies, wouldn't these other countries likely start to buy US assets/debt if only to prevent their currencies from appreciating significantly? For instance, I know that Japan has done this not so long ago in response to China causing too much - in the BoJ's view - appreciation of the Yen. There are few currencies that could tolerate investments of this magnitude. The euro might be able to absorb some or most of it at a different time, but I believe currently even the ECB would intervene to prevent the euro becoming too strong, again most likely by buying US assets.

The most important consideration is the reason for US assets being dumped. If it is simply a response by China to US actions that target the country, as proposed in this thread, then it does not mean that they have lost trust in the strength of the US economy or that they are of the opinion that the US cannot pay back its debt. It is only if the performance of the US economy is in question and trust in the US is eroding that something like this would be detrimental. Otherwise it would almost certainly cause volatility and perhaps temporary disruption, due to the size of the Chinese holdings, but I would expect others to quickly jump in to buy what would be very cheap US assets, even more so in the current climate, where the world is flush with money looking for safe investments.

I think people are confusing todays economic environment to a US protectionism economic environment. Sure investors might look at a cheap dollar and buy. But $1.2 trillion? In an environment where the dollar is traded mostly in an internal market? Why? Especially not likely to occur by nations where the US has just fucked them over. As for counteractions to prevent appreciation of your own currency, why buy US assets to halt this? There are other options that you could take. Personally, I'd print more of my own currency and use the cash to invest in my own infrastucture than bailout a nation that has wacked tariffs on my imports. But that's me. Or you could invest in up and coming economic markets like Brazil or India. Not a market that is likely to lose a significant percentage of its GDP as it relied but has suddenly just rejected globalisation.

[quetzalcoatl]

Trump will not wage a trade war. He will simply follow the same protectionist policies now followed by most of the world. Nations who have a positive trade balance with the US will still have a positive or neutral trade balance, if they don't succumb to the bait of responding with their own tariffs.

The US is not very exposed to trade fluctuations, compared to China and Japan. It has a GDP of ~$18.6T, with exports of ~$1.5T and imports of ~$2.2T. Increased tariffs on imports, even if accompanied by corresponding tariffs on US exports, would simply improve US balance of payments.

The main restructuring involved in protectionist economy (from a US standpoint) would be dealing with push-inflation shock as cheap imports are removed from the economy. Love it or hate it, this would require a massive redistributionist scheme (a la Bannon's infrastructure projects, or something along these lines).

[One Degree]

The main restructuring involved in protectionist economy (from a US standpoint) would be dealing with push-inflation shock as cheap imports are removed from the economy. Love it or hate it, this would require a massive redistributionist scheme (a la Bannon's infrastructure projects, or something along these lines).

I am guilty of buying the cheap products and then complaining about food with no taste and products that break when you pick them up. I need the government to remove this decision from me. Eliminate the cheap shit and I will be happier once I have adjusted back to quality products. Please force me to buy corn fed beef instead of whatever they feed Walmart beef that smells like a sewer while it is cooking down to half it's original weight. Cheap is an addiction I need help breaking.

[Potemkin]

I am guilty of buying the cheap products and then complaining about food with no taste and products that break when you pick them up. I need the government to remove this decision from me. Eliminate the cheap shit and I will be happier once I have adjusted back to quality products. Please force me to buy corn fed beef instead of whatever they feed Walmart beef that smells like a sewer while it is cooking down to half it's original weight. Cheap is an addiction I need help breaking.

I'm guessing you came to maturity in the 1970s, One Degree? That was the Decade of the Cheapskate. People wanted everything to be as cheap as possible, or they would refuse to buy it. This meant that, for the mass market at least, everything became cheap, tasteless crap that didn't work properly. The food was over-processed cheap shit that gave people cancer, the film stock for cameras was so cheap that the pictures would fade to nothing after a few years, fountain pens were replaced with cheap biros that wouldn't work because the ink gel was full of air bubbles, and so on and so forth. Guys of a certain age have kept that cheapskate attitude even though everyone else has long ago repudiated it as a terrible, terrible mistake. Rather like the entire decade of the 1970s itself - the only thing wrong with the Seventies was that it was all a terrible, terrible mistake....

[B0ycey]

I'm guessing you came to maturity in the 1970s, One Degree? That was the Decade of the Cheapskate.

And the 21at century isn't a cheapskate era? Look at your local High Street. What do you see? Highbrow clothing and luxury tech shops or discount retailers and charity shops? The end of the day, luxury goods are nothing more than a brand name that people want to be associated with. Yet, cheaper alternatives are just as good and sometimes better. Have you shopped in Aldi? The food products they sell are just as good as what you can find in any of the big four supermarkets and much cheaper. And this secret is getting out. And Aldi and Lidi are taking chunks out of the main four supermarket monopoly every year. Because of this, it won't be long until the big four are forced to become discount focused rather than brand promotion focused, because attitudes are changing and price is king in a consumer market. After all, people like their money to go as far as possible because they like luxuries and don't particularly want to spend all their cash on living expenses.

@One Degree , I am glad to read you are prepared to pay more for your goods and ultimately accept a lower standard of living. At least you aren't a hypocrite with your protectionism belief. But are your fellow US compatriots just as willing to accept this sacrifice as you? I doubt Trump will win the US poor over when these jobs he promises don't materialise and they suddenly need to find more money to live at the same time.

[quetzalcoatl]

In other words, not NAFTA. To prevent foreign investers from using Mexico and Canada as a gateway into the US market and to (allegedly) keep jobs in the US, Trump would have to impose high tariffs on Canadian and Mexican goods. And this causes many new problems. But because I can't be arsed to repeat myself over and over again, I won't repeat them to you again now.

This is absurdly easy to compensate for. China is famous for this. They simply insist that foreign investors partner with local enterprises - with the implied threat that capital repatriation can be interrupted at their whim. Why is China allowed to openly nationalistic and protectionist, but not their trading partners?

Trade re-negotiations are not about bringing back jobs to the US. This goal will have to achieved via other more effective channels. What it is about is a gradual retrenchement from globalism and its discontents. In this, the US is not starting trade wars, but aligning itself with what has been common practice in Asia.

A multipolar trade regime will require a lot of restructuring to be sure, but will be no worse than what we have now, which is pretty bad.