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Trade War? Hardly.
 

olafenizer's picture
IB
(King Kong, 1,005
 
Points)
 on 7/17/12 at 10:30pm
china shopping mall.jpg

It must be an election year; the anti-China rhetoric has been hot lately. Every day there’s a new story out about how the Chinese are stealing our jobs, screwing our companies, etc.; and how we are on the verge of a trade war with them. As if for the past decade China hasn’t been stealing our jobs and screwing our companies.

The idea of a trade war breaking out is silly though, because we’ve already lost.

No hard feelings, this is just how it works with China: foreign companies play against a stacked deck and loaded dice. Complaining about it won’t do anything. The WTO and others may make threats and issue rulings, but the Chinese will just ignore them. In the name of “getting a piece of the Chinese market” we all just accept it with a smile on our face, lest we upset our chances at having a piece of “the biggest market in the world”.

This idea is complete nonsense because there is no way the Chinese government would ever allow a foreign company to earn a significant share of the domestic market. It’s not just because of the communist government trying to further its own relevance and existence. Historically things have not gone well for China when foreigners come to play (read about late imperial China to get an idea of what I am talking about), so it’s completely understandable that the Chinese have a slight aversion to foreign influences.

The Chinese government is absolutely going out of its way to exclude foreign competition from the domestic market. It is trying to protect its own companies just long enough so that by the time the restrictions on foreign companies are lifted to allow them to realistically compete, the game is over because in the time that the regulatory restrictions were in place, the Chinese companies have been building their own businesses to the point that it even with no regulatory restrictions, it has become excruciatingly hard for the foreign company to effectively compete in the market.

Are the Chinese going to keep doing it? Absolutely. Should our response be toothless threats of embargos and tariffs, and whining to the WTO? Absolutely not. Instead let’s just accept that for various reasons the Chinese don’t think they have to play by the rules. No embargos, no tariffs, no whining to the WTO. Just let them pull whatever crap they want to pull.

Companies should reassess if they actually believe they can “get a good piece of the Chinese market”. Is China really that important of a market? What would happen if all the foreign companies collectively decided not to sell their cars, machines, purses, and whatnot in China?

See my other WSO blog posts
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Comments

Beretta's picture

I laugh whenever someone says

ST
(Orangutan, 358
 
Points)
 on 7/17/12 at 11:01pm

I laugh whenever someone says China is communist. They are no more communist than I am.

Also, some people need to realize that buying Made-in-USA isn't going to bring those jobs back. Those manufacturing jobs are essentially gone forever. Once China's wages rise to a certain point, American companies will simply shift their operations to lower wage countries (e.g. Vietnam, Bangladesh). Blaming China for the free market is simply foolish.

UFOinsider's picture

Given that we are getting

O
(Human, 10,349
 
Points)
 on 7/17/12 at 11:18pm

Given that we are getting increasingly high quality goods in exchange for paper that we can just print more of, we're the clear winners. It DOES suck that employers were so willing to ship jobs over there, but given the massive wind down on and destruction of the financial and executive sectors, it's just ironic/poetic justice. Honestly, a war is totally pointless and anyone advocating it should be sequestered in a mental hospital....no one can win and this will not change so just deal with it. All we really have to do is what we've done in the past: work smart, work hard, and have a better overall way of life. Besides, the population bomb is going to kfuc China so hard in a few years, they will likely have a systemic meltdown. Exactly how long is a society that's 70% male supposed to sustain itself??? Literal answer: it can't. Place your bets early and hang on to your hats.

That having been said, I'm all in favor of the security ring that the US has been putting in place, just in case some looney doomsday faction over there decides to stop taking their meds, grab power, and get fascinated with the big red button

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

That_Aston's picture

You have got to factor in the

CF
(Gorilla, 574
 
Points)
 on 7/17/12 at 11:43pm

You have got to factor in the ever increasing cost for living in China as well. They can't continue to pay them the current wages. The chickens will come home to roost especially whats been said about the 70/30 male dominance.

I would personally love to see China fall though. Bring back US exports!

Here to learn and hopefully pass on some knowledge as well. SB if I helped.

Powa23's picture

Guys its ~54.5% male to 45.5%

(Orangutan, 291
 
Points)
 on 7/18/12 at 12:34am

Guys its ~54.5% male to 45.5% female and that is according to the Atlantic in an article talking about removing the one-child policy. Lets not spew nonsense to support our argument. Besides if they do ever collapse it'll be the slow down in real-estate investments and industry, which supports so much of their construction and labour force.

jam011's picture

Donald Trump thinks america

 
Points)
 on 7/18/12 at 12:45am

Donald Trump thinks america is paying to rebuild china. As if we give them a blank cheque. The chinise through sweat and blood create products that we buy. No is ripping anyone off. The moment a cheaper factory appears in vietnam corporations change suppliers.

Also enough of this opec crap, global demand has increased as has inlfation and the dollar has weakened. Why do does trump expect Oil prices to remain the same. Some market manipulation has been alleged along libor scandal lines but thats not opec. Western Oil companies and employees and the american tax man make more money of the oil than opec .

China and the federal reserve should stop forex intervention. China should open up its market and america should remove restriction on super computer exports and other burecratic hurdles which are indirect protectionism.

UFOinsider's picture

I'm extremely tired and

O
(Human, 10,349
 
Points)
 on 7/18/12 at 1:20am

I'm extremely tired and definitely read a few things too quickly, but interpret this how you want:

http://www.indexmundi.com/china/demographics_profi...

They're a threat more to themselves than us for the forseeable future.

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

UFOinsider's picture

Revisited the data....I was

O
(Human, 10,349
 
Points)
 on 7/18/12 at 1:23am

Revisited the data....I was off by a longshot. Still though, the worst we can see is an uneasy truce...I think both us and them understand that direct competition isn't worth it in the long run

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

JDimon's picture

Can someone explain to me how

(Orangutan, 252
 
Points)
 on 7/18/12 at 1:52am

Can someone explain to me how China isn't playing by the rules - I haven't followed this closely enough. Is it that they are keeping the value of their currency low, making their products cheap to foreigners (to increase exports)? If so, how are they doing this? By using their central bank to set a low interest rate (reducing foreign investment in their country)?

There is already a book on you. That book is already being written. And if I talked to your friends, your teachers, your professionals, your family, I would know so much about you I wouldn't even have to meet you. You write the book the way you want to be

Hooked on LEAPS's picture

olafenizer: It must be an

ER
 
Points)
 on 7/18/12 at 2:27am
olafenizer:

It must be an election year; the anti-China rhetoric has been hot lately. Every day there’s a new story out about how the Chinese are stealing our jobs, screwing our companies, etc.; and how we are on the verge of a trade war with them. As if for the past decade China hasn’t been stealing our jobs and screwing our companies.

The idea of a trade war breaking out is silly though, because we’ve already lost.

No hard feelings, this is just how it works with China: foreign companies play against a stacked deck and loaded dice. Complaining about it won’t do anything. The WTO and others may make threats and issue rulings, but the Chinese will just ignore them. In the name of “getting a piece of the Chinese market” we all just accept it with a smile on our face, lest we upset our chances at having a piece of “the biggest market in the world”.

This idea is complete nonsense because there is no way the Chinese government would ever allow a foreign company to earn a significant share of the domestic market. It’s not just because of the communist government trying to further its own relevance and existence. Historically things have not gone well for China when foreigners come to play (read about late imperial China to get an idea of what I am talking about), so it’s completely understandable that the Chinese have a slight aversion to foreign influences.

The Chinese government is absolutely going out of its way to exclude foreign competition from the domestic market. It is trying to protect its own companies just long enough so that by the time the restrictions on foreign companies are lifted to allow them to realistically compete, the game is over because in the time that the regulatory restrictions were in place, the Chinese companies have been building their own businesses to the point that it even with no regulatory restrictions, it has become excruciatingly hard for the foreign company to effectively compete in the market.

Are the Chinese going to keep doing it? Absolutely. Should our response be toothless threats of embargos and tariffs, and whining to the WTO? Absolutely not. Instead let’s just accept that for various reasons the Chinese don’t think they have to play by the rules. No embargos, no tariffs, no whining to the WTO. Just let them pull whatever crap they want to pull.

Companies should reassess if they actually believe they can “get a good piece of the Chinese market”. Is China really that important of a market? What would happen if all the foreign companies collectively decided not to sell their cars, machines, purses, and whatnot in China?

+1 SB.

You have your way. I have my way. As for the right way, the correct way, and the only way, it does not exist. - Friedrich Nietzsche

Plugston_of_Undershot's picture

http://cache.dealbreaker.com/

 
Points)
 on 7/18/12 at 3:00am

http://cache.dealbreaker.com/uploads/2010/10/Tudor...
http://cache.dealbreaker.com/uploads/2011/02/pault...

GoodBread's picture

olafenizer: Companies should

AM
(Neanderthal, 3,604
 
Points)
 on 7/18/12 at 8:01am
olafenizer:

Companies should reassess if they actually believe they can “get a good piece of the Chinese market”. Is China really that important of a market? What would happen if all the foreign companies collectively decided not to sell their cars, machines, purses, and whatnot in China?

No company in their right mind would give up on a market of 1.3B people no matter how tough the regulatory environment. That's more potential consumers than the EU and the US combined. Even an infenitisimal piece of that market is huge money. As hard as it is for foreign companies there, the rewards are too big. As the highest incomes of Chinese society gravitate towards Western products, their brand image will trickle down to the Chinese middle-class.

As far as a trade war, the U.S. has actively sought to worsen its trade imbalance vis-à-vis China since the mid-1980s in order to get cheap imports which prevented Greenspan's ultra-loose monetary policy from goosing inflation. We've basically reached the breaking point on that but U.S. leverage is pretty limited at this point. Further encouraging the Yuan's appreciation is basically all we can do and the Fed is trying its hardest to deep-six the dollar. Too bad the Euro crisis is making it impossible to actually devalue the dollar.

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West Coast rainmaker's picture

Here is China's age

ER
(Neanderthal, 2,092
 
Points)
 on 7/18/12 at 9:10am

Here is China's age distribution: http://upload.wikimedia.org/wikipedia/commons/9/92...

All things considered, it is a pretty grim chart...especially when you start considering how China's whole social contract is based on social harmony. When that population bulge hits old age, the strain on the system will be incredible- far worse than Japan or the USA.

China is able to maintain peace by promising constant growth. Citizens can accept some limitations on free speech as long as their lives are improving. But if growth were to slow due to demographic issues, there could be social conflict. This would be compounded by the gender imbalances; remember, those gender imbalances are not evenly distributed, as the one child policy has not been enforced in rural areas.

I also have to wonder about the quality of human capital in China. They have a handful of good universities, but the overwhelming majority of their colleges are a joke. You could say the same thing about the US, but a State College grad will at least be on the same playing field as an Ivy grad.

PetEng's picture

JDimon: Can someone explain

O
(Gorilla, 747
 
Points)
 on 7/18/12 at 10:52am
JDimon:

Can someone explain to me how China isn't playing by the rules - I haven't followed this closely enough. Is it that they are keeping the value of their currency low, making their products cheap to foreigners (to increase exports)? If so, how are they doing this? By using their central bank to set a low interest rate (reducing foreign investment in their country)?

Stealing intellectual property directly from foreign firms.

olafenizer's picture

JDimon: Can someone explain

IB
(King Kong, 1,005
 
Points)
 on 7/18/12 at 11:37am
JDimon:

Can someone explain to me how China isn't playing by the rules - I haven't followed this closely enough. Is it that they are keeping the value of their currency low, making their products cheap to foreigners (to increase exports)? If so, how are they doing this? By using their central bank to set a low interest rate (reducing foreign investment in their country)?

The central bank fixes the exchange rate artificially low.

Both the bank regulatory agency and the insurance regulatory agency are purposely sitting on applications by foreign companies to open new branches, in violation of the regulators' own rules regarding the time frames in which they are supposed to act on an application. This Bloomberg article gives a good rundown of the situation foreign banks face.

Also here's an article about the decision that came out regarding how foreign payment processors are unfairly restricted.

Foreign companies are often more-or-less forced in to JVs and technology sharing arrangements with Chinese companies as a prerequsite for entering the market.

If you're a foreign company, good luck getting a loan from a Chinese bank.

In order to control the flow of information, the government blocks access to YouTube, Facebook, and others. This of course also eliminates foreign competition for these sites' Chinese equivalents.

There is essentially no enforcement of IP laws.

See my other WSO blog posts

JDimon's picture

olafenizer: JDimon: Can

(Orangutan, 252
 
Points)
 on 7/18/12 at 1:12pm
olafenizer:
JDimon:

Can someone explain to me how China isn't playing by the rules - I haven't followed this closely enough. Is it that they are keeping the value of their currency low, making their products cheap to foreigners (to increase exports)? If so, how are they doing this? By using their central bank to set a low interest rate (reducing foreign investment in their country)?

The central bank fixes the exchange rate artificially low.

Both the bank regulatory agency and the insurance regulatory agency are purposely sitting on applications by foreign companies to open new branches, in violation of the regulators' own rules regarding the time frames in which they are supposed to act on an application. This Bloomberg article gives a good rundown of the situation foreign banks face.

Also here's an article about the decision that came out regarding how foreign payment processors are unfairly restricted.

Foreign companies are often more-or-less forced in to JVs and technology sharing arrangements with Chinese companies as a prerequsite for entering the market.

If you're a foreign company, good luck getting a loan from a Chinese bank.

In order to control the flow of information, the government blocks access to YouTube, Facebook, and others. This of course also eliminates foreign competition for these sites' Chinese equivalents.

There is essentially no enforcement of IP laws.

Thanks.

So why don't we treat China the way they treat us and other foreigners? Don't let Chinese companies operate in the US ..... or do they not even want to since our wages are higher?

There is already a book on you. That book is already being written. And if I talked to your friends, your teachers, your professionals, your family, I would know so much about you I wouldn't even have to meet you. You write the book the way you want to be

PetEng's picture

JDimon: olafenizer: JDimo

O
(Gorilla, 747
 
Points)
 on 7/18/12 at 2:53pm
UFOinsider's picture

Realistically, we currently

O
(Human, 10,349
 
Points)
 on 7/18/12 at 3:05pm

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

PetEng's picture

UFOinsider: Realistically, we

O
(Gorilla, 747
 
Points)
 on 7/18/12 at 3:26pm
UFOinsider's picture

PetEng: UFOinsider: Realist

O
(Human, 10,349
 
Points)
 on 7/18/12 at 3:34pm

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

PetEng's picture

UFOinsider: PetEng: UFOin

O
(Gorilla, 747
 
Points)
 on 7/18/12 at 4:01pm
NoTimeForSpace's picture

UFOinsider: Realistically, we

IB
(Baboon, 169
 
Points)
 on 7/18/12 at 5:50pm
GoodBread's picture

UFOinsider: Realistically, we

AM
(Neanderthal, 3,604
 
Points)
 on 7/18/12 at 6:52pm

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Guide to Finance Interviews

UFOinsider's picture

GoodBread: UFOinsider: Real

O
(Human, 10,349
 
Points)
 on 7/18/12 at 8:04pm

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

PetEng's picture

GoodBread: I'm not convinced

O
(Gorilla, 747
 
Points)
 on 7/19/12 at 11:50am
GoodBread's picture

PetEng: GoodBread: I'm not

AM
(Neanderthal, 3,604
 
Points)
 on 7/19/12 at 1:01pm

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Guide to Finance Interviews

PetEng's picture

GoodBread: PetEng: GoodBr

O
(Gorilla, 747
 
Points)
 on 7/19/12 at 3:02pm
GoodBread's picture

I'm not blaming Reagan or

AM
(Neanderthal, 3,604
 
Points)
 on 7/19/12 at 5:13pm

Financial Modeling Training
Guide to Finance Interviews

PetEng's picture

GoodBread: As far as trade

O
(Gorilla, 747
 
Points)
 on 7/19/12 at 7:42pm

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