I think that this is 100% right: Anatole Kaletsky: Why the US Would Lose A Trade War with China: "In handicapping the US-China conflict, Keynesian demand management is a better guide than comparative advantage.... China can avoid any damage at all from US tariffs simply by responding with a full-scale Keynesian stimulus...
...By applying the martial arts principle of turning an opponent’s strength against him, China should easily win the tariff contest.... From a Keynesian perspective... when an economy is operating at or near its maximum capacity, tariffs will merely raise prices and add to the upward pressure on US interest rates. This clearly applies to the US economy today.... With little spare capacity available, the new investment and hiring required to replace Chinese goods would be at the cost of other business decisions that were more profitable before the tariff war with China. So, unless US businesses are sure the tariffs will continue for many years, they will neither invest nor hire new workers to compete with China....
Well-informed Chinese businesses... will not cut their export prices to absorb the cost of US tariffs.... leav[ing] US importers to pay the tariffs and pass on the cost to US consumers... or to US shareholders through lower profits. Thus, the tariffs will not be “punitive” for China, as Trump seems to believe.... Chinese exporters may experience modest losses as other producers take advantage of the US tariffs to undercut them. But this should have no effect on Chinese growth, employment, or corporate profits if demand management is used to offset the loss of exports. The Chinese government has already started to boost domestic consumption and investment by easing monetary policy and cutting taxes. But China’s stimulus measures have so far been cautious, as they should be considering the negligible impact that US tariffs have had on Chinese exports. If, however, evidence starts to emerge of export weakness, China can and should compensate with additional steps to boost domestic demand....
Now that the US has presented the battle over Trump’s tariffs as the opening skirmish in a geopolitical Cold War. It is simply inconceivable that Xi would attach higher priority to credit management than to winning the tariff war and thereby demonstrating the futility of a US containment strategy against China. This raises the question of how Trump will react when his tariffs start to hurt US businesses and voters, while China and the rest of the world shrug them off. The probable answer is that Trump will follow the precedent of his conflicts with North Korea, the European Union, and Mexico. He will “make a deal” that fails to achieve his stated objectives but allows him to boast of a “win” and justify the verbal belligerence that inspires his supporters....
#shouldread
#globalization
#orangehairedbaboons
