The United States Wants China To Retaliate With Their Own Tariffs

Should China retaliate with their own tariffs and engage in an all-out trade war, they will be playing right into the hands of the U.S. game plan.

Initially when Trump become president and pointed out his concern with the U.S. trade deficit, a possible line of reasoning was that because Trump accumulated his wealth in real estate (within the U.S.) and not via a multinational manufacturing corporation (that took advantage of lower input costs in other countries), that large shareholders of those corporations would eventually make him realize the possible negative impact on the stock market (via falling profits, for example), thereby making him back down on the matter.

As we stand at present, the general consensus is that Trump does not actually know what he is doing, that there will be negative effects on the world economy, possibly pushing us into the next recession and higher inflation via rising import prices.

While these short-term implications are highly likely to occur, it is the longer-term picture we need to take a look at.

Looking at this from a different vantage point, one realizes that there might be bigger forces at work and that Trump might only be the executional “puppet”.

The objective is not about Trump wanting to balance trade or create jobs in the manufacturing sector (with the unemployment rate at an already 18-year low).

The real objective is for the U.S. to remain in its power position.

The solution is to engineer a way to plunge the opponent, China into a severe deflationary cycle.

Which better way is there to do that, than an all-out (not a half) trade war?

First the opponent country works hard, utilizes cheaper input costs, is able to produce ordinary goods cheaper and starts to sell to the rest of the world. While this is ongoing, more and more capital investment in factories and machinery takes place to supply the rising demand.

Once the demand ceases (via the actions of the initiating country), the opponent country has an instant real overcapacity problem!

Does deflationary Japan in the 90’s ring any bells?  

Even though it seems like Trump has a problem with countries such as Germany as well, the real target is most likely only China. This strategy for immobilization is more suitable for opponent countries that produce ordinary goods than more technologically advanced goods, because it is easier and faster to set up domestic manufacturing plants for the former.

The best initial response for China is to actually not engage at all at and to take a wait-and-see stance.

Then, the best subsequent response is to try to slow down this overall process, for the necessary adjustments to be more manageable.

The U.S. has the upper hand in this one, they will not back down.

The more rounds of tit-for-tat plays we see, the faster the U.S. will get to its (real intended) end-game.