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Trump Will Call China’s Bluff in the Trade War

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China has now adopted a new strategy in the ongoing trade war with the U.S. Their strategy is “Blame Trump!”

China is taking the position that their requests are reasonable and that only Trump’s intransigence is holding up an agreement. Wall Street is cheering China because an end to the trade war will likely bring another rally in stocks. Every “risk on” day is another day for stock salesmen and index fund sponsors to profit.

There’s only one thing wrong with China’s posture. It’s a bluff.

In fact, time is not on China’s side. Tariffs have a much greater impact on the Chinese economy than the U.S. economy because China depends more on trade. Exports are important to the U.S., but they are a much smaller part of the economy than is the case in China.

The U.S. also has a much more diversified list of trading partners including Europe, Australia, South Asia and Latin America. Most of China’s exports go to the U.S., so any trade war with the U.S. is very costly for China.

This article provides a good overview of official Chinese statements related to the trade war. China’s posturing was intended to set the stage for the G20 Leaders’ Summit in Osaka, Japan, which concluded this weekend. There were some positive statements made on trade in Osaka, but no Grand Bargain of the kind that would bring the trade wars to an end.

Meanwhile, China’s tariffs continue to pile up inside the U.S. Treasury (to be used by Trump to provide relief to U.S. farmers), while China’s economy continues to slow due in part to those same tariffs. China is the country running out of time, not the U.S.

If China thinks bluffing can wait out the United States, President Trump is just the one to call their bluff.

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