for tariff Tantrums in North America have captured the world’s attention but while American Frenemies dukee it out a Graver situation may be Brewing across the Pacific the US China trade war is now approaching its seventh year and patience is wearing thin in Beijing in the last few weeks president presid Trump has introduced new tariffs on China and then doubled them after Beijing retaliated how much longer can this go on what will the trade War achieve and what’s to say it won’t turn physical my name is Guy let’s find out punitive tariffs are threatening to upend Global Supply chains and worsen already strained diplomatic relations and as long as they’re in place and escalating we should probably keep talking about why they are such a bad idea here’s a fresh illustration from The Economist Richard wolf who explains why America’s 100% tariff on EVS from China is self-defeating as wolf explains American exports to foreign markets are exposed to Global price competition prices of US exports are affected by input costs including Logistics in the US raw materials and finnished goods must travel thousands of miles by land before they’re exported for sale in foreign markets Trucking costs are therefore priced in so it would really be good for American manufacturers to have Freight carried by the cheapest and best EV trucks available as they bring down the cost of trucking but what happens when your government charges a 100% import tax on the cheapest and best EV trucks because they’re made in China the government is denying you access to cost savings that are readily available in other countries instead of buying the best and cheapest option like everyone else American businesses will end up buying say a Ford GM or Tesla truck and if they are much more expensive than the BDS that everyone else is buying this will ultimately show up in the prices of American exports what happens next isn’t rocket science American exports become less competitive and American exporters lose business as a result it’s a bit like the government shooting you in the leg and then cut you off to compete in the Olympics and this is just one consequence of one of the many taxes that the US now charges on imported goods but the negative consequences of tariffs do not stop at Trucking Supply chains throughout the American economy consist of many moving Parts Each of which contributes to the price of American exports and yet the theatrics continue in president Trump’s first few weeks back in office he slapped a new tar on all imports from China and then doubled it bringing the average tariff on Chinese Goods to around 30% Trump has also made clear that reciprocal increases are waiting for any country Who Dares retaliate against his tariffs with tariffs of their own this signals that Washington is prepared to fight a war of attrition and one that can escalate quickly from here it’s as if to say resistance is futile give to our demands now to avoid further pain and in Canada and Mexico at least this strategy has worked neither of them is in any position to fight a prolonged trade war with the US so instead they swallowed their pride and quickly gave in to Trump’s demands Canada and Mexico agreed to further beef up security at their respective borders with the us including an additional deployment of 10,000 Personnel each Trump reacted positively agreeing to postpone his tariffs in response many looked forward to them being called off in seeing as both countries had given the president what he’d asked for however Trump subsequently decided that this was not enough and publicly stated that there was nothing that either country could do to avoid the tariffs from going ahead the 25% tariff on imports from Canada and Mexico came into effect on the 4th of March and this episode rapidly depleted any residual patience and Good Will towards president Trump within days Canada went from trying to reason with him to threatening to to cut off the supply of electricity from Ontario to 1.5 million Americans in New York Minnesota and Michigan the rest of the world is taking notes as Washington erratically bullies its Nextdoor neighbors friends and foes alike have watched as Canada and Mexico capitulated and were punished anyway and across the pond the EU has been caught with its trousers down after Trump threatened to whack it with a 25% tariff on the grounds that it was formed to quote screw the United States meanwhile Beijing is also unhappy about the tariffs Trump’s foreign policy has been described as two-faced in China where his public admiration of President Xi Jinping is considered at odds with the whole punitive tariff thing however China’s economy is much better equipped to fight a trade war with the US than any other country on Trump’s Hit List in fact China has been preparing for the consequences of a frostier relationship with the us since 2009 that year President Obama’s pivot to Asia policy made clear that the US National Security establishment saw us China relations as a zero sum game in which cooperation was not an option every us Administration since then has only doubled down on this hawkishness most notably the first Trump Administration Trump initiated the current trade war with China which is now approaching its seventh year during his first Administration Trump took issue with the B atal trade imbalances between the two countries he perceived America’s trade deficit with China as a problem that needed correcting and accused China of unfair Trade Practices now unlike most instruments in US trade policy tariffs are at the president’s discretion they can be introduced and taken away with the stroke of a pen without Congressional approval Trump adopted tariffs as his tool for pressuring Beijing to come to the negotiating table to address the aform mentioned bilateral trade imbalance when it was put to him that punitive tariffs tend to lead to trade Wars he said quote trade Wars are good and easy to win between 2018 and 2019 he introduced tariffs on some $380 billion worth of goods imported from China including Machinery electronics and consumer goods with rates ranging from 10% to 25% Chinese industry leaders called the move quote stupid and Beijing retaliated with tariffs on $110 billion of US exports targeting agricultural products Automobiles and energy this hit the US economy hard particularly in agriculture now many US farmers are dependent on exporting to the Chinese market particularly in the soybean corn and sorghum Industries however China can substitute Imports of us agricultural products from less hostile countries like Brazil more easily than the US can find alternative markets for its agricultural Goods this has made us agriculture a loow hanging fruit for China’s retaliatory tariffs predictably America’s market share of key agricultural Goods like corn and soy fell and the federal government was forced to use almost all of the revenue from its China tariffs to pay for a massive $61 billion bailout for us Farmers so by this point it was clear that the trade war was significantly hurting the American economy without solving the underlying economic con concerns that it was meant to resolve it failed to reduce America’s trade deficits as tariffs on China merely diverted trade flows elsewhere causing the US trade deficit with Europe Mexico Japan South Korea and Taiwan to increase as a result a partial truce was reached in January 2020 when China agreed to increase Imports of manufactured goods agricultural Goods energy products and services from the US to above their 2017 Levels by the the end of 2021 in exchange the US agreed to negotiations to reduce the 2018 tariffs however the onset of the pandemic and a housing market crisis put China’s economy on Ice that year and it fell short of its commitments under the January 2020 agreement the tariffs remained in place and Trump passed the trade War Batton to President Biden in 2021 the Biden Administration was no less hawkish on China but instead of trade deficits it rationale for continuing the trade war was to stunt Chinese technological capabilities Biden increased Trump’s China tariffs which had ranged from 7.5% to 25% to a new range of 25% to 100% he also introduced new tariffs covering even more imports from China the Biden Administration raked in $144 billion in tariff Revenue as a result significantly more than the $89 billion that was collected by the first Trump Administration now since tariffs are a regressive form of Taxation they were in part to thank for the spiraling cost of living and inflation that has clobbered ordinary Americans in the post-pandemic era well you know what they say no pain no gain so what did the Biden Administration gain by continuing the trade War remember under Biden it was no longer about any trade deficit but about maintaining America’s lead over China in the development of strategically important Technologies like Ai and high performance Computing to accomplish this Biden added to the trade War strict new export controls on critical Technologies these aimed to choke off China’s access to the future of AI and highperformance Computing by restricting access to Advanced gpus and to prevent it from obtaining or domestically producing Alternatives well it’s a good thing they waited until Biden was out of office to release deep seek R1 because because that could have been seriously embarrassing if you remember that whole episode you’ll recall that the moral of the story was necessity is the mother of invention and indeed Innovation if anything Biden’s version of the trade War seems to have spurred more Innovation and progress in China’s development of the technologies that will Define the 21st century meanwhile Beijing did not take Biden’s escalations lying down after Biden banned the export of advanced us microchips and semiconductor to manufacturing equipment to China Beijing responded with export bans of its own specifically it banned the export of critical minerals that the US depends on for a wide range of advanced civilian and Military Technologies spanning defense systems semiconductor manufacturing energy transition and space exploration now this is quite a big problem for the us because China controls around 60% of Global Production and 85% of processing capacity for critical minerals which the world economic Forum has described as the quote oil of the 21st century and unlike how China was able to Simply buy soy from Brazil instead of the US it’s not easy for the US to establish alternative supplies of critical minerals if you saw our recent video about Trump’s apparently sincere attempt to conquer Greenland and Canada you’ll know that the US is prepared to go to extreme lengths to secure new Supply chains for the critical minerals it can no longer source from China you’ll also know that the Ukraine minerals deal that’s been in the headlines recently is not a solution to this problem the deal has more to do with building up Ukraine’s military than the US securing supplies of the critical minerals it most needs of which Ukraine is not known to have commercially viable deposits so with no quick fixes available China’s dominance of the global supply of critical minerals will continue to provide Beijing with significant leverage so with President Trump’s return to the White House the US is now on its third rationale for waging a trade war with China first it was about trade fairness then it was about semiconductors and Ai and now what was it again ah yes fenel from Trump to Biden and back to Trump the list of reasons for imposing tariffs on us imports from China has become broader and less focused moving well beyond addressing International Trade issues the inconsistent trade policy coming from Washington leaves Beijing with no clear path to take to get out of the crosshairs as a result patience is running out in some quarters of the Chinese government recently the Chinese Embassy in the US made headlines in the western media after it tweeted quote if war is what the US wants be it a tariff War a trade war or any other type of War we’re ready to fight till the end now this was an unusually blunt statement from Chinese government officials and it made for some exciting head lines indeed Beijing is well positioned to weather whatever trade War Shenanigans Trump has up his sleeve after almost 7 years of increasingly erratic trade Waring China has der risked from its prior interdependence with the US economy exports to the US now account for less than 3% of China’s GDP and China trades far more with countries in Southeast Asia than it does with the us or the EU for that matter however if there is any appetite for a contic war in Beijing they’re keeping awfully quiet about it speaking at China’s recent two sessions beijing’s annual political Summit foreign minister Wang Yi reiterated the same old Party Line quote it is fully possible for China and the US to become Partners helping each other succeed and prosper together this is the same message president shei delivered at the last major US China Summit in 2023 as he put it quote planet Earth is big enough for the two countries to succeed and one country’s success is an opportunity for the other for two large countries like China and the United States turning their back on each other is not an option it is unrealistic for one side to remodel the other and conflict and confrontation has unbearable consequences for both sides now regarding president Trump’s latest tariff escalation wangi has urged the US to reflect on what its trade War has accomplished thus far quote has its trade deficit widened or narrowed has its manufacturing become more or less competitive has inflation gone up or down have the lives of its people got better or worse now the language used by China’s leaders contrasts significantly with that of their us counterparts president Trump famously accused China of quote raping our country while President Biden called president XI a quote Thug and a quote dictator according to new def secretary Pete Heth Trump’s latest recruit from the Fox News host to White House pipeline China wants to quote supplant the United States and this is why he is quote reestablishing deterrence in the Warrior ethos specific objectives of the second Trump administration’s foreign policy remain unclear but based on recent developments we think the US may be about to attempt a reverse Kissinger maneuver if Trump can patch over things in Ukraine and bring an end to the war there then he’ll be free to leverage his rapport with President Putin to try and peel Russia away from China isolating the latter just as former Secretary of State Henry Kissinger did with China following the sinos Soviet split of the 1970s by contrast the centerpiece of China’s foreign policy is not the projection of communist themed military Supremacy around the globe but an infrastructure investment project to build new trade routes connecting Asia with Europe Africa and Latin America this is the belt and Road initiative which president XI says is designed for win-win cooperation and the mutual benefit of China and participating countries at the top of the BR agenda is the pursuit of economic globalization multipolarity and cultural diversification and this has proven very popular China has lent more than $1 trillion dollar to build roads ports Railways airports and other public infrastructure in developing economies more than 152 of the world’s 195 countries have now signed deals with China under the BR covering 75% of the world’s population and 40% of global GDP Western critics have characterized this as Insidious debt trap diplomacy but with little evidence the case of Sri Lanka is a primary example where China was accused of a devious plan to lend Sri Lanka money for a major New Port only to have Sri Lanka default on the loan so that Beijing could seize the port for use as a new naval base in exchange for debt relief this case depends on ignorance of basic facts about the port and Sri Lanka’s debt distress for example the port was proposed by former Sri Lankan president mahinda reap pasca under a corrupt and unsustainable developmental program Sri Lanka’s debt distress was unconnected to Chinese lending instead arising from excessive borrowing from Western dominated Capital markets and structural problems in the Sri Lankan economy the port will become the new base of Sri Lanka’s Southern Naval command and cannot be used by Chinese Naval vessels it seems nefarious practices like China’s mythical debt trap diplomacy are needed to justify hawkish US foreign policy which needs a threat for American power to deter and at the moment the US has built up an antagonistic posture so fixated on an eventual Showdown with China that deescalation seems unlikely anytime soon the good news is that kinetic War seems to be the last thing China wants and there’s no reason to think that Beijing will respond to trade War escalation with physical confrontation let’s just hope that nothing happens to change this like say live fire drills accidentally bombing the wrong part of the map eight times like what recently happened in South Korea so fingers crossed there’ll be no more military mishaps and that the economic pain caused by trade Wars br around the world will be brought to a swift resolution because a bearish macro catalyst is the last thing we need right now thank you very much but as always if you have a different take let us have it in the comments if you got something out of this video declare war on the like button smash subscribe and send in the bombers on that notification Bell so you’ll be first in line for your next upload as always thank you for watching and I’ll see you next time this is guy over and out
