Who would win an economic war if push came to shove. I know there are many powerful USA companies with businesses in China that would complain loudly to the Bush administration if the USA went to war with China. Likewise there are many factory workers that would lose jobs if USA companies were forced to divest from China. The loses to the USA companies would be devastating, but then so would hundreds of thousands of unemployed factory and office workers in China employed by US companies. If you include Japanese and Taiwanese companies in there as well, you would have devastating consequences on both sides? Would the USA, Japan and Taiwan survive? Would the Chinese Communist Party survive this first shot of the war? The US can move their factories to other places with labor albeit not as efficient, even cheaper. The China market is not that big yet, and it is still mostly a factory. However, on the other side I would guess that US, Japan and Taiwan companies account for at least 30% of all employers in Communist China and China would also be devastated and hopefully there would be a regime change in the PRC without a shot even being fired. What do you guys think? Maybe the regime change is a stretch as the CCP would use their propaganda to embolden the people to fight the foreign devils. It would still take military action, then it still might be difficult for regime change as the people are so brainwashed. I suppose in the end nothing consequential would come of an economic war.
Let’s say there is a trade war. The US stops buying anything made in China. China loses out big time if it can’t export to the USA.
The USA discovers new markets to invest in.
Also please do not forget those hundreds of billions in US treasuries that become worthless for China, the tens of millions left unemployed and without a job, The exploding trade deficit, and the lack of advanced training for its population. This is even before contemplating the effect of the currency peg. There will always be someone willing to make junk, but only Americans are silly enough to actually buy it. 
Cheers,
Okami
If there is no China, the cheap labour jobs can move to India. Don’t forget India. Or Indonesia. Or Vietnam. Or Malaysia. Or…the list is endless. China does not occupy a unique niche in the world economic market. The U.S. does. If the U.S. vanished overnight, the entire world would be plunged immediately into a Great Depression. Could you say the same about China?
50 or so years from now, though…China might be powerful enough to win in any trade war. Not now. Not yet.
us still wins the war on economy though
Actually if there is a war between China and USA. USA would lose in terms of economy and manufacturing. Currently the economic stability of the USA is depend on foriegners purchasing US treasury bond, which helps keep interest rates low, that in turn has fuel the consumer market and the real estate market in the USA, the main drivers of the USA economy in the past 4 years.
Basically, if you look at the current trend with the USA war on the Middle East, there is already a lack of resources in the manufacturing sector to keep our dwindling troops overseas, besides the questionable strategy of the campaign. This of course the one of the main reasons the USD has been dumped on the market and causing its slide agianst the Yen and the Euro.
Even major US notes purchasers like SK, Japan and PRC have questioned their monetary strategy and are planning on moving towards a “basket” currency system to stablize their own currencies.
In each instance, when SK and PRC announced they were thinking of moving away from the USD, the USD slid a little in the market. Meaning globally people are starting to lose confidence in the USD, which has a real effect on USA purchasing power to import goods.
Currently 40% of all US notes are held by foriegners. Which is why USA is debating imposing a 23% tarrifs on China Made goods if China doesn’t move onto a “floating” / “basket” currency system. It is to try to loosen the grip foriegners have on the USA economy.
Even with NAFTA in place, the USA is going to China for manufacturing, because of high quality at a low price. Anybody with business that deals in manufacting knows that.
You got the low price part right. But high quality and China don’t belong in the same sentence.
I see many problems with your post but this toward the end sticks in my mind the most. Last things first: foreigners “loosening their grip on the US economy” scares the hell out of America. Seoul just recently talked about diversifying their reserves and this just about caused a panic in Washington (even got old Greenspan to speak up) and put significant pressure on currencies around the world. Seoul immediately (the next day) clarified saying that this didn’t mean selling US dollars, only buying more Euros, for example. Second, I don’t know how tarrifs would change the situation of how deeply involved China (or any other country for that matter) is with US Treasury notes.
In any event, I don’t worry about economic war or any other type of war because at the end of the day, economies (the dollar) rule(s). Countries are so intertwined that a war between any two main powers would hit too many important people in their pocketbooks and, more macroeconomically speaking, there would no winner. Taiwan declaring independence tomorrow would bring about an exception. North Korea doing something stupid is another example of how war is made possible in today’s world.
Obviously you are not in the business of manufacturing. There are places in the world were cost of manufacturing could be as cheap or cheaper or even more expensive.
However, the quality that you get for PRC prices is undisputable value at this time to people in the business. Granted there is a stigma that PRC only make “low quality goods” in the West.
But that stigma will go away just like “Made in Japan” and “Made and Taiwan” also use to mean cheap and shoddy goods.
I see many problems with your post but this toward the end sticks in my mind the most. Last things first: foreigners “loosening their grip on the US economy” scares the hell out of America. Seoul just recently talked about diversifying their reserves and this just about caused a panic in Washington (even got old Greenspan to speak up) and put significant pressure on currencies around the world. Seoul immediately (the next day) clarified saying that this didn’t mean selling US dollars, only buying more Euros, for example. Second, I don’t know how tarrifs would change the situation of how deeply involved China (or any other country for that matter) is with US Treasury notes.
In any event, I don’t worry about economic war or any other type of war because at the end of the day, economies (the dollar) rule(s). Countries are so intertwined that a war between any two main powers would hit too many important people in their pocketbooks and, more macroeconomically speaking, there would no winner. Taiwan declaring independence tomorrow would bring about an exception. North Korea doing something stupid is another example of how war is made possible in today’s world.[/quote]
I concur; globalization has made wars unsavory, unless one is in the business of supplying the military complexes that are participating in war.
Just look at this article to see how intertwined the US and China have become.
Not really, China is nothing but a source for cheap labor, not for its exports as some would say. Links can be easily broken just like how the UN easily severed ties with Taiwan in the 70s, so it’s really not that hard to cut China off. The US and the rest of the free world can find cheap markets in places like Southeast Asia, and the Middle East, places where people will do anything for a job and places where they are pro-democracy.
You really must find a way to temper that fervent anti-china attitude. UN ties then had nothing to do with Taiwans economic ties with partners that mattered (US, Japan, Canada et al)
While I agree that there are many different markets the world can go to, it is not an entirely painless process and takes time, as see by the fact that China did not rise to its factory of the world position in a year. An economic war would throw everything in chaos.
China fears the chaos could be enough to upset its regime, the States fears it because Bush’s campaing coffers would dry up really really fast, and the people holding his leash (corporations) would see nothing but trouble from it. Big losses all around I’d say, but I can’t see it to the point of a Great Depression type scale. But then no one saw the Great Depression either…
You know something I just remembered is that most of those factories are Taiwan run anyway, so not only can the US and Japan source their products somewhere else, they can have them made by the same factory bosses somewhere else. I think if the US boycotted China made goods even the Hong Kong bosses and some patriotic rich China bosses would be forced to move their factory to another country, or at least spend a lot of time reshipping it through Singapore or elsewhere to make it like it didn’t come from China.
Right now it’s a case of mutally assured destruction, though I would say the US has more resiliance in its economy.
China & other exporting countries finance the US deficit, but most of that underlying funding of the debt purchases does not come internally, but through foreign invesment - ie. foreigners are funding the foreign funding of the US deficit.
China has helped the US economy by providing cheap goods and financing keeping interested rates and inflation low.
The US keeps the Chinese (and its economic satelites like Taiwan & HKG) afloat by providing demand for its good and by providing investment.
Given the internationalized nature of the US economy, and the fact that such a low proportion is actually international (10-20% of total GDP) if the Chinese central bank stopped buying US treasuries it would negatively impact the US economy through weak currency and higher interest rates due to lower bond prices. There may also be a short period of higher inflation as the economy shift over to new suppliers of goods.
However, for the US to stop buying Chinese products would be an unmitigated disaster. Investment flows would slow dramatically, unemployment would rise (Chinese must maintain between 7-8% growth just to keep up with the expanding population)GDP. China’s debt has growth dramatically as it has (quite rightly) invested very heavily in infrastructure. Much of this investment would go unutilized and you would see a huge increase in bad loans. This is called a bicycle economy. If it stops growing, it will fall over.
Phew!
If the United States and Europe put huge import taxes on Chinese products, regrettably we’d move our factories and unfortunately put thousands of Chinese out of work, and on top of that their families that they have to feed. But we would move, as we’d have to feed ourselves before we could feed others.
I think some wise US, Japanese and Taiwanese companies have already started to diversify their money by divesting partly from China in case of military confrontations between China and Japan, Taiwan, USA.
China is doing a good job of helping this aversion with continued corruption, piracy, Anti-Japanese riots, rabid nationalism, threats to Taiwan and diplomatic spats and posturing towards the US.
the winner? the ownership class. the losers? those blinded by nationalism.
Thanks for the heads up. I normally really like these kind of articles, but this one seems too one sided and loks like it was paid for by the Chinese. Paying for these kind of articles is quite common with the US media.
I couldn’t even finish reading the third page. I had to stop as it was making me sick to my stomach.