China Makes Bank off of US Tariffs

China is now proving one of my statements from back in the days of Trump Tariffs 1.0 when I wrote that the formula for beating China in a tariff war was not to wage war on the whole world at once. The winning approach would be to take on the biggest bully in the cell block and beat the heck out of him. That would be China—the worst offender against free trade.

Trump claimed when campaigning for his first term that beating China in a tariff war would be “easy, so easy, just you wait and see.” Eight years later, the war is still raging, but is now going far better for China than for the US.

The “easy” approach would have been to unite the rest of the world in putting tariffs on China because they all have gripes about how China abuses “free trade.” Together, such a coalition could bring Xi to his knees. Once everyone saw how easily Trump did that, the other violators of free-trade agreements would fall in line with truer, freer trade to avoid becoming the next one to go down in the fight. You can’t get that kind of cooperation by going after every nation at the same time. You do that, you unite your “enemies” by making enemies out of your allies.

Trump chose to take on the whole world along with China, and the result is extraordinary. Not only is China not taking down its own prices to offset US tariffs and retain US trade, it is slightly reducing its prices to the rest of the world and doing more trade with the rest of the world than ever.

To pay for the Trump Tariffs, as Trump claimed they would do, China would have to reduce its own prices by 25-60%, depending on the tariff to offset US tariffs. It can offer a far smaller discount to the rest of the world and capture market share everywhere to make up for the trade it loses with America. That is the path it has chosen, and it is working well. China was already cheap, so a deal like 10% below cheap is bargain-basement pricing and still profitable for China to where it can make up the small discount on volume while gaining global dominance in trade.

China Floods the World With Cheap Exports After Trump’s Tariffs

President Xi Jinping’s export engine has proved unstoppable during five months of sky-high US tariffs, sending China toward a record $1.2 trillion trade surplus.

With access to the US curtailed, Chinese manufacturers have shown they aren’t backing down: Indian purchases hit an all-time high in August, shipments to Africa are on track for an annual record and sales to Southeast Asia have exceeded their pandemic-era peak.

That across-the-board surge is causing alarm abroad, as governments weigh the potential damage to their domestic industries against the risk of antagonizing Beijing — the top trading partner for over half the planet.

If Trump had chosen the path of uniting the world to beat up on China, the US would already have China on its knees. Instead, we are fighting the whole world at once, which makes us the biggest loser because we pay the highest “sales tax” on all of our imported items of any nation on earth (because having the highest tariffs is Trump’s goal), and we import more items than any other nation.

That makes us double losers as everyone also jacks up tariffs against our goods; but their citizens have freedom to trade more-or-less tariff-free with the rest of the world, so they can just shun US products that their nations have imposed tariffs on. China isn’t caving in, and because we’ve made the rest of the world furious with us, they are putting their differences with China aside for now because they all have their own battles with the US.

Countries already embroiled in tariff negotiations with the Trump administration appear reluctant to take on a separate trade war with the world’s second-largest economy. That’s giving Beijing breathing room from US levies at heights economists previously predicted would halve the nation’s annual growth rate.

That might be what the “economists” predicted would happen to China, but it is certainly not what I predicted. I’ve said that Trump was driving the rest of the world into China’s hands by becoming the rest of the world’s common enemy.

Earlier this month, China’s president rallied BRICS nations to forge a united voice against protectionism during a leaders’ call of the bloc, while Commerce Ministry officials have warned Mexico to “think twice” before acting, making clear such steps will have recriminations. Adding to the risks, Trump is pressuring NATO nations to impose tariffs up to 100% on China over its support for Russia. Chinese officials say their trade with the world is within reasonable bounds and that Beijing isn’t out to dominate global markets. “When there’s demand from abroad, China exports accordingly….”

Showing the world China doesn’t need the US consumer strengthens his hand going into a high-stakes meeting with Trump at a summit in South Korea. The world’s biggest economies are still hashing out a possible trade deal, with a 90-day pause on tariffs as high as 145% currently keeping the peace.

It all looks hunky-dory for China to me!