CHARBONNEAU – In a trade war with China, Trump will blink first

CHINA HAD BEEN preparing for the possibility of Trump 2.0 ever since the showman first became president in 2017.

Unlike the trade war in 2018 when China sought to negotiate a break in tariffs, this time Beijing is taking a more aggressive approach.

In preparation for Trump’s “beautiful” tariffs, China has diversified their exports to other trading partners, says Spencer Hakimian, chief investment officer of Tolou Capital Management in New York.

“China’s exports to the U.S. are flat over the past 13 years,” he says. “But over that same period, its exports to the rest of the world went up more than 80 per cent.”

China’s exports to the U.S. are only two per cent of their economy.  And when you have an economy growing at five per cent, China can afford to tough it out.

Trump has already blinked once with trade tariffs on electronics from China.

You may have missed it. There were no theatrics from the White House lawn.  Trump issued no presidential executive order. He had no shrill all-caps posting on his Truth Social platform.

Instead, the U.S. Customs and Border Protection agency quietly issued on a late-night notice to shippers that excluded most electronics from steep tariffs.

Instead of a 125 per cent “reciprocal duty” that Trump recently boasted of, there will be the earlier 20 per cent tariff linked to Trump’s phony efforts to combat the fentanyl crisis.

Expect more quiet backpedalling from the orange man as the price of the top-tier iPhone rises goes from $1,599 to about $2,300. ​

If Trump’s chaotic rollout of tariffs is part of a plan, it’s a mystery. Is he trying to make a deal?

That seems to be the case. He recently boasted that “countries are calling us up, kissing my ass. … They are dying to make a deal: Please, please, sir, make a deal, I’ll do anything, I’ll do anything, sir!”

But even his closest cabinet picks have no clue what’s going on, offering wildly different rationale for the tariffs, sometimes even contradicting each other. Some have said the tariffs are permanent and meant to raise revenue, while others have said they are a bargaining strategy to extract trade concessions.

China will be hurt less by a trade war than America.

The showman will find that it takes more than trash-talk to win this battle.  Game theory shows that, as in a boxing match, the fight’s outcome is determined less by who can deliver the most damage than by who is prepared to absorb it.

Chinese President Xi Jinping doesn’t have to worry about midterm elections but Trump does.

With his approval rating plunging and the stock market dropping, with consumers seeing the price of goods going up, he could lead Republicans to defeat next year when 33 of the 100 Senate seats will be up for election and all 435 seats in the House of Representatives.

China, meanwhile, can absorb some punishment. The country has very low inflation and a huge savings rate.

Prepare for the braggart to blink, but don’t expect any big announcement.

David Charbonneau is a retired TRU electronics instructor who hosts a blog at http://www.eyeviewkamloops.wordpress.com.