A trade war with China is almost inevitable. We see the opening salvos already.
China’s recent announcement that it will restrict rare-earth mineral exports is
basically a move against Japan, a U.S. ally in the G-20 coalition of industrial
economies. The Chinese premier is going around embracing the Greek government, offering
to buy worthless Greek bonds — again to try to weaken the U.S. coalition within
the G-20. In a further saber-rattling maneuver, China banned imports of chicken
feet from the U.S. — a food considered a delicacy in China, but a useless byproduct
of poultry production in the U.S.
For its part, the U.S. has signaled that it is willing to do whatever it takes to cheapen the value of the U.S. dollar. The Federal Reserve has significantly increased its production of money in the past two years. As a result, the purchasing power of the U.S. dollar has plummeted versus other world currencies. The value of all the Treasury bonds the Chinese purchased has similarly plummeted. The Chinese government grumbled early this year — encouraging the U.S. to be a more responsible debtor. The West countered by awarding the Nobel Peace Prize to a jailed Chinese dissident.
Neither side wants to resort to the nuclear option — outright trade restrictions. Banning Chinese imports would have immediate and drastic effects on the Chinese economy. Factories would close. Millions of people would become instantly unemployed. And a rapidly developing Chinese consumer base would essentially disappear overnight.
Armstrong Williams is on Sirius/XM Power 169, 7-8 p.m. and 4-5 a.m., Monday through Friday. Become a fan on Facebook at www.facebook.com/arightside, and follow him on Twitter at www.twitter.com/arightside.