Jump to content

Good Opinion Article on China Tarriffs


Parsad
 Share

Recommended Posts

I don't like Trump but like Munger said "he's not wrong about everything."

 

You have to admire a guy a little who's willing to do unpopular political acts and not take an easy route to re-election. I don't think the Democrats will fight for the US like Trump will but I wish he was less divisive.

Link to comment
Share on other sites

Maybe someone will blink first and a temporary band-aid compromised solution will be reached but this is not about the price of soybeans or buying less toys. If this is a USA-led long-term endeavor, it's about China in a catch-up mode for global hegemony.

 

My bet is on the US but bumps are expected. Sharing a growing pie has been 'easy' but what is coming next may not be. Following is a recent article originating from Mr. Leslie Fong, a long-term professional and practical observer of the Asia situation:

https://www.scmp.com/week-asia/opinion/article/3012679/trumps-biggest-mistake-us-china-trade-war-not-realising-chinese

Link to comment
Share on other sites

This is not directly China related, but I read an interesting piece recently that the inner goal of all of the trade talk was to repeal the Marshal Plan(1948), which set up a system of asymetrical tariffs favoring Europe vs the Us to help them rebuild after WW2.

Link to comment
Share on other sites

I liked Druckenmiller’s comment last year that Trump may be viewed as the most pro-Chinese President of the next 20 years (i think someone said this to him and he was relaying the comment).

 

When i saw China’s many punitive actions towards Canada after we arrested the Huawei executive (at the request of the US government) my eyes were opened wide. What happens when something serious happens? China has a political system that is completely foreign to the West. At its core it is a military dictatorship; it is not a liberal democracy. It is now starting to flex its muscles. I am happy this is happening. The sooner we all understand what we are dealing with the better. I find in bizarre over all the hand wringing about what to do with Huawei and 5G in Canada... after all that has happened recently, so naive.

 

Apple had better start moving some production out of China or they could find themselves in a pickle. Is Vietnam the big winner? Any good Vietnam ETF’s out there?  :-) Interesting times...

Link to comment
Share on other sites

This is not directly China related, but I read an interesting piece recently that the inner goal of all of the trade talk was to repeal the Marshal Plan(1948), which set up a system of asymetrical tariffs favoring Europe vs the Us to help them rebuild after WW2.

It would be interesting to actually read that piece. Is the gist of it that the US is being taken advantage of in an unfair way?

The inner goal thesis that you describe seems to be flawed:

 

-The Marshall Plan ended around 1950 to 1952.

-The Plan (one of its aim) resulted in trade liberalization and improved the trade balance with European countries and when the Plan met its clearly defined deadline, the US still had a trade surplus with European countries.

-After the Plan ended and until the early 1970's, the US continued to maintain, on a global basis, a trade surplus.

-The trade deficit with the European Union is a relatively new phenomenon. It was essentially immaterial 20 years ago and has followed a trend similar to the Mexico balance, a country which was not involved in the Marshall Plan.

-When looking at goods and services balance, the trade deficit with the European Union is about 0,5% of GDP (in itself certainly not sufficient to start a trade war, trade adjustments, sure) with half of the deficit coming from Germany, which is now united and a fiscal surplus country. West Germany received only about 10% of the funds allocated to the Marshall Plan.

 

In terms of governance and today's dynamics, it is interesting to remember certain features of the Marshall Plan:

 

-While generous in nature, the Plan had economic motivations and the main thrust of the plan was to contain communism, to build an economic alliance with 'allies' (or friends if you like to think that way on the international scene) or at least with nations that share common fundamental themes in order to maximize prosperity. The result: a cold war but 30 years of glorious prosperity.

-The Plan was immensely unpopular with US corporations and the general public but people in power, considering that it was the right thing to do, were able to eventually draw support, selling the plan as an investment (short-term cost) for a bright future.

-In 1948, the US was in a position to 'invest' 13% of its budget on the first-year installment of the Plan and as the administrator of the Plan said, some years after the conclusion and while the US was still in a surplus position: "{The Plan was} “one of the most truly generous impulses that has ever motivated any nation anywhere at any time,” {but the United States} “derived enormous benefits from the bread it figuratively cast upon the international waters.”

 

Maintaining one's status requires constant reinvestment in productive capacity. I think that's one of the reasons Mr. Buffett doesn't like EBITDA.

Link to comment
Share on other sites

I liked Druckenmiller’s comment last year that Trump may be viewed as the most pro-Chinese President of the next 20 years (i think someone said this to him and he was relaying the comment).

 

When i saw China’s many punitive actions towards Canada after we arrested the Huawei executive (at the request of the US government) my eyes were opened wide. What happens when something serious happens? China has a political system that is completely foreign to the West. At its core it is a military dictatorship; it is not a liberal democracy. It is now starting to flex its muscles. I am happy this is happening. The sooner we all understand what we are dealing with the better. I find in bizarre over all the hand wringing about what to do with Huawei and 5G in Canada... after all that has happened recently, so naive.

 

Apple had better start moving some production out of China or they could find themselves in a pickle. Is Vietnam the big winner? Any good Vietnam ETF’s out there?  :-) Interesting times...

 

Vietnam economically is just a Chinese colony, plus the economy is already brimming and you can’t replace 1.2B people with 95M people.  Vietnam by itself is just an order of magnitude too small to replace China apart from above issues. Trump was already ranting against the US deficit with Vietnam by the way. When the trade war breaks out, the real damage will be to smaller economies, since they are more external looking and those with a huge amount of trade, rather than China and the US. this will be Taiwan, Korea, Vietnam, Malaysia. China has a huge inward looking economy they they can use to stimulate and replace exports. Korea, Taiwan don’t have that.

 

The pushback against Xi necessary as he has become increasingly more authoritarian than his predecessor and now runs economically and politically a China first policy, while before that, there was at least some bias with cooperation and a bend towards democratization.

Link to comment
Share on other sites

This is not directly China related, but I read an interesting piece recently that the inner goal of all of the trade talk was to repeal the Marshal Plan(1948), which set up a system of asymetrical tariffs favoring Europe vs the Us to help them rebuild after WW2.

It would be interesting to actually read that piece. Is the gist of it that the US is being taken advantage of in an unfair way?

The inner goal thesis that you describe seems to be flawed:

 

-The Marshall Plan ended around 1950 to 1952.

-The Plan (one of its aim) resulted in trade liberalization and improved the trade balance with European countries and when the Plan met its clearly defined deadline, the US still had a trade surplus with European countries.

-After the Plan ended and until the early 1970's, the US continued to maintain, on a global basis, a trade surplus.

-The trade deficit with the European Union is a relatively new phenomenon. It was essentially immaterial 20 years ago and has followed a trend similar to the Mexico balance, a country which was not involved in the Marshall Plan.

-When looking at goods and services balance, the trade deficit with the European Union is about 0,5% of GDP (in itself certainly not sufficient to start a trade war, trade adjustments, sure) with half of the deficit coming from Germany, which is now united and a fiscal surplus country. West Germany received only about 10% of the funds allocated to the Marshall Plan.

 

In terms of governance and today's dynamics, it is interesting to remember certain features of the Marshall Plan:

 

-While generous in nature, the Plan had economic motivations and the main thrust of the plan was to contain communism, to build an economic alliance with 'allies' (or friends if you like to think that way on the international scene) or at least with nations that share common fundamental themes in order to maximize prosperity. The result: a cold war but 30 years of glorious prosperity.

-The Plan was immensely unpopular with US corporations and the general public but people in power, considering that it was the right thing to do, were able to eventually draw support, selling the plan as an investment (short-term cost) for a bright future.

-In 1948, the US was in a position to 'invest' 13% of its budget on the first-year installment of the Plan and as the administrator of the Plan said, some years after the conclusion and while the US was still in a surplus position: "{The Plan was} “one of the most truly generous impulses that has ever motivated any nation anywhere at any time,” {but the United States} “derived enormous benefits from the bread it figuratively cast upon the international waters.”

 

Maintaining one's status requires constant reinvestment in productive capacity. I think that's one of the reasons Mr. Buffett doesn't like EBITDA.

 

This is tremendously insightful commentary re: the Marshall Plan, which was an enormous success for everyone involved. The only loser was the USSR,

as their own plan for their communist satellites was an abject failure.

 

Fast forward to today, and Trump's policy to get NATO spending in line is the real message in rolling back the Marshall Plan. The US and Canada did

their duty to rebuild their European allies.  Now with trade surpluses, etc - it's time for the European nations to honor their commitments to self defense

instead of taking the continuous free ride extended to them. No US President but Trump had the guts to call it out and demand NATO compliance.

Link to comment
Share on other sites

This is tremendously insightful commentary re: the Marshall Plan, which was an enormous success for everyone involved. The only loser was the USSR,

as their own plan for their communist satellites was an abject failure.

 

Fast forward to today, and Trump's policy to get NATO spending in line is the real message in rolling back the Marshall Plan. The US and Canada did

their duty to rebuild their European allies.  Now with trade surpluses, etc - it's time for the European nations to honor their commitments to self defense

instead of taking the continuous free ride extended to them. No US President but Trump had the guts to call it out and demand NATO compliance.

Note: The USSR failed from the inside (core).

The negotiation style (brash, bruising and instinctive) comes with both potential positive and negative outcomes.

NATO's mission has evolved and it is expected that the definition of 'burdensharing' evolves also. The real risk of mixing a historical economic concern (Marshall Plan) with a present-day military concern comes with rationality risks and may evoke a bullying mafia theme under certain circumstances.

As a value investor, what you may want to do is to evaluate the book value of NATO and its associated goodwill (there are synergies).

https://fas.org/sgp/crs/row/R45652.pdf

When defining the value here, you may want to incorporate the price of sovereignty loss (territory, impact on decisions) for participating countries. Given the recent diplomatic spat with Denmark, it is interesting to remember that the historical intent to access Greenland for a US military base and presence was not, in essence, to defend Greenland. Also, the US (IMO) does not use transparent accounting when reporting its share of expenditures as some military expenses clearly correspond to their global hegemony role in our multipolar world, a role that comes with its own set of benefits and costs.

If there is a link with the trade issue, one needs to take under consideration that holding the international reserve currency in a unipolar way also comes with specific benefits and costs and even if President Nixon, closing the gold window in 1971, delayed the deadline that formed the basis of the Bretton-Woods Agreement, the cookie jar reserve now looks empty (high surplus to high deficit, the Triffen dilemma that SD and Spekulatius talk about elsewhere in these pages) and real costs will have to be recognized and it seems that there is some internal resistance in recognizing these costs. So external resistance is expected on that level also.

Link to comment
Share on other sites

I liked Druckenmiller’s comment last year that Trump may be viewed as the most pro-Chinese President of the next 20 years (i think someone said this to him and he was relaying the comment).

 

When i saw China’s many punitive actions towards Canada after we arrested the Huawei executive (at the request of the US government) my eyes were opened wide. What happens when something serious happens? China has a political system that is completely foreign to the West. At its core it is a military dictatorship; it is not a liberal democracy. It is now starting to flex its muscles. I am happy this is happening. The sooner we all understand what we are dealing with the better. I find in bizarre over all the hand wringing about what to do with Huawei and 5G in Canada... after all that has happened recently, so naive.

 

Apple had better start moving some production out of China or they could find themselves in a pickle. Is Vietnam the big winner? Any good Vietnam ETF’s out there?  :-) Interesting times...

 

Vietnam economically is just a Chinese colony, plus the economy is already brimming and you can’t replace 1.2B people with 95M people.  Vietnam by itself is just an order of magnitude too small to replace China apart from above issues. Trump was already ranting against the US deficit with Vietnam by the way. When the trade war breaks out, the real damage will be to smaller economies, since they are more external looking and those with a huge amount of trade, rather than China and the US. this will be Taiwan, Korea, Vietnam, Malaysia. China has a huge inward looking economy they they can use to stimulate and replace exports. Korea, Taiwan don’t have that.

 

The pushback against Xi necessary as he has become increasingly more authoritarian than his predecessor and now runs economically and politically a China first policy, while before that, there was at least some bias with cooperation and a bend towards democratization.

 

 

1. A 327m people market economy *DOES NOT REQUIRE* a 1,400m people non-market economy. 

 

2. It's not a trade war.

 

3. Rebalancing is inevitable, one way or another.

 

4. There is great animosity between Vietnam and China.  See the last war.

 

5. in 2018, China was only the 5th top investor in Vietnam.

 

6. Yes, tariffs cannot resolve the imbalances because it can always go through a third country.

 

7. Supply chains can move in a matter of years.

 

 

 

 

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

 Share



×
×
  • Create New...