Tariff hard脫hook, China's transformation, America's farce

1. China's exports - US imports are the largest trade relationship in the world. Directly over $500 billion, indirectly more than $100 billion, adding up to about $700 billion. In this relationship, the US has benefited greatly, exchanging virtual dollars for real goods. China has also benefited, earning foreign exchange to import resources when it was short of foreign currency.

2. As China's production capacity reaches its peak, a surplus of $1 trillion far exceeds actual needs. Moreover, the RMB itself can be used for payment, and many trading partners are willing to accept it. Although it is often converted into dollars, the fundamental fact remains that the RMB can buy the most goods on Earth. Therefore, it is unnecessary to waste resources producing for the US to supply their extravagant lifestyle. It is more reasonable to serve domestic demand and there is already a rational side to trade decoupling with the US.

3. If the US and China decouple and the US can produce what it consumes, it would be reasonable. In the long term, after adjustments, the US will produce its own consumption products. This is the fundamental idea behind Trump's initiation of a global tariff war. Some US politicians even want Vietnam's shoe factories.

4. China's counter-tariffs against the US are not only due to confidence but also out of the need for transformation. The extreme assumption of hard decoupling, I believe, is the greatest reform motivation China needs. It was very difficult before, like being in Nanniwan, where there was nothing at all, solving problems through large-scale production. Now with such powerful production capabilities, all that needs to be done is "export substitution", rather than going to earn US dollars with marginal utility.

5. Compared to the difficulties in China's economic history, changing "producing for the US" to "producing for ourselves" is a transformation problem with clear goals and diverse means. High-tech sanctions pose much greater difficulties; some technologies are blocked, and if they cannot be developed, there is no way around it. Even so, we have confronted them head-on, achieving significant results. For the US to increase tariffs to over 100% only affects some Chinese merchants' ability to earn dollars; production capabilities remain intact, which is not the hardest part.

6. The US exchanges its currency for countless hours of hard labor from the Chinese people, which I find highly unsatisfactory. The Chinese currency should correspond directly to Chinese labor and exchange for foreign production, which is a more reasonable direction. In the future, China's exports should serve the credibility of the RMB instead of helping the US dollar maintain purchasing power. The RMB should go international and build a market; previously, it didn't exert effort, and to export, it even devalued.

7. Americans preparing to produce themselves is a farcical behavior. It's not that Americans don't want to work, but the difficulty of production has been greatly underestimated. Production is not just about factories on the surface but the entire industrial system; if any part is missing, the system won't function properly. Moreover, production should be efficient; inefficient production is obsolete overcapacity that needs to be eliminated.

8. For example, Europe and Japan's PTA chemical industry overcapacity, technologically backward, China accounts for 72% globally, without overcapacity still expanding. Upstream product PX, China only accounts for 52% globally and needs to import from Europe and Japan. Technically advanced, even if excessive, expansion is needed. Technologically backward, even if insufficient, overcapacity must be eliminated. The US going for MAGA low-efficiency production is farcical. It will cost a lot of money and result in wasted efforts, as Biden has already wasted a lot of money.

Original source: https://www.toutiao.com/article/1828792085482635/

Disclaimer: The article represents the author's personal views.