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Comment by deadmetheny | Hacker News Reader

China's economy needs Western imports far, far more than the West needs Chinese imports, they're likely to break first. The short-term impact could be quite painful on both sides, but things will turn out fine for the US if they stay the course. And someone needs to, China has played protectionist games unchecked for far too long.

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China's economy needs Western imports far, far more than the West needs Chinese imports, they're likely to break first.

I don't think so. China has a huge amount of power over the US economy[1].

What Happens If China Called in Its Debt Holdings

China would not call in its debt all at once. If it did, the demand for the dollar would plummet. This dollar collapse would disrupt international markets even more than the 2008 financial crisis. China's economy would suffer along with everyone else's.

China could crash the American economy any time they want. It'd hurt them, but it'd hurt America a lot more. Especially because oil exporters would immediately switch to doing oil trade in Euros, which would make it exceptionally hard for the dollar to recover.

[1] https://www.thebalance.com/u-s-debt-to-china-how-much-does-i...

"What Happens If China Called in Its Debt Holdings"

China would be hurt gravely.

What debt, exactly, can be "called" at China's choosing?

Well, they can sell their holdings of US bonds on the market. That's a matter of indifference to the US government, because it doesn't affect the repayment schedule at all.

It might affect the price of the next sale of Treasuries, but that's the limit of its impact.

Thaty's about it, and it might not even have too big an impact on the next sale, since those would have different maturity and won't be equivalent.

> China could crash the American economy any time they want. It'd hurt them, but it'd hurt America a lot more. Especially because oil exporters would immediately switch to doing oil trade in Euros, which would make it exceptionally hard for the dollar to recover.

But their likely action, according to the article you linked, might actually help the US economy by making its exports more competitive:

> China would not call in its debt all at once. If it did, the demand for the dollar would plummet. This dollar collapse would disrupt international markets even more than the 2008 financial crisis. China's economy would suffer along with everyone else's.

> It's more likely that China would slowly begin selling off its Treasury holdings. Even when it just warns that it plans to do so, dollar demand starts to drop. That hurts China's competitiveness. As it raises its export prices, U.S. consumers would buy American products instead. China could only start this process if it further expands its exports to other Asian countries and increases domestic demand.

China only amassed so much US debt because it sells RMB to buy dollars to keep the RMB down and fuel exports. Reversing that policy would make Chinese exports less competitive on the world market. Ultimately, that could thwart the CCP's ambitions to create "national champions" by limiting them to their domestic market.

If you owe the bank a million dollars, the bank owns you.

If you owe the bank a billion dollars, you own the bank.

That's not how that saying goes.

Wow, nicely put. Provoked a lot of thought.

China can't just "call in" debt from treasury bonds, that's not how they work at all. And what happens after they sell a bunch of treasury bonds? Everyone knows that the yuan is propped up by the Chinese government and ain't worth a spit internationally, and US treasury bonds are still considered a good investment at present.

Right. Wouldn't they have to find a buyer for the bonds? That'd likely increase the yield quite a bit, which would descrese the value of China's holding a lot, right?

What if we cancelled the debt?

https://mises.org/wire/why-not-repudiate-national-debt

China's economy would suffer along with everyone else's.

China economy would suffer more.

https://voxeu.org/article/china-s-wto-entry-benefits-us-cons...

https://www.thebalancesmb.com/top-countries-exporting-to-the...

China's #1 customer is the US, by a large margin. Around half of their exports come here. China has far more to lose in a commercial war.

It'd hurt them, but it'd hurt America a lot more.

Nope. The only way they can hurt the US is by economic suicide (dumping all debt). And I mean total annihilation: they'd be shooting themselves. And the USD would suffer, true. But it would recover, US economy has far more autarky.

"oil exporters would immediately switch to doing oil trade in Euros"

How does this affect the US any more than whether they measure oil volume in metric or not? It's not something that changes the real economy, it's just a matter of which ruler you're using. If the oil company has European employees, it still has to pay them in Euros. If the oil company has American employees, it still has to pay them in dollars. Likewise for customers. You have currency coming in, and if it's not what you need, you trade it for what you need.

Based on what exactly? The US is not the only western nation china exports to.

He said import not export. All the vaunted progress on Chinese AI is based on nvidia gpus. They are irreplaceable.

Yeah once China runs out of nvidia GPU's the whole economy will crash.

Meanwhile everything in the US is "made in china" and our entire manufacturing infrastructure and knowledge has deteriorated while China was slowly taking over...

But everyone knows GPU's are the key to economic dominance.

Well their AI progress will stall until they come up with an alternative to CUDA which, if you talk to futurists here, is almost just as bad. And this is just one example. Many industries are reliant on some special American component that they haven't figured out yet.

Relying on some special part is different from the entire US manufacturing sector being surpassed by China.

"everything in the US is "made in china""

I think people get a distorted picture of that as an artifact of labeling rules. The US exports a lot of industrial equipment, for instance. Most of the economy does not involve the final step of constructing consumer products that leads to the label "made in..." on the shelf of Wal-Mart.

China has no trade beef with "The West". The US is attacking both The West and China.

Actually EU is negotiating 0-tarriff with the US and a great realignment is occurring against China.

China is a human rights nightmare, they literally have concentration camps. I think ethically the US shouldn't even do trade with China.

But without the US trade, it'd be much worse because much more people would've starved to death. Don't forget that behind a government, there still are people.

Since the situation in Xinjiang has not hit mainstream media yet, these are the camps the parent poster refers to:

https://www.independent.co.uk/news/world/asia/china-re-educa...

The estimated number of inmates keeps growing by the week. I think it's more accurate to call them re-education camps, but it's an issue that I wish more countries would push China on. I don't get why our (German) government spent so much time on negotiating the Liu Xiaobo issue instead.

Exactly. Also worth studying Mao's Great Famine. Great podcast on this released yesterday: http://www.econtalk.org/frank-dikotter-on-maos-great-famine

Not sure why you're being downvoted, you can argue to what degree Mao was responsible, but in the end China's authoritarian government was at least partially responsible.

They estimate 20 and 43 million died, if not caused by, then exacerbated by policies implemented under Mao.

https://en.wikipedia.org/wiki/Great_Chinese_Famine

https://en.wikipedia.org/wiki/Four_Pests_Campaign

Can these wiki links be viewed within China? Can someone try?

According to https://en.wikipedia.org/wiki/Censorship_of_Wikipedia#China

"Since June 2015, all Wikipedias redirect HTTP requests to the corresponding HTTPS addresses, thereby making encryption mandatory for all users. As a result, Chinese censors cannot see which specific pages an individual is viewing, and therefore cannot block a specific subset of pages (such as Ai Weiwei or Tiananmen Square) as they did in past years. As a result, Beijing chose to block the whole Chinese Wikipedia"

I don't disagree, and I would add that the US has some very dubious incarnation practices. Getting locked up for minor crimes, and running prisons for profit is unethical in my mind. Your point is very valid though.

But the negotiations left out the most important sector, which is automobiles. The US is still pursuing a "national security" review on the automobile industry under Section 232.

EU has floated 0 tariffs on autos, which they've never done before

https://www.cnbc.com/2018/07/04/eu-could-agree-a-us-autos-ta...

Well, on one hand we have the EU and Canada with an actual free-trade deal, the TPP is happening and China is spending hundreds of billions in trade-related infrastructure throughout the world.

On the other hand we Trumps incredible negotiating skills. Same ones he used to bring Kim Jong Un to heel and denuclearize North Korea.

Well of course they don't, they still enjoy the benefits of developing nation status in the WTO despite moving from a poverty stricken 3rd world country 20 odd years ago to the 2nd largest economy in the world, as well as a leader in some hi-tech fields and ready to challenge in many more.

In my estimation they seem a hell of a lot smarter than most other countries as well, I don't think they need or deserve help from third parties any longer.

That's clearly not true; China engages in a number of unfair trade practices, including requiring foreign companies to surrender their technology to Chinese ones.

Are you joking? It's the other way around. Most of our manufacturing infrastructure and knowledge has deteriorated while China's knowledge has only risen.

Manufacturing goods is the root of an economy. China is the root, the US is a leaf.

I don't think it's a joke. At least in the US, the free market values services a lot more than manufacturing. Services make up 79.6 of the U.S economy [1].

Granted, I don't have the stat for the entire world, so it might be bigger. Considering the US and EU are half of global GDP, I doubt it.

1) https://2016.trade.gov/publications/ita-newsletter/1010/serv...

Trust me, a modern technological economy exists because human labor is augmented by physical machines. You take away the machines you'd have a service economy similar to services provided during a time when modern machinery was nonexistent (the stone age).

>Manufacturing goods is the root of an economy. China is the root, the US is a leaf.

Let's put your statement to the test then

Can China put tariffs on iPhones, Windows operating systems, Apple computers, Intel/AMD cpus, Nvidia GPUs?

Windows is pirated by everyone in China so a tarrif is useless. iPhones and apple computers are manufactured in China so YES they can put a tarriff on every freaking part of a mobile device/computer except for the GPUs and CPUs.

> Manufacturing goods is the root of an economy.

Not any longer.

Once upon a time, agriculture was the root of an economy, but these things change. Manufacturing became the root. But it's not any more - now technology is.

Last I checked, technology needs to be manufactured to exist. I could be wrong though.

More countries can manufacture it than can develop it. The manufacturing gets driven down to low margins. Developing is therefore the root of the economy, rather than manufacturing.

Make no mistake. Manufacturing something is just as complex if not more complex than design. When you know how to manufacture a car, you probably know how to design one as well.

You can literally be taught how to design a car in CAD. It can be done on your computer with a mouse. But to fabricate a car takes a life time of knowledge from multitudes of disciplines.

The proof is in the pudding. China is well known for replicating and ripping off patented designs in seconds because design is trivial once you know how to fabricate something.

The only reason why China can't produce an nvidia GPU is because they don't have the knowledge to fabricate it.

This may be the case as of this exact moment, but I see two things here that work in China's favor:

1) Given the current balance of trade between the US and China, each $1 of retaliatory Chinese tariffs has a larger impact as a percentage of trade flow than each $1 of US tariffs.

2) The Chinese economy is much more nimble and diverse than the US, and – especially with government intervention – may have an easier time developing domestic alternatives to US goods.

On an unrelated note, it's interesting that they're implementing a tariff on recyclables. That could be a devastating blow to the already struggling US recycling market.

>1) Given the current balance of trade between the US and China, each $1 of retaliatory Chinese tariffs has a larger impact as a percentage of trade flow than each $1 of US tariffs.

That doesn't benefit China. What you are saying is that China has less total trade that they can tariff than the US.

>2) The Chinese economy is much more nimble and diverse than the US, and – especially with government intervention – may have an easier time developing domestic alternatives to US goods.

Source? It's common knowledge that the US has the most largest and most diverse economy in the world.

https://atlas.media.mit.edu/en/profile/country/usa/

https://atlas.media.mit.edu/en/profile/country/chn/

On (1), I mean that $16B worth of goods is 12% of US->China exports, whereas it is only 3% of China->US exports, meaning that if this continues to escalate in this manner it will disproportionately affect US->China exporters.

I will concede (2) was not well expressed. I just find it much much easier to imagine – due to differences in labor forces, natural resources, environmental regulations, etc. – a suddenly growing Chinese motorcycle industry than, say, a resurgent US steel industry.

china produces about half the worlds steel

China's economy is where a large part of the world's future growth will occur, in the longer term capital will reallocate itself around trade barriers to get access to it.

In the short term, the US could potentially get some concessions that it wants. However, things have already gotten further than most predicted, lots of people expected China to give Trump a few crumbs that didn't really matter but allow him to declare victory. Trump seems to not want that, so it might be too late to avoid damage.

You mean China's current aging population with a reverse pyramid demography due to one child policy is where global growth is at?

Yes. High populations don't correlate with GDP. In fact there's an inverse correlation. Look at India.

edit: source for those who don't believe me: https://www.kaieteurnewsonline.com/2013/01/17/population-gro...

This is a good point. Personally, I think the inverted pyramid means that China won't achieve parity with US in per capita wealth. However, there's still a ton of growing that it can do. Think of all the millions of cars, washing machines, air conditioners, not to mention increased consumption of pharmaceuticals, personal care, apparel, meat, etc.

Capital is not going to pass this growth up.

> You mean China's current aging population with a reverse pyramid demography due to one child policy is where global growth is at?

Given we're talking about the CCP, I suppose they could right their reverse pyramid using the same brutal means they used to create it. Say, by heavily pushing euthanasia options onto retired folks who can't care for themselves, with financial sanctions for their families if they refuse to comply.

But China is only putting tariffs on US stuff, and only the US has tariffs on Chinese stuff.

There is no western trade alliance because Trump is challenging the multi-lateral trade institutions such as the WTO which the US created. Given that the Tariffs that Trump is imposing will likely be illegal under WTO rules, Europe and Canada will not simply work with the US when their products are also at risk from Trump's tariffs.

You may think that the west has a collective interest, but does Trump think so when he gets mad every time he sees a Mercedes car running down Fifth avenue?

http://fortune.com/2018/05/31/trump-mercedes-benz-german-car...

Also Canada is balking at how the US is abandoning NAFTA just so that it could use its larger size in trade negotiations.

> There is no western trade alliance because Trump is challenging the multi-lateral trade institutions such as the WTO which the US created.

The WTO is ineffective and broken. Based on prior precedent, if the US raised objections to the "China 2025" policy, the adjudication of the dispute will probably be finish sometime around 2030. In the past, the Chinese government has typically ignored adverse WTO rulings or dragged its feet until they were moot. IIRC, after all off that, only then will the WTO sanction tariffs. It's basically the definition of too little, too late.

https://news.ycombinator.com/item?id=17403673#17408876

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