Gary Shilling, editor of A. Gary Shilling’s Insight and author of The Age of Deleveraging, told Financial Sense Newshour that the US has the upper hand in a trade war with China that was already underway before Trump’s election.
Trade War Conditions
One of the big concerns about President Trump’s recent rhetoric has been the possibility of protectionist actions sparking a trade war. For Shilling, however, this was already happening, even before the election.
“I think we’re already in a trade war,” he said. “Of course, in any war, it’s the other side that’s always the bad guys…but I think any reasonable person looking at it objectively would say that China’s been running very much a mercantilist policy.”
However, the reality is, the US still has the advantage in this dynamic. We’re in a situation where there are global surpluses of almost everything, Shilling stated. We have plenty of labor and productive capacity around the world to meet demand.
“When you have that situation, who has the upper hand?” he asked. “It’s the buyer, it’s not the seller. And we’re the buyer. China and other developing countries are the sellers. I think Trump instinctively understands that, as do the Chinese leaders.”
The US Is Insulated, and May Come Out on Top
China could have big problems internally, he said, but he’s not sure a Chinese hard landing domestically would be cataclysmic for the world economy.
However, if we dramatically reduce our trade and current account deficits, Shilling argued, the rest of the world would be in deep trouble. The US has relatively low exposure to foreign trade and would end up on top, though this wouldn’t be an attractive situation for the rest of the world.
This gives President Trump a lot of leverage.
“In trade negotiations, we’re the buyer, and (others) are the seller,” Shilling said. “We’ve got the advantage.”
Full article: Shilling: We’re Already in a Trade War with China (Financial Sense)